Knowing up the motorcycle families

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“I feel there are multiple strategies that are being followed and there isn’t clarity or a single minded-focus,” says an industry insider, who asked not to be quoted as Grofers is a competitor to his own business. “From what I’ve heard, they are also getting into offline stores; sometimes they talk about becoming a 100% FMCG brand, so it is not very clear what are they pursuing,” he adds.

When the experiments failed

Kumar, though, paints a different picture. After a couple of failed experiments, Grofers’ new strategy of value e-tailing is working well, he claims. The company says it is adding two lakh, new users, every month. Most of them from middle and low-income households.

“We call them motorcycle families,” Kumar says. The type of family that would traditionally shop at Sadar Bazaar. “They are looking for wherever they can save money,” Kumar adds. What Grofers is doing, Kumar explains, is solving a problem of access—connecting families who may not have access to supermarkets or wholesalers with the deals they seek. Prices better than those at your traditional Kirana store (mom-and-pop retailer).

Grofers is betting that value is all these customers seek; delivery, it argues, is merely an afterthought for them. This theory, Kumar claims, is backed up by the company’s research. Customer feedback was that a monthly stocking up purchase is something that they could wait for. These are planned purchases, not a spur of the moment buys that require quick delivery. As such, Grofers only does next day deliveries now. In some areas, delivery takes between 2-3 days.

Grofers’ conviction, however, is at odds with the experiences of others in the industry. The founder of another Gurugram-based e-tailer says it’s a myth that deliveries don’t matter. “The core customer of an online grocery platform is one who doesn’t have time to buy groceries, and because of that, she is also impatient. Therefore, building a value proposition just by ensuring the lowest prices cannot work,” he argues.

Big buys only

But Grofers has its own logic. It isn’t interested in small-ticket purchases and immediate need items such as daily essentials, the bill for which is not more than Rs 400-500 ($5.80-7.20). Kumar is clear that Grofers only wants to target the monthly shopper who is looking for savings, rather than customers who are looking for micro-deliveries.

This change in focus reflects the average order value (AOV) on the platform. In an older story, The Ken reported that the average order size on Grofers in 2016 was Rs 800 ($11.50).

Today, the company claims, the average order value is almost double—Rs 1,500 ($22). It also says that customers usually make about 2-3 purchases a month, spending between Rs 4,000-5,000 ($58-72) in total.

Changing the ways

With savings being its core value proposition, Grofers has fundamentally changed the way it does business. It started by keeping fewer SKUs (stock-keeping units) and investing in warehouses. From 15,000-20,000 SKUs during its marketplace days, the platform now has just 2,500-odd SKUs.

Perishables and dairy products, for example, have been eliminated from the platform. The idea is to be the platform of choice for household basics while only keeping 2-3 brands per product. Market leader Bigbasket, on the other hand, has around 18,000 SKUs.

Fewer SKUs allows for supply chain efficiency, easier stocking, and lowers the purchasing budget for the platform. All steps towards cutting costs. But it’s a double-edged sword. It also means a narrower assortment of products. An AT Kearney study on digital retail puts this into perspective.

It says that in categories such as food, product assortment is the number one purchase driver beyond discounts. And after assortment? Delivery. If the AT Kearney study is to be believed, Grofers falls short on two out of three counts.