How Grofers is roping in kirana stores in fight against hard discounters

An alliance between small kirana stores and a major online grocer — two competitors at extreme ends of the fragmented universe of Indian retail — will sound puzzling, more so when the former is trying to hold its own in the face of organised competition and the latter is trying to usurp their territory. But by branding 100 mom-and-pop stores already and aiming to take that figure to 1,000 by the end of this financial year, Grofers plans to take on a slightly underestimated piece of the puzzle — the hard discounters who swear by no-frills stores, limited assortment, and do not stock many national brands. Grofers will help the kirana stores with inventory management, using its insights from online retail trends and, in turn, leverage the trust these stores enjoy in the local neighbourhoods. A sub-plot here is also to mirror the “attractive price-points” that drives Grofers' online business, says Grofers founder Saurabh Kumar.

The exercise started last year and the key criterion for the selection of stores was location. “We looked at areas where our online delivery was in demand as we understood the consumer needs. A lot of our online volumes are coming from the NCR region, such as east Delhi, old Gurgaon or Noida,” says Kumar.

However, the Softbank-backed company is not looking at this channel only as an avenue for top-up purchases by its consumer base. “We are looking at a future where online and offline will co-exist. So, our aim is to remove channel as a hurdle, and use our brand equity to attract higher footfalls for offline shops.”

As many as 200 new Grofers stores will come up in Bengaluru and the NCR by the end of the ongoing quarter. Some of the running/upcoming stores have been chosen from 6,000 partner stores that are helping the online vertical deliver. There is no transaction involved — the co-operation is based exclusively on exchange of know-how. Additionally, Grofers does the marketing for these shops.

Yes, that would work for Grofers, but what does the neighbourhood grocer get in return? How easy or difficult is it to convince him to come on board? Kumar says getting the shop owners on board wasn’t much of a challenge as his firm explains the benefits of the deal to them right upfront. “At the end of the day, what they want is to earn more and using our data mining and analytics-powered insights, we help them get rid of dead inventory and equip them to stock the units that sell more in those areas. For a local store, cash-flow management is extremely important but is hampered because the distributors make them stock a minimum quantity of SKUs and that restricts their ability to add the fast moving assortment. So, the money is locked in that inventory and the space is also limited for them to stock anything else.”

He adds that in some of these stores, the company has managed to cut down the inventory by half while increasing their turnover, though not proportionately. Besides, the attractive price points create a value proposition for the consumer as well. In other words, thanks to unhindered availability and better pricing, the customer in the catchment area would be inclined to visit these stores rather than, say, a D-Mart or a Big Bazaar, says Kumar.

As things stand, modern trade holds only a 10 per cent share of overall retail in India (estimated at $500 billion); about 3-5 per cent is with the e-commerce players and the balance 85 per cent is with the kirana stores. So, the opportunity for Grofers is immense. “The kirana stores are mostly stagnant and don’t see major month-by-month growth but our aim is to help them grow in double digits in the first three months after the branding. The cost of operations is reduced by 4-5 per cent when we help them get rid of their dead inventory.”

Grofers stands to gain in another way — by being able to push its private labels. Today, about 15-20 per cent of the stocks of these kirana stores comprises Grofers’ labels. “The more they sell, the more margins we make and we are creating more brand visibility for ourselves.”

The company wants more stores to stock its private labels but has no projections as far as the revenue from these offline stores is concerned.

Integrating kiranas in some way is a strategy being considered — or even employed — by most modern retailers, including Amazon. So what happens when those with deeper pockets and with a far bigger store footprint become more aggressive in this area? Kumar remains unfazed, and there is a good reason for that. As Devangshu Dutta, CEO at consultancy firm Third Eyesight, points out, the numbers targetted by Grofers — 1,000 stores — is a drop in the ocean. In other words, there's a huge market to be conquered. However the company, he adds, should aim to increase volumes rapidly and look for dominance in select geographies. “You have to acknowledge you cannot dominate everywhere,” he sums up the challenge for Grofers.

Newer grounds
 

• Grofers looks to push its private labels through kirana and add another channel in areas where its online business has done well
• The incentives for the stores are inventory management and better price points Once spruced up, it takes three months for a store to adapt to Grofers’ technology
• Grofers says once stagnant stores are now growing at a double digit rate every three months
• No revenue projections for the kirana business as the focus is to boost reach for now
• Independently, the company is looking to hit the '5,000 crore mark with its core online grocery delivery business