This is the story of Grofers, the company which fulfilled
our needs at home, today it faces some or the other problem everyday. Grofers,
started in 2013, was going to get IPO in 2021. But suddenly it get merged with
Zomato in a $700 million deal. Moreover, while companies like Swiggy and Zepto
reach new heights every day, Grofers is on the brink of shutting down. Why did
the brand we knew as Grofers, change its name?
Did Swiggy and Zepto hit Grofers hard? What went wrong that
a company working for so long has to face all this today?
The story began in 2013 when Saurabh Kumar and Albinder
Dhindsa noticed everything getting done through phones, be it food delivery or
booking a cab. Everything got done with a click on your phone. They got an idea
at the time. They thought of how everything is done via phone, then why go out
for groceries?
This could also be done via phones. This was the start of
Grofers. In very little time with great funding, Grofers started expanding
itself at a fast pace. Soon, Grofers completed over 50,000 orders a day and
dominated the market. Till 2021, Grofers and Big Basket were the only companies
in India’s online grocery delivery services. Then something changes and the
fate of the companies dominating this space changes forever. Many startups
similar to Grofers also started in 2013, but from Local Banya to PepperTap,
none of the grocery delivery startups were successful. But why is that so?
Well, very few people know that as simple as the online
delivery space seems, it is that much more complicated on the inside. It has
many aspects that aren’t visible on the surface but become responsible for the
failure of startups. The question is what are these things?
It is unit economics, that is, per order, if the company profits or has a loss. From
the surface, we only see what’s shown to us but the unit economics which
decides a company’s profitability or failure. Many of us think that Grofers
succeeded due to a lack of competition because when Grofers was on top, there was no competition in the market. But
that’s not true. Peppertap, Local Banya, GrocShop, FlashGroc, Getnowmarket, all
these were also in the online grocery delivery space.
But Grofers alone did something that made it survive. From
PepperTap to Local Banya, they had a single vision, to deliver groceries to
homes within 1-1.5 hours. It’s an amazing idea but it has a huge disadvantage.
It would disrupt the entire company’s cost structure. Grofers had a genius strategy
for this. But to understand this, you’ll have to first understand how the
online grocery delivery business works. So, most startups would work in this
way. The customers would order on the app. This would go to the shopkeeper they
had tie-ups with. And then a company delivery boy would collect and deliver it.
This model had 3 major problems.
- · No control over quality.
Whatever quality the shopkeeper had, only that got delivered
to customers.
- · The lack of inventory
Customers could only shop from the shopkeeper’s inventory. If
the shopkeeper doesn’t have inventory, the customers would face a lot of
problems.
- · High cost but low margins
Due to this, most grocery delivery startups would get
customers by offering discounts, but the customer would leave them due to poor
service. But you know what? Out of all the startups, only Grofers changed its
entire working model.
First of all, Grofers closed its 90 minutes delivery because
they understood after looking at the market that no one is in such a hurry that
they want their grocery in 90 minutes.
Then it closed its operations in many cities and focused
only on metro cities. They set up their warehouses in metro cities which gave
them 3 main superpowers.
- · Super Inventory
As Grofers is a technology business, they have data from
which they know what products to keep and which products customers don't
usually order. Hence, they can stock up on their best-selling products as all
the warehouses are owned by Grofers.
- · Stockable Items
Grofers delisted all the perishable items on its list, that
means the items that rot quickly and only kept the items that could be stored
for long. This resulted in a low storage cost.
- · Good Margins
They got good margins because of 2 reasons.
- 1. As there are no middle men, all their margins are higher as compared to having middle men.
- 2. Keeping private label products.
They got a higher margin on private label products as
compared to branded products. Everything was going amazingly well and after
COVID, it was as if Grofers won the jackpot. Everyone was at home and everyone
needed groceries. So, who would deliver it? Grofers. The growth was solid. Seeing
this, Grofers decided on IPO in December 2021.
But then, Zepto enters the market. Business is war. There
are a lot of difficulties and ups and downs. Sometimes there can be times when
you can lose it all. If you have good knowledge, most of it can be avoided. But
interestingly, it is too boring. Zepto,
a startup made by two 19-year-olds, shook Grofers to its core when it entered
the market because where Grofers delivered groceries in 2-3 hours, Zepto
delivered it in 10 minutes and surprised all. Soon, the grocery delivery market
was moving to quick commerce. To say, there was no competition in the market but
if people got used to 10-minute deliveries, then who would use Grofers?
During this time, Grofers turned into Blinkit. But within 3
months, Blinkit had to merge with Zomato. I know what you're thinking, the
company was doing well, then what happened to it after rebranding? Well, to
understand this, we need to get 2 things.
1.
Quick commerce operational model
2.
Society's behavioural design.
Any quick commerce model has 3 backbones.
1.
Dark Stores : These are the places where
inventory is stored.
2.
Overly paid delivery boys : As quick commerce
delivers in 10 minutes, so the delivery boys always have to be available. This
is why the delivery boys have to be paid well.
3.
Efficient delivery management system : If you
want to deliver within 10 minutes and have an inefficient inventory management
system, then you will never be able to deliver within 10 minutes. So, this
model works in this way.
Imagine you are a customer and you placed your order on the
app from the app, it goes to central database, and then to the dark store
closest to your house.
The order is received and packed within a minute and then a
delivery boy leaves to deliver it to you. Finally, the order reaches your house
in 10 minutes. Now we come to society's behavioural design. Mainly, 2 people
contribute to this behavioural design.
- Families
- . Millenials
That means bachelors, normal young people and who live alone
or in groups but not in families. So, the order size in family dynamics is big but
the important thing for millenials is urgency. They want their order as fast as
possible. When families order, they usually have no urgency, but millenials
have a smaller order size but with urgency.
So basically, the perfect customers for quick commerce are
millenials, not families. Families too but in a very small percentage. Family
orders are big and hence more profitable. But as I said, there's no urgency
when families place orders. But on the other hand, there's a lot of urgency
when millenials order but they order very little, which is not profitable. Zepto,
Instamart and Blinkit, if we closely analyse them, their work is not to profit
at present, their work is to alter the society's behavioural design so that
people get used to 10 minute deliveries. But the biggest issue here is market
dynamics. Zepto, Instamart and Blinkit, their real customers, from whom they
can profit, all of them live in urban cities.
But in these urban cities, if you look closely, markets are
available at short distances. Now look at this very, very carefully, companies
have 2 target customers, families and youngsters. Urban families either have children or
servants and sometimes they have both.
Which is why in case of a family's urgent need children or
servants can get things from a nearby store. The other set of customers is
youngsters who have urgency and don't have servants either. So, they
desperately need their order but when they order, their order size is not as
big. So, it is difficult for companies to profit from them. I'll tell you why. Have
you ever thought why people don't use dishwashers in India? You'll hardly find
1 out of 100 homes using dishwashers.
But why is that so? Well, the answer is very cheap
alternatives. The servants in India are a lot cheaper. It's cheaper to hire a
maid than to buy a dishwasher in India. You can scold a maid, even ask them to
do extra work but a dishwasher will only wash your dishes. But in foreign
countries, it's expensive to hire servants and even a middle-class family can't
afford servants. This is why they have to use a dishwasher in any case. The
same thing applies to grocery delivery too. In India, most families that want
their groceries delivered already have more affordable and customizable
options. As the prices are low now, we get excited about 10-minute delivery. But
when it will come to prices, there are very high chances that we will give it a
second thought. I know what you are thinking, Swiggy and Zomato do the same
thing, food delivery, then why are these startups doing so well? Well, there is
a difference. Swiggy and Zomato do hyperlocal deliveries, meaning you'll get your
favorite food at home. You will be okay with paying extra for that. Plus, these
companies never offer 10 minute deliveries. So, they don't have a time
constraint either. It's simple, for having food, you can't visit 10
restaurants. Plus, you can't ask someone to get food for you from a restaurant
5 kilometers away.
It's not that easy. But it's not the same with grocery
delivery. In urban cities, there's some grocery store every 100-200 meters. And
as soon as the companies raise their prices, people will shift to better
alternatives. The reality is that the quick commerce model is highly dependent
on funding. Without funding, it's very difficult to sustain the model. As long
as the companies have funds, they'll keep going. This is where Grofers' downfall
started. Zepto directly started with quick commerce. That's why they got substantial
funding at the start. But when Gofers became Blinkit, they didn't just change the name of the
company, the company's entire operational model changed.
Blinkit is able to provide service today because Zomato
invested $700 million dollars in it. But the funding will end someday. And this
is where the most important lesson of this case study is. The name of the
lesson is the cycle. Very few people know about the startup ecosystem cycle. That's
why when these companies get IPO, many of us end up losing our money.
To solve a market problem, these startups create an idea. For
idea execution, they raise funds from investors. The money is used for cash
burn to acquire customers. With customers, they also get revenue. The higher
the revenue, the higher the valuation. When the valuation gets pumped up, an
IPO is formed on that basis.
Who invests in this IPO? You. So basically what happens is, these
startups use the investors' money for cash burn, they give you discounts,
acquire you and then at the time of IPO, wealth is created from your money.
So in short, most of us still think that the startup
ecosystem is amazing. We get a good service and people get jobs. No doubt it
does and the startup ecosystem is good. But understand that if a company tries
to acquire you as a customer using heavy cash burn, then now or later, the
money comes out of your pocket when the company launches IPO. As many people
don't know about this startup cycle, many people lose money by investing in
these IPOs.
Mr. Gautam Adani's net worth in the last year has increased
by more than 230%. Everywhere there is talk of Adani Group's success. But the
question is what's the reason behind Adani Group's success? Adani Group has a
lot of things that many people are unaware of.
If you want a content on Gautam Adani net worth then write
me on mail and I will surely make a content on it
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