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[What The Financials] Heavy Discounts Helped Grofers Boost Revenue But Expenses Eat Up Growth

[What The Financials] Heavy Discounts Helped Grofers Boost Revenue But Expenses Eat Up Growth

For Grofers, the losses grew 73.4% in FY19

In FY19, the company has reported a 56% increase in Y-o-Y revenue

The discount charges are 1.5X of the company’s total revenue for the year

India’s grocery delivery market has seen massive growth in this past year. This is best evident in ecommerce giants Flipkart and Amazon intensifying their investments in this space. But entrenched players such as BigBasket and Grofers still continue to see the best share of this growth with millions in gross transaction value.

However, these startups have seen growth along with burgeoning losses as well. The “Online Grocery Market in India (2018-2023)” report said that the grocery delivery market is anticipated to expand at a high compound annual growth rate (CAGR) of 68.66% during the 2018-2023 period, to reach a value of INR 1,034.13 Bn by 2023.

It further attributed this growth to rising customer acceptance, increasing internet and smartphone penetration, new market entries, and increasing focus of online marketplaces like Amazon and Flipkart in the grocery segment.

However, BigBasket and Grofers had an exciting year, despite the losses. The end of FY19 brought bad news for BigBasket with nearly 2x losses compared to the previous year, however, for Grofers, the losses grew 73.4%, which is not bad in comparison.

However, if taken in terms of value, BigBasket’s losses stood at INR 348 Cr in FY19 while for Grofers the loss was INR 448 Cr in FY19. Further, BigBasket’s revenue and expense scale are also much higher than Grofers, but it had lower losses than Grofers. Hence, we have a deeper look at what Grofers’ FY19 performance had to show.

Founded in 2013 by IIT graduates Albinder Dhindsa and Saurabh Kumar, Grofers offers products across categories such as fresh produce, kitchen staples, FMCG products, personal hygiene products, household needs, among others. The groceries marketplace also plans to expand its catalogue to 1,500 products from the current 1,200 products by the end of 2020.

Till now, the company has raised $501.8 Mn in multiple funding rounds from investors such as SoftBank, Tiger Global and Sequoia Capital among others.

It is interesting to note that over the last two years, in FY19 and FY20, the company has raised funds right before or after the start of the financial year, and hence, looks to have set its clear mark for its expenses. In FY19, the company has reported a 56% increase in Y-o-Y revenue reaching INR 83.62 Cr. At the same time, the expenses grew 70.5% reaching INR 531.6 Cr.

Private Labels Deliver Revenue Win For Grofers

In FY19, the company had shifted its focus on private labels as well as kirana stores to build on its growth while dropping certain products off the menu. The company expanded its private labels to offer 250 food and non-food products to its consumers.

Recently, Saurabh Kumar, cofounder, Grofers said, “We are aggressively growing our business and aiming to clock $1 Bn in revenue by the end of 2019 with a significant focus on our in-house brands in 2019. Our G-brands contribute 40% to our current revenue, and we plan to increase it to 60% in the coming years.”

It is to be noted that in FY19, the company’s operating revenue grew 1.35X reaching INR 70.14 Cr. Further, earlier this month, Albinder Dhindsa, CEO and cofounder of Grofers said that the company’s gross merchandise value grew by over 300% and reached INR 2500 Cr in FY19. “We are on track to double it to INR 5,000 Cr by FY20,” he added.

The cofounder further claimed that Grofers is now the largest grocery ecommerce platform in the country. Moreover, Dhindsa also revealed that the company is planning to add around 10 Cr (100 Mn) new customers this year.

Discounts Prove Costly For Grofers

It is widely acknowledged fact that the companies have been growing at the dependency of discounts. The larger the discount, the bigger and better customer orders. Just like on Amazon and Flipkart, there have been various sale seasons in the grocery ecommerce as well. For instance, in January 2019, Grofers hosted Grand Orange Bag Day sale, where it claimed to have recorded revenue of INR 310 Cr and crossed INR 300 Cr in monthly sales. It further claimed 250K new customers on the platform in January.

However, when we look at the larger cost of these discounts, in FY19, Grofers’ spent 24% of its total expenses on discounting charges. The company’s discounting charges in FY19 was INR 128.32 Cr, a 5.5X Y-o-Y increase. Further, notable here that these discount charges are 1.5X of the company’s total revenue for the year.

Coming down to another major expense for Grofers, it was employee benefits which came down to INR 155.39 Cr, a 31.7% Y-o-Y increase. This made 29% of total expenses of Grofers for FY19.

For FY20, the company has focussed on working with brick-and-mortar stores. By converting kirana stores to Grofers-branded stores, the company will manage backend sourcing, inventory management and technology support on a revenue-sharing model.

The competition has further increased this year, as well as the need for discounts. At such a crucial time, how Grofers’ achieves its aim of INR 5,000 Cr GMV by FY20 remains to be seen.

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