Grofers gears up for biggest pivot; wants to become 100% private label firm by 2021

Grofers has seen many pivots since its inception in December 2013. The company had undergone a particularly painful pivot in 2016 which bounced back last year. In the beginning of last year, Grofers volume went down by over 50 per cent as it moved from marketplace and express delivery (90 minutes delivery) model to inventory-led operation with next-day delivery play.

However, it re-gained market share and is gradually moving upwards in terms of scale. Currently, it does about 3,50,000 orders a day, and has killed its fruit and vegetable verticals to focus on core business - grocery.

Surprisingly, the company is going through another pivot and this time it eyes bigger opportunity. Grofers is gearing up to become 10 per cent private label driven online grocery store. “We want to completely move to a 100 percent private label firm in two to three years,” Co-Founder Saurabh Kumar told BloombergQuint.

While the plan sets to differentiate Grofers from competitors, embracing 100 per cent private label won’t be easy for the SoftBank-backed company. Building private label in grocery is easy but that’s not the case with FMCG. Building brands in fast moving consumer goods segment requires deep pocket.

FMCG segment is highly competitive and new entrants need to splurge heavily in marketing to create awareness. “Even Patanjali that leverages brand value of yoga guru Baba Ramdev invests significantly in marketing,” says one of the senior marketing executive with retail chain Spencers.

On an average, an FMCG brand invests over 40 per cent alone on marketing product’s line. Grofers already generates about 35 per cent of its business from private labels (mostly in staples). Recently, it launched its own detergent, beverage, honey, and pasta brands.

Building brands in categories such as spices and readymade gourmet is handy. Initially, Grofers eyes categories which are not tough to market. Private labels usually give more margin than branded products. Since Grofers has been trying to crack mass market (and not a premium one), it plans to pass on a fair amount of margin in private label to customers.

Also Read: Exclusive: Flipkart approaches Grofers for acquisition and yes, it makes sense

In-house labels would help Grofers to push parallel brands (like Unilever, P&G) in many categories. These products would be cheaper in the range of 5 per cent to 50 percent (depending on categories). Grofers, simply wants to pass on its benefits to the consumers.

Selling one’s  own labels has always been a good idea but it comes with additional responsibilities such as full proof quality control system in place and evolving product based on consumer feedback. “Such things have never been in Grofers DNA. It requires altogether a different skill set and mindset as well,” says above quoted executive.

Some experts see Grofers’ decision to become a 100 per cent private label a logical and wise one. “Besides all merits in doing private labels, none of the players in online grocery is evangelising in-house labels in FMCG segment. It certainly increases company’s brand value in a long run,” explains Satish Meena, Senior Forecast Analyst, Forrester. “Private labels also enhance the chances of its acquisition,” he adds.

While Grofers’ plan to become 100 per cent private label companies is laudable and ambitious, going forward, it would be interesting to see how the Gurugram-based company executes its plan. Brick & Mortar retail chains such as Spencers sells about half of its total volume through private labels.

Will Grofers be successful in becoming pure-play in-house brands entity? Only, time will tell.