At a time when many e-grocery players in India have not seen any sign of revival one grocery e-tailer is confident of turning EBITDA profitable in just 18 months of existence.
Bengaluru-based online hypermarket, urDoorstep, is aiming to quadruple its revenue in the next six months, which will ultimately flow to the bottom line, making the start-up break even at EBITDA level.
The Jupiter Capital-backed company - headed by veteran Dinesh Malpani with over two decades of experience in retail - has recently raised Rs 10 crore in a bridge round with a high net-worth individual investing Rs 5 crore and an equal amount coming in as a long-term debt from Lakshmi Vilas Bank. The entire cash will be used to grow the company's revenue and help it turn profitable.Urdoorstep in October 2015.
While Malpani did not disclose the revenue he is generating currently or the numbers he's looking to achieve, he did say that Urdoorstep has been growing 30-35 per cent month-on-month "without burning cash. And we are aiming to be in the range of 10-12 crore revenue every month by June next year."
This, he says, is achievable with a strong focus on building a fundamentally correct business model that does not rely on huge cash-burns on customer acquisition.
The entire value/supply chain — from sourcing (of products directly from farmers, millers, etc), to procurement, assortment, packaging, logistics, and delivery — is completely managed by the company. It sources raw material directly from over 5,000 farmers, allowing them to get better margins as compared to the other players and ultimately market these at the lowest price to end-consumers.
"Our objective of building a profitable business and not running behind valuations has allowed us to build a business which will survive in the long-run. Tight control over sourcing and supply chain let us sell our products 65-70 per cent cheaper than the other players in the space. Today, our customer acquisition cost is less than Rs 100 and retention rate is over 90 per cent," said Malpani, pointing that his vast experience and knowledge in offline retail has a great role to play in building this business.
The company which currently caters to 72 pin codes in Bengaluru is also planning to take the numbers to 92 by January but is not in a mad rush to expand blindly.
"We have consciously planned to operate in a cluster of pin codes from the start to ensure 98 per cent on-time deliveries. We operate via five state-of-the-art fulfillment center of 31,000 square feet that allow us to serve the entire Bengaluru comfortably," said Malpani.
"Secondly, I believe that grocery is the ‘mother of all categories’ in terms of size, repetitive need, and addresses one of the biggest pain points from a consumer’s viewpoint. This is not the typical ‘one more category’ within a horizontal e-commerce portal; it is a very different business and an extremely tough vertical that needs specialized industry experience. Therefore, we want to be very clearly seen profitable before we move to other cities," he explained.
The company which opened its first fulfillment center even before getting its first order has also invested in building private labels brands which currently contributes 30 per cent of its total revenue. The plans are also afoot to increase the categories within the existing private labels.
"The reason that we opened our fulfillment center even before getting our first order was to create a best backed PL facility in the nation. We currently have three PLs under our brand name; Natural which is a zero pesticides brand, Assure which is a premium grocery brand and Super which is commercial mid-priced grocery brand."
"Going forward, we are planning to expand these three brands in the multiple categories. From FMCG, fresh to grocery, these three will cut across categories." Malpani concluded.
Private labels are brands owned by retailers, and typically, the profit margins on these are higher than on brands that are owned by other companies. In the case of groceries, the margins could be as high as 30-40 per cent, at least double the margins on other brands.
urDoorstep's competitor Bigbasket also has a strong focus on pushing its private label business to improve revenues. The company recently tied-up with online foodservice startups to push its own brands.
According to retail advisory firm Technopak, the food and grocery industry in India is worth $383 billion and is expected to touch $1 trillion by 2020.