Grofers follows Flipkart & Amazon’s seller structure to avoid trouble with FDI

By the end of last year, Grofers changed its delivery model to reduce losses and improve its chances of earning revenue. Now, the online grocer is changing its seller structure as well to conform to Foreign Direct Investment norms.

FDI in online grocery requires etailers to make sure that a single seller on their platform does not contribute to more than 25% of total sales.

According to two sources with knowledge of developments at Grofers India Pvt. Ltd, the company has about three large sellers selling products on the platform to meet the FDI requirements. This is even as the etailer tries to shift from a hyperlocal delivery model to an inventory-led model.

Following Flipkart and Amazon’s strategy

Grofers is following a seller structure similar to Flipkart and Amazon’s. The firm has Hands On Traders Pvt. Ltd. a wholesale entity of its parent, Grofers International Pvt. Ltd. This unit procures products from manufacturers and brands and sells them to online sellers. They, in turn, sell these products to consumers.

Filings with the Registrar of Companies have shown that in Haryana, 90Minutes Retail was incorporated in April 2015, last year in Kanpur, Comoncity Retail, LA Super Retail in Delhi last year and Hands On Traders in September 2015.

The move from hyperlocal model to inventory-led

Grofers has made a gradual transition from its hyperlocal model in the past six months. It used to collect products from neighbouring grocers and deliver these to consumers while charging the grocery stores a certain percentage of the order value as delivery fees.

As its spending shot up drastically with the hyperlocal model, the company decided it was best to put a pause on business in nine small cities, last year.

With the cost of delivery exceeding the commissions earned for every delivery, Gofers finally began moving towards the inventory-led model with private brands that help it derive high margins. It started off with staples and snacks from private brands like Best Value and Freshbury.

The two sources mentioned earlier said, “The big push to inventory came about six months ago and since then we have been pushing the inventory model. Today, more than three-fourth of the orders are serviced through our own inventory and the rest through the hyperlocal model, which has certainly led to improvement in margins.”