Deal focus: Grofers returns to growth with Series F

India's online grocery industry sits astride two booms: revenues are expected to grow by 70% between 2018 and 2023 and the broader internet economy is projected to double between 2017 and 2020. But industry veterans say newcomers can't expect quick success.

"Most companies entering the space are doing so simply because online grocery penetration is so low at the moment – which we believe is the absolute wrong reason to enter," says Albinder Dhindsa, co-founder and CEO of grocery delivery start-up Grofers. "You can't just throw yourself at the market and hope to build a large presence, you have to know what problem you're solving for the consumer."

Grofers knows the challenges of the market better than most. The company launched in 2013 with a hyperlocal delivery model and grew quickly over the next three years, raising multiple funding rounds in the process. But by 2016 the weaknesses of its strategy were becoming obvious: with high operational costs and small order sizes, breaking even was still a pipe dream.

In response, Grofers reworked its entire model, acquiring warehouse space and repositioning itself as a source for groceries and other daily goods. The new approach promised growth, but such a massive retooling inevitably prompted investor skepticism – the company didn't return to the market until last year, raising $62 million at a significantly reduced valuation from the $400 million recorded in 2015.

"We did go through a rough time when we were starting the transition and having large institutional investors that could wait it out for a longer term was essential," says Dhindsa. "Once it looked like we had recovered from the slowdown, those same investors were eager to come back."

Dhindsa sees Grofers' latest funding round, a $200 million Series F commitment led by SoftBank Vision Fund with participation by KTB Ventures and existing investors Tiger Global Management and Sequoia Capital India, as a sign that the company is back on track. Grofers' valuation following the Series F has not been announced, but Dhindsa confirmed that it has surpassed the 2015 level. 

The new capital will be used to accelerate growth. Annual revenue reached $400 million last year, with the company claiming an 800% increase over the last two years. It is breaking even in three cities, expects to be profitable by 2021, and wants to list by 2022. SoftBank's decision to deploy nearly $100 million from the Vision Fund, after previously investing off its balance sheet, is considered an expression of faith in Grofers' ability to reach its goals.

"The capital is valuable in and of itself, but I think for us the more significant angle is they think we can provide the kind of returns a fund of that size needs, and so they're confident transferring us from the balance sheet to the Vision Fund," Dhindsa says. "We do see it a validation for our business model."   

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Consumer
• Expansion
• India
• Softbank
• Sequoia Capital
• Tiger Global Management
• KTB Securities
• TMT