The crisis and a locked room
Hari Menon recalls the exact moment the grocery game changed in India.
“When Grofers got announced with investments from SoftBank and Tiger Global. The two investors who, when they [invest in a company], literally [no other investor matters], right?” he says, adding, “And here we were, doing reasonably well, achieved our early goals, got our convenience factor right, blah blah blah. It was a huge amount of money.” Menon is the co-founder and CEO of India’s leading online grocer, BigBasket.
The time period Menon is referring to is 2015. BigBasket was then a 4-year-old startup that had raised close to $90 million in funding and was seen as the market leader. Until Grofers, a new type of grocery startup, came along. Started just a year prior, the startup raised three back-to-back venture capital rounds in 2015, adding up to $165 million. Its leading investors were the scary trifecta of Tiger Global, Sequoia and SoftBank.
Grofers promised to deliver orders in less than 90 minutes, usually by picking up the products customers wanted from nearby retail stores. It was what they called “hyperlocal.” In comparison, BigBasket often took 24 hours to deliver orders from their own warehouses.
Q: How did you cope with the big Grofers announcement?
“What do you do? Our board meeting was coming up in a few days, and this announcement just broke. But because we understand the space so well we had just this single belief, that if you don’t make gross margins of 23%, you can’t make this business work.
“The highest cost is the cost of delivery, and runs anywhere between 7-7.5% of sales in e-commerce grocery when you’re doing well. That’s the number you’ve got to hit. But models like this run at 12-13% of sales. How do you make this business work when the retailer you’re buying from is not going to give you anything more than 5-6% as your gross? So we locked ourselves in the boardroom and sat for about 6-7 hours and said, “Let’s think. If someone’s putting so much money behind it, there’s got to be something behind it. But we are not getting it. And till we get it, we would stay there.”
“We didn’t get it. We didn’t get it for days. We tried everything that might work, tried all possible models. Will they deliver using cycles, walking, get Kirana stores to deliver? We discussed all the pros and cons.
“At the end of 3-4 days, we said: “stay put.” We called the team into a room and spent 2-3 hours giving them our logic. We had unanimous – absolute unanimous support.