At a time when online grocery retail start-ups — especially hyperlocal models — are going through a rough patch, in comes a new format that hints at the possibilities of a third path, away from both inventory-led and marketplace structures.
Calling it a ‘Mandi-Direct’ model, New Delhi-based Rocketgrocery.com sources both grocery and fresh produce directly from mandis/wholesale markets thereby tightening its grocery supply chain and pulling in higher margins.
The company launched its services in October 2015 and currently operates in South Delhi and Faridabad via three hubs.
“We work very strategically; the first step is to identify the mandi from where products will be sourced, next is to build a relationship with these wholesalers for sourcing. And round it up with a hub near or within this mandi to start operations,” Co-Founder, Rocket Grocery Pvt. Ltd, Robinder Singh says.
The company currently operates through total three hubs: Badarpur (launched in July 2015), Okhla (launched in March 2016) and Faridabad (launched earlier this month). The company rents warehouse space to establish what it calls low capex units.
“We’ve spent the past year in studying other business models and perfecting our sourcing channels, back-end infrastructure, and delivery mechanism, before going public,” Singh says.
At the three hubs, sourcing projections for a day are made on-demand; every item is bought against an order, Singh explains. “We make it a point that the wholesalers are within our radius so that the products can reach our hubs within 30 minutes of an order being placed. Once in a hub, the products are quality checked and packed. Products are sent out for delivery within an hour of order received.”
High margin VS Negative margin business
“Direct sourcing from the local mandi and wholesale markets eliminate middleman and allow better margins on the products,” says Singh, adding, “his further allows the retailer to pass on generous discounts to consumers and build sustainability for the operations.”
“We register approximately 40 per cent margin on fresh produce and 15 per cent on dry grocery,” he discloses. “With an operating margin of 20 per cent on fresh and 10 per cent for dry grocery, we are easily able to pass on hefty discounts of up to 20 per cent to customers.”
Compare this against a hyperlocal grocery model, where the e-tailer source products from local stores, who are considered as the weakest link in the entire supply chain. The mom-and-pops source products on typically low margins from manufacturers and manage to retain only 9-10 per cent for themselves. They sell on MRPs and give no or zero discounts to consumers. In order to attract and retain consumers, these formats fund discounts, offers and deliveries themselves (typically from investors’ funds), which makes for a massive negative margin business.
This is essentially the reason for several hyperlocal grocery formats — including PeppertTap, LocalBanya, Flipkart’s Nearby, among others — shutting down or downsizing operations in the recent past.
“As far as fresh produce is concerned, Indians typically want discounts, free delivery, quality and hygiene at the same time. They are not willing to pay extra for these things. Therefore, it’s the retailer’s job to build a business that is fundamentally strong and scalable. Customer acquisition and retention are important but have to be done in a specific manner,” Singh notes.
“At the end of the day business works on topline and bottomline health.”
In the past seven months, Rocketgrocery.com claims to have managed high customer retention and high repeat order frequency on the back of attractive pricing, fast deliveries and quality control. “In January, we were doing about 100 orders a month; last month we touched 300 and are currently executing 500 orders per month with customer retention of more than 75 per cent and growth rate of 50 per cent month on month,” Singh says, adding that by June, the company will be logging 800 a day, rising up to 1000 orders by July.
Singh launched the format on self-generated seed capital of Rs 40lakh but informs that the company is on the lookout for external funding support for future expansion. But securing investor interest may not be easy, he admits.
“Grocery delivery has become like a hot coal which nobody wants to touch,” he says. “But the blame cannot be borne only by entrepreneurs, investors are equally at fault. The insane amount of money going into me-too startups with no due diligence from investors is quite surprising.”
“Having said that, we see the current gloomy scenario as, in fact, a huge opportunity. The other players have created a market for the more viable models such as ours. Funding might take some time but we are optimistic that we will get it and get it from enterprises that truly understand the retail business and not push us for unrealistic GMVs or scale,” Singh says.
Swearing by his mandi-direct model, Singh is looking to expand the format’s reach to the entire Delhi-NCR territory over the next few months.
“We’ve paced it slow so far because we wanted to build a business which is profitable, fundamentally correct and scalable. With three hubs and positive customer feedback, we are confident about our model. Going ahead, we just need 10-15 mandis to cover the entire Delhi-NCR market,” Singh concludes.