Creating Customer Experience In The Grocery Segment

How did you start something of your own?

Actually the biggest motivation for starting something was that I found the right Co-Founder at that time. Starting up is pretty hard and one of the things I learnt at Zomato is that having a great Co-Founder and a great partner in the business is very, very important. When I was in Zomato I ran into Saurabh with whom I had actually worked for a few years in the bay area and realized that obviously I was looking for opportunities to start something of my own and here I ran into someone who was also looking to start up. That was the bigger catalyst than anything else.

I think I was waiting more for the right opportunity, the right partner and something that would really “click” with me, rather than actively looking for opportunities – I wasn’t looking, sort of, looking outside and evaluating spaces. I waited for this moment to come across me and make me excited. I had some experiences with Entrepreneurship back in 2008, which did not work out very well for me – so I left it to the universe to decide for me, when I needed to take the plunge & actually make a decision to start something of my own.

What were the key pain points from a customer perspective in the grocery and consumer goods shopping space experience in India in 2012?

So, this is – there were a lot of grocery shopping pain points that existed in the market, or that we thought existed in the market – however, after we started, we realized that many of the pain-points we had seen earlier were actually not spot on and the problem that we were solving for was actually smaller piece of the broader puzzle. Some of the biggest pain-points that we have come to see from the consumer are:
The biggest one is that the demand in this segment is actually much greater than the supply. The consumer demand in the grocery market is actually much greater than the supply. The consumer wallet is actually not topped out because they have made the grocery purchase for the week, for the months, it is primarily due to supply. If you create enough the supply, people will actually spend much more on grocery than they currently do. A very simple case point is that one – many of us actually don’t buy fresh fruit, since buying fresh fruits, since we don’t have very good refrigeration, means actually that every three or four days, you have to make a trip to buy it. Since we have started to deliver fruits to consumers, we have actually seen fruit consumption per user group go up every month. Which indicates that people will buy if they had more access to some of these things.
Assortment is another big factor. Right now, there is one primary distribution channel in grocery, which are small stores. The number of SKUs that are available in your neighborhood or in your building is at max. 1,000 SKUs, which basically limits the choice for consumers. So you still buy things that you absolutely need, but a lot of the discovery of new products, a lot of the ability of the consumers, which is actually very crucial in the western markets, that you go to a market and that you have a lot of choice and you can actually pick up new product, experience, discover new products and test new products, actually does not exist in India. So for a product to actually break through and get to the consumer is actually very hard, because the shelf space is actually already taken by established products, products that are already very well set in the consumer mindset. And I think it limits the choice for the consumer on the other side – we have that seen with organic products, we have that seen with exotic fruits and vegetables, we have seen that with a lot of categories of food that products actually would be very happy to try and probably adopt, but the fact that they do not have access to the assortment makes it a lot more tougher.

Any other pain points?

Actually, our initial thesis of starting the business was based on convenience. It was entirely based on the assumption that people did not want to spend their Saturdays and Sundays in supermarkets to buy grocery. If you are actually delivering pharmacy to their doorsteps, and not just grocery, but we wanted to deliver grocery, pharmacy, bakery, everything is a trip to the local market and was not a very pleasant experience. Going to a mall in India is still considered to be an outing, but going to a supermarket is probably not in the same league of enjoyment like going to a mall in the US. So actually, we thought – if we took out that trip, we actually have enough users who would be willing to pay for this service and who would be willing to buy online. We thought, the behavioral switch would be much easier. However – convenience turned out to be a much smaller part of why consumers would purchase with Grofers. However, just having that sort that convenience would drive the market made us start the journey. We thought we were up to something – however, we were right in the hindsight, I think more by luck rather than by design.

Difference between the western and the Indian shopping experience?

So, one of the most glaring differences between the developed markets and the Indian market is that, the grocery segment is very, very integrated in most of the western markets and it is dominated by big chains that are massive – either by big basket retailers, who are basically putting together a lot of SKUs under one roof, maybe out of town. However, a couple of things in India happened, that did not allow this development to happen in India. Since the economy opened up in the 1990s, the economic boom actually also came with the real-estate boom. Whereas in the 60s and 70s Walmart had a lot of headroom to grow in the US because they were setting up these massive stores, a little bit outside of town – all these stores had very low rentals, so it actually made sense for Walmart to open up these massive stores and have tie-ups with the manufacturers – and the consumers could get to these stores because they all had cars. In India, that never happened, once the economic boom happened, the real estate space became extremely expensive. The access to transport for users was actually fairly low and it still is. So a lot of the big ticket retailers, when they wanted to setup big retail stores, what they actually had to do was set up the stores, set-up massive stores, but still in the middle of the town, so that people could actually access this. So they took away two fundamental ingredients, which allowed the western supermarket ecosystem to grow:
Ability to offer a high number of SKUs
Ability to offer cheaper prices
They couldn’t achieve either of them at scale. That’s why, even if that market has grown very rapidly, it is still nowhere close to where it should be for a very set segment like grocery.

Can you elaborate on the traditional value chain in grocery procurement in India?

So, the biggest distribution channel is unorganized retail in India. There approximately 15,000,000 small retail stores/ small convenience stores, which are the primary distribution channels for grocery. Fresh produce is a little bit different – but broadly, they both function along the same lines. If you had a brand, and you wanted to get something to the consumer, you basically have to incentivize and pay different levels of distributors to get your product to the shelf of a small retailer. So if you wanted to sell packaged rice – As a brand, I actually have to make sure that the product can reach the shelves of every store every locality for me to actually distribute it. There are typically two to three people that have to intermediate between the consumer and the manufacturer for the product to actually end up at the retailer’s shelf. So that would be your wholesalers, your CF agents, your dealers, your distributors and each of them, obviously takes a small commission for making sure that they get the product to reach where it needs to reach. It’s not just the transportation costs, it’s the storage cost, it’s a little bit of a credit risk that these guys along the value chain take to incentivize the guy below them to actually keep the product. The retailer at the end point, which is the small shop around the corner, basically has very limited shelf space. And everybody before that in the value chain is competing for this limited shelf space. So the retailer is very important in the chain. However, the amount of supply that they are actually able to provide to these brands is very limited.
So the downside of this is a) your assortment suffers, because brands have to work extra hard to get to this limited shelf space to actually be able to get through to the end-consumer. If you are a big brand and you are planning a TV series around your new rice – if you cannot get the new rice format into the shelf, there is actually no point in doing the TV series.

The other big impact of this is – because there are now so many people in the supply chain and each of them have a different incentive – the ability of manufactures to decrease prices at any of these stages, is actually very, very limited – the interesting result of this is that packaged food in India is actually fairly competitive in pricing with what you see in the western world. You buy things at almost similar prices, which is actually very surprising considering our purchasing power is actually much lower. And that is again; just because of the way distribution has evolved in the country.

What were other macro-economical and demographic factors that lead you to decide to start Grofers?
So one of the biggest drivers for us – once we started with delivery and once we started in the convenience space – we realized two things:
Unlike the restaurant sector, there is basically no mortality in the retail store business that is dealing with FMCG products. So if you are a kirana store or a small store – the chances that you have to shot your store in the first few months are actually very, very low. Which leads to the conclusion of one very fundamental macro-economical observation – your demand has to be greater than your supply for something like this to happen. In restaurants, you see the mortality to be significantly higher, so there is a given demand for dining out and the many restaurants are actually always competing for this demand. Even if the whole ecosystem is growing, there is always a dying of the weakest players in the market. Nothing like this exists in retail. Retail actually means everybody survives, which means that the supply is actually bigger than the demand.
After we have figured that out, we started thinking – how do we leverage the existing network to give the consumers more choice, to solve this assortment problem, to provide an alternative distribution channel to the brands and basically – how do we build technology to make this happen much faster than it actually happened right then. We also saw the consumer intent had changed with regard to shopping just because FlipKart and SnapDeal and the other e-commerce player were pushing consumers to actually change their buying behavior.

So when we approached the product, we were actually thinking about some important factors. So the first thing was – the products that we were selling – they actually don’t need a big screen. You pretty much already know the SKUs that you are buying. It is not like a very expensive product that you need a 360 degree view of – it is actually a bottle of ketchup – you own it, it’s a standard product, so we didn’t need a big screen. Knowing that most consumers in India were connected via mobile phones. The mobile Internet penetration is the fastest Internet connecting device/ channel in India. So what we had to go in was a mobile product. For a while we were thinking if we also needed a web product, eventually, we were scrapping it because it just did not seem to be worth the effort to build a website, while mobile was the much cleaner platform and was the channel where we expected the user to come from anyways. A big reason for us to actually focus a lot more on mobile was the fact that when we thought about the products mindset about buying a lot of things, we wanted it to be actually really easily accessible and really be right at the time of demand. So if you think you need three things, you could actually put it into your shopping bag right away, order and buy it. This can actually not happen on mobile, this has to happen on desktop. So we were actually sacrificing of traffic coming from offices or people using the desktop, but that is also something where we thought – these people will have mobile phones eventually. And thats the trend we continuously see. I mean, we are a mobile only, but we see people more and more move their behavior to buy their stuff on mobile, also because people are just getting more used to buying on mobile because the service provider are creating mobile-first products.

Why is the share of mobile commerce in total eCommerce so high in India compared to more evolved economies?

So I think there are a couple of reasons – one is obviously the way the infrastructure developed in India. So if you’re sitting in the US in the 1990’s with dial up and you have a desktop and then you went to a laptop and then you continued to get to a mobile. You basically saw the entire infrastructure change and you were adopting different technologies at different points of time. Most of the people in India get their first internet access through a mobile phone. Part of that is the fact that it is the cheapest device for people to actually get that access and its easier access to internet. We know a lot of people who basically can’t afford a desktop or a laptop but definitely have a smartphone. The other big reason for adoption is that not only us the device cheaper and more accessible for a lot of people in the country but the data plans that they came with were actually a lot more affordable. You could buy a data plan for 5 or 6 dollars in India which I don’t think you could do in the US today because the monthly spend on a data plan in the Us is somewhere around 20-25 dollars if I’m not mistaken. So I think both these things: cheap data and cheap devices, help people move straight to mobile without going to a desktop or a laptop experience first.

Did you look at the US markets? Did you find comparable models?

So when we had started there were very few comparables in the US, however in the first year of our functioning a lot of companies in US had started gaining traction not in the exact similar space that we were in but in adjacent spaces, so Instakart was coming up Postmates was coming up. And then one of the very interesting things was that we were seeing a lot of similarity between the Indian and Chinese market and we were seeing a lot of players in the similar or adjacent spaces coming up in China as well. And, this was also sort of around home delivery of products and home delivery of everyday consumer products and everybody had a different take on it because the supply chain in every country was different, China had a different problem with the supply chain, US was trying to solve for something different, we were trying to solve for something different but we were definitely always looking at what is Instakart up to, what is Postmates up to, what is Bequick up to, what is Dhaba up to in China. We were always sort of trying to compare what we were doing versus what they were doing we did not have the luxury of actually having a well-established players in any of the markets to sort of look at so we were sort of figuring it out at the same time as most of these guys were actually trying to figure it out.

Business Model (Part 1)
So we basically are a mobile app that allows consumers to buy daily use items and get them delivered to their doorstep in a couple of hours. So we are essentially replacing a traditional trip to the local market for the consumer. So we sell everything from groceries, bakery items, small electronic items and we are adding appliances. Basically anything that today a consumer will probably have to get out of the house and walk to the market or have to find a local shopkeeper that delivers to them. We are trying to take that entire shopping experience online.

Business Model (Part 2)

So the way we are doing it is we are actually partnering with the existing infrastructure that is out there so we are talking to the local shops and work with them and show them that we can actually get them online consumers who will buy directly from them. And we actually work with these shops to actually standardize the way that they are run so that the online consumer has much better visibility as to what these shops can actually sell and what items they have available. And, the way that it works for these shops is that not only do they get better sales from accessing a new kind of consumer getting instrumental revenue, but because we are standardizing the experience at the shop and we are standardizing the way they function, we are actually being able to bring a lot of technology into how they source their items, how they actually go back all the way to the manufacturers and how they are able to stock and restock and most of these shops that we work with are less than 2000 sq. ft. inside so the ability for these shops to warehouse items is actually much lower as compared to the demand an online platform can generate so we are basically trying to help these shops cope up to the demand and make the extra money while making a slightly extra margin on the products because we give them better visibility and give them better terms with which they can interact with the brands. So in essence, we are trying to create organized retail in India without actually owning the organized retail outlets and converting the existing retail outlets into affiliating with us and basically becoming a part of the Grofers network.

Example of how it is benefiting retailers
So for example, one of the hottest selling SKU’s in the local market would be a Amul ghee. It is a staple pretty much every household will buy it and as best your local shop will probably be stocking 10-12 units of Amul Ghee at any point of time because the shelf space is limited. Where these shops actually suffer is that if they get more demand than they are expecting and they run out of Amul Ghee, the average time to restock the same product would be anything between 5 days to 30 days. What we are actually able to do is we are being able to help them restock these items the same day or at best the next day. So the number of users who have to be turned away because a particular SKU is not available actually goes down drastically when you actually have that kind of insight. The other thing is a lot of the local supply, the stores that you have in the local market, they roughly know the top 100 SKU’s they’re selling in the area and they stock most of them. However if it happens that they sell an SKU once in 4-5 days they are not very diligent about actually checking which of those SKU’s are top performing for them and they still sort of rely more on touch and feel and sort of knowing from the registers what they sold and what they didn’t. And even the ones that use PUS systems are not sort of looking at any great analytics that the PUS can actually provide. Part of the reason is that the way their shelves are stocked, are not actually based on what the consumers in the area are looking for, it is more based on incentives that are provided by brands, by dealers, by distributors who are basically trying to get on the shelf space because the basic thinking is that if it is on the shelf space, it will sell. So, a lot of the SKU’s that these shops actually keep and block their shelf space with is irrelevant to the consumer because the consumer is not looking to buy those SKU’s. So once we actually start working with the shops, one of the biggest points of standardization with the shop is that are they now keeping relevant SKU’s that the consumer is looking for. So, once you’ve partnered with the shop, we’ve shown them that they have certain amount of demand coming from us. We actually start providing them with the list of SKU’s they need to stock because that is what the consumer is looking for. Again, that is something that leads to better sales for them and it also sort of leads to better ability for these guys to get better margins from their suppliers because now they are selling more of the same quantity.

Are you actually providing them with this PUS system for their store or do you only give them the insights you get through your platform?
We have an entire retail tech stack which includes a PUS and includes an IMS – inventory management system – if they continue to use an existing PUS, we have the ability to actually integrate it with our own. However there are a lot of shops which don’t have a PUS and we provide them one actually for free because ours is a browser based one and we ask them to invest in a laptop and we actually provide them PUS. For some smaller shops which don’t actually want to invest in technology, we have an android app for the retailers which doesn’t actually work as a full PUS but it still has the inventory management capability.

PoS – Point of Sale

Point of sale is the billing system you typically see at a retail outlet so when you’re checking out they scan the barcode on the item and then they produce a bill and that is actually a point of sale. But the point of sale plays a very important role in the retail space because that is the channel through which the inventory coming into the store is actually checked in. So when you actually take an item and scan it, that’s how the PUS knows that this particular item is priced at X price, there are six items still available and that is basically what is used to track the inventory of the store itself and also generating a bill for the customer. But, the big function it plays is that it is actually the holding place for most of the information on what items the store is carrying, what it is selling, what it is stocking out of. So a lot of things like back ordering our items that are now running low can actually happen through the point of sale.

What do you do? How do you do it? What do you need for this?
So our primary function when we started is we actually wanted to deliver products to the consumers’ door so one of the first capabilities we had to build was a very elaborate delivery network. The way we sort of went about it is we were tying up with a lot of stores doing deliveries for them. We had local hubs that were basically set up where delivery guys would report to and from there we would send them out. In the initial phases of the company we were purely sort of getting these delivery guys on our payroll and basically asking them to go and make the delivery. So we had a delivery app since day one, which was basically used to tell the deliverer that this is where you’re supposed to pick it up and this is where you’re supposed to deliver. Over time we’ve got a lot of part timers and a lot of people who basically just use our deliverer app, they make the deliveries and they get paid on a per delivery basis. It was a chicken and egg situation where unless you have demand you are unable to higher delivery guys and unless you have delivery guys you are not going to be able to get demand. So we basically solved by actually hiring a lot of people going out to the market and saying ‘look, we have excess capacity, why don’t you get your own deliveries done’ and that helped us sort of get a deeper understanding of the whole delivery ecosystem. The next layer that we actually had to build on top of the delivery ecosystem was the merchant ecosystem which is how do you actually get to know what is inside the store, what inventory are they actually carrying, if they are also serving customers that are also serving customers that are walking in and how do you know that this product which was there in the morning has not got sold out. How do you actually send an order to the merchant, how does the merchant tell you if they have the particular item or they don’t have the particular item. So we had to create an entire merchant ecosystem. The merchant ecosystem was all about finding out what the merchant actually has on their shelves, if they had particular item which got sold out since morning or how do you actually get to know if it’s there or not there, how do you actually communicate with the merchant that there is a new order from the customer and they need to tell you back that they have that particular item in stock or they don’t have it in stock. So creating that entire merchant ecosystem was the next step on top of it. Once we had the delivery ecosystem and once we had the merchants tied up, we were looking at how these merchants were actually able to interact with us. We were then able to take this information to the consumer in the form of a mobile app. So then we knew what was on the shelf, we know that if a customer orders it, the delivery ecosystem can actually get it to the consumers and we can actually enable that transaction now and that’s what we call a consumer ecosystem. It’s actually providing consumers with access for looking into looking into everything that is located in a shop in a 4-5 km radius from where they are located.

You also wanted to help brands position their SKU’s in the store actually. How did you solve that? Are you also interacting with the brands or is everything done directly with the store?

No, we directly interact with the brands. We have about a 108 brand partnerships. The way these brand partnerships work is that – Grofers is now becoming sort of an alternative distribution channel for these guys. So, if I’m a rice brand and currently if I want to go online/offline on the shelves of maybe like 50 or 60 retailers in the top 3 cities, I basically have to get my distributors or my sales guys to go and do each partnership individually. The other option that is available to them right now is – They position their product at Grofers, they only have to interact with us and we give them a list of 60 retailers that work with us with standardized stores and all they have to do is go and get their product over there, they don’t need to sort of have a partnership with a lot of these products. So, we are actually able to intermediate between the brand and the actual retail channel and give them real time information on what they are actually selling in each case. So recently we have run a few campaigns where Nestle and Cadbury and fortune and lot of the other brands. And most of these campaigns, if they had actually run it in the offline world, the feedback on how effective they were or how much they were actually able to sell and where they were able to sell would actually take a 45-60 day cycle for these brands to actually get that information back and we give it to them as it happens and that is something these brands actually value a lot. So let’s say you come up with a new flavor and you want to do a sampling of the flavor, it’s very difficult in the offline segment. However with us you get to know in one day how that sampling worked out whether the consumers are actually reordering that item or not.

What are the parameters to forecast market size?
So, when we were initially looking at just the FMCG market, it is actually a huge market overall, when you look at the macro market, yes, it is huge but what were actually trying to look at is, our market is going to be defined by the number of supply channels that we can actually build. So we actually wanted to know, out of a 100 retailers, how many of them actually have the ability to support the supply side for an online medium. So yes there are 15M small retailers but it is not going to be possible to bring a lot of these retailers online. So, for us the first cut in evaluating the market opportunity was how much supply can actually be created and standardized and for us that number was very important. We knew that customer demand segment is huge and it is a very sort of simple use case, there is nothing to incentivize users to buy. It all came down to how much supply can we bring onto a platform and a big case for us is whether you build a separate sort of supply channel, some companies sort of choose to go that way. Or is there a way we can actually leverage the existing supply channel which is the existing retailer so we basically chose the existing retailer. We had fairly good success with it, there are a lot of legacy factors we had to deal with just because retail is always run a certain way in India and changing mindsets around people who will be willing to participate, standardize their stores, willing to give up control of what is actually in their inventory. So, those are sort of relatively early reasons for people trying not to affiliate themselves with a platform but over time even that will take care of itself. When we were looking at market sizing one of the initial things was, we are going to build a consumer product but who do we build it for? And who we chose to build it for is the working couple. And basically our thesis was that if we can make this product work for a working couple then we will eventually over time use cases for how different people want to use it. So we wanted to make a product where you think about a working couple, they basically are probably in the office from 8am to 5pm or 6pm everyday they have a one hour commute or a thirty minute commute. The sheer hassle is that during the week, going and making a trip to the market is something that is not very pleasant and they would rather spend their time doing something else and we came at the problem from that side. That lets build a product that a working couple will actually be able to use for pretty much anything that they need in their house and if it works for them then we will figure out how it plays out for the other people. And I think, initially when we were looking at it we only wanted to build a product for the metros and we were not really focused on tier-2 and tier-3 cities and again the hypothesis over there was to be very specific with who you want to target, who will actually pick up the product and actually use it. And if it works for them we can always think about all the other cases that come sort of later and all the other people that will use it later.

Reason for only choosing the metros to do business in.

So we only understood the supply chain in the metros and we did not understand it in tier 2 cities at that point of time, so now we have a much better understanding. Our initial hypothesis was that you have more working couples in metros than you have in tier-2 cities because most of the employment actually happens in the metros. We understand how the supply chain works in the metros but we don’t really understand how it works farther away from the hubs so that was the impetus for actually choosing only the metros.

How do you know actual demand generated at stores you partner with?

The way that we sort of looked at it was that there were 50M small and medium sized stores in India which we are trying to standardize and the cities that we are currently present in have about 75% percent of them so they’re not that many stores in smaller cities. Give or take, let’s assume 10M stores that are actually in the markets that we can actually have access too. Out of these stores we are probably going to be able to convert anywhere between 10-20% of the stores so you are roughly looking at 1-2M stores that we can actually really target in getting these stores. We actually worked very closely with a lot of merchants in Gurgaon and South Delhi when we had started and a typical small store was on average was serving about 100 customers a day, a typical like 2000 sq. ft. store was serving about 300 customers a day. So, it actually makes sense for a store to go from 500 sq. ft. to 2000 sq. ft. because it is actually a disproportionate increase in the number of customers they can serve and the average basket size they can serve. The average basket size can go up from 400 to about 700-800 if they’re at a 2000 sq. ft. store. However most of them don’t want to invest the capital or have the capital to actually invest in a bigger store upfront. Then we looked at catchment areas for most of these stores, they probably have a catchment area ability of about 300 customers per day, so they’re only serving about a 100 but in their area they should have the capacity to serve 300, there should be a significant demand for them to serve a little bit more than 300 but even if 300 customers came and ordered with them, they would actually be able to serve them. So our thesis was that we can actually take the 10% of the stores that partner with us and actually take the orders that they are able to do from a 100-300 and even if we are looking at halfway over there we are looking at a billion orders that you can actually get, that you can generate online for a lot of these guys. It is a very big market so some of these numbers will just not make sense but we sort of stopped doing our calculations when we realized that we think that it’s sort of going to be fairly big that we don’t have to worry about the demand side, lets only focus on how we are going to create a value proposition for the customer, lets solve for the customer and make sure that our supply side builds up to catch up to that value proposition.

Forecasting for the next 5 years.

So we sort of look at per month we convert about 15 stores in the 10 cities we were in and now we are in 27 cities so roughly that number will go up. Every month we convert about 15 stores, so we actually need to build capability to be able to convert 30-40 stores a month, so a store a day and actually the target for December is that we should be close to converting up to a 100 stores every month going forward because the more stores we convert, demand generation is usually not a problem for us. It is more about doing the right kind of activities to let consumers know that this option is available to them and once you let the consumers know they will actually order, they will have pleasant experiences. If the supply side is there, if the supply side is built up, chances are that the consumer will have a great experience and they will not go back. The focus of the company and what we are trying to do is making sure that the supply side gets there because if the supply side is not there, your customer is not going to have a great experience, so its anyway going to be moot point.

What if the demand is higher than the supply in these stores?

So basically if you look at a city like Delhi, initially when we had done a household survey, there are very broad numbers that you have these many households in Delhi NCR. These households basically need to buy the top up segment of the grocery roughly like 2 times a week and that is where this number comes from and that is where sort of this demand is generated that should be generated every given day given the sheer number of households above a certain income level. And that’s the way we had calculated back that okay given the existing supply, we should actually be generating 3x the number of orders, there should be 3x the number of customers at each of these stores but they’re not there. But, that’s partly because people just don’t have access.

Grofers business model differentiation.

I think the biggest rival was that we actually wanted to make sure that the customers’ buying experience when it comes to the timelines – how quickly they can get a particular order – is very close to what it is currently with the offline retail. So it takes you a couple of hours to go to a local market and buy what you need to buy and come back to your place. So we actually wanted that timeline of you getting your order to be those 2 hours. To actually go out and build infrastructure on our own that would actually help us do that was a very expensive proposition at that time so it did not make sense to do it so we basically decided okay, maybe we will not as much margin out of this if we are not setting up an alternative supply chain but this is something that lets us get to the consumer in a couple of hours so we can actually effectively compete with that existing offline buying behavior. We chose to invest in the delivery side rather than investing in building up a new supply chain.

Examples of similar kind of business.

So I’ll talk about Instakart in the US . Instakart is basically sort of riding on top of the existing retail infrastructure in the US so they have tied up with whole foods and Safeway. The top ten retail players in the US control more than 90% of the FMCG market. So basically Instakart is enabling delivery in a market where delivery doesn’t currently exist. So if you wanted Safeway or wholefoods to deliver, I don’t think it happened before Instakart came out into the scene. And the way they achieved it is, they had a bunch of shoppers who were kind of working like Uber drivers. You would place an order, it would be assigned to them, they would go to a shop pick up the order, deliver it to you and they would charge the customer a fee for the delivery. So there is a $4.99 or $7.99 fee and that is pretty much how Postmates also works. Postmates is more focused on restaurants and Instakart is focused primarily on grocery. The good thinking about Instakart is that they were riding on top of a very well established technology enabled retail network. However, they were also in a market where labor is fairly expensive and they had to optimize to that and the only way they could sort of survive in that market is actually by charging a delivery fee. Because, in India there is a lot of supply chain efficiency what that also means is that the margins are higher even in FMCG’s. In the US it is a very efficient market so the margins are very thin. So, they had to solve for a different set of issues, that how you optimize the cost of delivery with what you are able to charge for delivery and the margin that you’re able to get from the retailers. On the other hand, China has the same supply chain problems as India that a lot of the supply chain to the end consumer is fairly fragmented there is more organized retail in China than there is in India but it is still on the upswing in terms of that penetration of supply chain. The players over there were actually trying to organize a lot of the local unorganized retail stores by providing them a better supply chain. So unlike us where the focus was giving the consumers an online buying experience and sort of getting to the end consumers, the local retail stores over there were already providing a decent enough buying experience with decent assortment. But what a lot of companies in China were trying to do like bequick is to be more efficient supply chain players, taking out a lot of the distributors, providing SKU’s which are across different categories like frozen and meat and a lot of these which traditional guys would probably not be able to keep themselves. So, China was a much stronger supply chain and infrastructure play and that’s why those companies in China have scaled up very quickly, they are valued very highly because they are businesses rather than just providers of a tech service. And we had to be a sort of amalgamated version of Instakart and what was happening in China and although that amalgam is very strongly on the supply chain side, to the end consumer we always be a technology company because we have a mobile facing app for the consumer.

Which model was the proof of concept for your hypothesis?

For the assortment one the Chinese model was the proof of concept because that problem is very similar. The way that they were able to leverage it in China is that the number of SKU’s were there but what they were able to do was that give more power to the end supplier and end retailer by aggregating the power from the end retailer. So, if you are a company that’s buying on behalf of five different retailers you will obviously be able to have a better negotiating power with the brand because that’s more volume behind you. Whereas, individually all of these retailers will not have that buying power. So I think that was the model on the assortment side. Convenience side we closer to what Instakart was trying to do and what Postmates was trying to do which is to provide on-demand delivery . Actually it was more important for us to solve for the convenience in the beginning because what we were competing with was not that the delivery behavior does not exist in the market. Delivery is very ingrained in the Indian market. So delivery already existed so we had to SLA’s and an experience that actually matched the delivery that was happening.

Limitations and challenges to your Model.

So, the biggest challenge that we have to overcome is that there is a significant part of the fulfillment process and the network that is actually not in our control. Since we are trying to change the existing infrastructure we have to depend a lot on the merchants to act in the best interest of the consumer and that is where you can be a little helpless because you can’t force them to do something. The other key challenges that come in from a consumer’s perspective – You’re suddenly in a market which is very fragmented from both ends, it is very fragmented from the consumer end because there are a lot of retailers that the consumer is facing, it is also fragmented on the other end where you have a lot of brands and a lot of manufacturers that are in a very huge market. So, just to give you scale, packaged groceries is about a $350B market in India. If you put the market cap of Hindustan Lever, PNG and most of the big FMCG players that you know, there collective market cap is about $12B. So, these guys are not like 60-70% of everything tats getting sold and they are a very small percentage. So the rest of the $350B is actually fulfilled by very small companies, you know there are a whole bunch of companies that have market caps if about $100M that are doing about like $60-70M in revenues every year and that’s the problem because to actually give the user everything that the user wants, you now have to aggregate all these small players. So most good marketplaces, work on one end where you have a very disaggregated supply, you channel it and you supply to the consumer so basically a one-ended market. Over here we are basically a channel between a manufacturer, a retailer and a consumer. It’s a very distributed market going to a very distributed retailer base going to the consumer so the challenge in that market is that all of a sudden you are looking at doing a lot of things, building a very complex ecosystem and you can actually spend a lot of time and energy doing it and not see results for a while which is the biggest challenge in our area that anytime you make a challenge in an ecosystem that’s very established its very hard to actually push it through. The good thing is that if you are able to push it through it is a very good defense against somebody stepping into your area and totally wiping you out and in a market like India, you have to be very captive. We couldn’t say that – okay we will do the consumer bit but there are xyz players actually working on PUS systems that are actually able to do the other bit so you pretty much end up doing the entire stack yourself. You have to stay very focused on what you end objective is and you have a lot of people in the country who are similarly focused who have not lost sight of what it is at the core of this that we are trying to accomplish. Because you will have to do the entire stack, you will have to put together all the pieces but it might not be what you set out to do. You don’t want to get lost in building all of that and lose sight of what was the actual problem you were trying to solve, what was the actual issue for the consumer you were trying to solve and where you thought you were going to actually make money.

Vision of Grofers

Our vision is that we want to organize the unorganized segment of the retail in India. We want to organize under one online umbrella. That will be accessible to the consumers and to the people that want to actually want to reach the consumers. So we will be an organized retailer but in the cloud that is riding on top of aggregating supply across multiple cities, multiple channels and multiple categories of products.

Biggest Failure

I think we had plenty of mistakes, plenty of things that we thought would work but didn’t work and we had to shut it down and figure that this is clearly not something that we’re doing. One of the early failures we had to face was – we tried to aggregate supply for four wheelers for delivery as well and that did not sort of work out so we had to quickly shut it down. That was something we walked into with a lot of conviction that look we are already aggregating supply on two-wheelers, we are getting all these guys to come and use our app and are actually doing a lot of these deliveries so why can’t we do it with four wheelers? So we went in with a lot of conviction that it is going to work and it did not work. I think part of it was just bad execution on our part. We were not entirely focused on doing it, we were not at the right place, we are not a funded company, and we are still bootstrapped so we were trying to do something that was not core to our DNA and that showed in the fact that it actually did not work out. One of the biggest reason I thought it did not work out was that we actually plunged into it without having a very good understanding of what the market was like. We had a great understanding of what the delivery market with 2-wheelers was like but we just worked with it for so long that we eventually figured it out. Whereas we went into the 4-wheeler market without that depth of understanding and we expected it to break in our favor but it obviously did not. As a company that has been like a big failure for us because I think when we were actually doing it we thought it would be one of our big bets going forward and we would actually somehow succeed in creating an entirely new supply that a lot of people would be able to tap into and we would be able to get products to consumers more efficiently.

One piece of advice to upcoming entrepreneurs

Just get started and you will figure everything else out later. I think it’s great to sort of try to be very deliberate about taking a particular market and analyzing it and figuring out what will actually come out of it. However, you have to actually get started to figure out what you actually want to do. You are not going to get tied on to an idea. I mean, we started off as a consumer service on a website two and a half years ago, actually more than two and a half years ago and then we morphed into a delivery service from local deliverers, then we branched into a consumer brand on mobile which is delivering products to the consumers from the same local retailers, so the business evolves, you can’t get tied down to it. There is no point of getting tied down to something on day 0. But once you actually get into it you realize the nuances of the market, if it’s an inefficient market and you will actually figure that out. Most smart people will figure out that this is what the next step for them will be and that’s how you end up growing.

Albinder Dhindsa- Co-founder, Grofers
ABOUT THE SPEAKER
Albinder Dhindsa- Co-founder, Grofers - Albinder Dhindsa, Grofers - Creating Customer Experience In The Grocery Segment - He started working in 2005 as a Transportation Analyst at URS Corporation and continued the same for almost 2 years. In 2007 he took his first jump and moved to Cambridge Systematics as a Senior Associate and went on to work with them for more than 3 years. In May 2010, Albinder decided to leave his job and moved to the United States to work pursue his Masters in Business Administration. While he was at it, he also joined UBS Investment Bank as an Associate in June 2011 for 3 months. After completing his studies, Albinder decided to move back to his home ground to join Zomato.com as their new Head of International Operations, and went on to create a pool of knowledge for himself, for almost 3 years. And while he was at Zomato, he began working on his life’s most ambitious project – Grofers!
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