Grofers, the food and grocery hyperlocal, has been making a few changes to its business model. According to CFO Ashneer Grover who spoke to Financial Express, the business model is to be partly an inventory-led one. The company has decided to open a private label – Freshbury to sell fruits, vegetables and staples.
Grover said the idea was to offer customers private labels for some products to ensure quality. In the process the firm’s margins improve. “We can earn a gross margin of 25-35% for pulses, fruit and vegetables under the private label,” the CFO said.
Companies that are involved in the online grocery space seem to be following two business models. The first one is the inventory-led one where stocks are maintains and control is held over the supply chain. BigBasket follows this approached and earlier had launched its express delivery service in 18 cities. They too, sell under their private label, Fresho.
The second is an aggregator model which has been followed by companies like Grofer. This model has the companies teaming up with existing merchants to supply products to the end consumer.
According to FE, Analysts have pointed out that at the current scale — 10,000-20,000 orders a day — the inventory-led model appears to have a better margin profile. However, they believe that if the scale rises tenfold, the inventory-less model could yield better margins since delivery expenses — the biggest cost element — could reduce dramatically.
Where does Grofers operate?
Currently, Grofers operates in 17 cities after shutting down operations in 9 cities including Coimbatore, Nashik, Rajkot and Kochi.
In 2015, the hyperlocal raised close to $170 million. “We still have a significant chunk in the bank. Although we are in talks with investors, it will be more of a regular process than a standalone event,” Grover said.