Kumar remains bullish. He indicates that the cost benefits achieved by having a limited assortment will be passed on to the customer, making it all worthwhile.
A retail consultant The Ken spoke to, however, thinks that this could open up a whole new can of worms. If Grofers’ number of SKUs is really small and if that (2,500) is the number, he says, the company is actually competing with the neighborhood Kirana store, who has a similar number of SKUs. This increased competition, he feels, makes it a risky play.
“And the Kirana guy will always have a competitive advantage. First of all, it’s the experience one is used to. You don’t have to search for products or worry about payments or damaged products.
Given that a lot of smaller stores also respond to changes in the market, it won’t be easy to defeat them,” says an expert, who asked not to be quoted as he works with some of these grocery startups.
Owning the customer
Even if we are to assume that a customer would pick shopping online over their traditional Kirana store/supermarket experience, what makes her pick Grofers over its competitors? Here’s the thing: Grofers is not the platform for slightly more evolved customers, such as those looking for organic products, gourmet items, and fancier brands.
Kumar says this is just a matter of customer differentiation. “A DMart (a value retail chain) customer is not the same as Nature’s Basket (premium grocery chain) customer”. The evolved customers would go to a platform like Bigbasket, which offers more in terms of variety. In fact, Grofers says, it doesn’t even consider Bigbasket a competitor since it targets a different set of customers altogether. But while that may sound grand on paper, the truth is less binary.
“There is no such thing as an evolved or unevolved customer,” says a Bengaluru-based retail consultant. He asked not to be named as he has a business relationship with various retail and grocery startups. While Grofers may claim otherwise, he says, all it’s doing is creating an opening for customers to leave its platform. “if you don’t own your customer, you are going to lose demand,” he concludes.
What are the customer’s needs?
What he essentially means is that since Grofers only services a part of the customer’s needs, she may move to another platform where she gets everything. Bigbasket’s recent foray into micro-deliveries and Amazon’s two-format approach—Prime Now, meant for express delivery, and Pantry, for monthly stocking up—is precisely for this reason.
For Grofers, this ownership happens largely on account of pricing. Either through its monthly subscription program—pay Rs 49 ($0.70) a month to save 2% on every order—or through special offer periods. While about 70% of its GMV (gross merchandise value) comes from its subscription program members, the special offer periods also help drive customer acquisition. Sources say that during Grofers’ January sale, the company acquired 250,000 customers. It also tries to lock customers in for multiple purchase cycles by offering incentives for large spends.
Another retail consultant, who has advised several brick-and-mortar grocery chains, disagrees with this approach. “You can drive GMVs on it, but one can’t build a solid business on pricing,” he says. He takes Paytm Mall* as an example of this. According to reports, sales of groceries on the platform plummeted by 90% after cashbacks were withdrawn. He asked not to be named as he is looking to do business with an e-grocery startup.
Harminder Sahni, the founder of retail consultancy firm Wazir Advisors, concurs. “Value customers are not the most loyal customers. Today they will buy, but tomorrow if they get a good bargain somewhere else, they will jump. There are examples galore in e-commerce—from Snapdeal to ShopClues. Moreover, unlike offline, there is no habit formation,” he says.