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Thu, Nov 19 2015. 12 49 AM IST

As funds dry up, hyperlocals tap private labels to boost profits

Grofers and PepperTap are among those start-ups that plan to launch staples such as pulses, rice and oil
New Delhi: Are private labels the miracle cure for hyperlocal delivery
companies looking to boost profits?
Some hot start-ups in the space think so, their thinking encouraged by
investors in an environment where money is slowly becoming scarce.
Grofers and PepperTap, for instance, are looking to launch their own
private label products to expand revenue and boost profitability.
The idea isnt revolutionary. It is one of the reasons why large offline
retail chains have store labels.

Start-ups such as Grofers and PepperTap recently

announced plans to offer consumer companies a platform to
display ads on their mobile applications and websites to
sustain margins. Photo: Ramesh Pathania/Mint

Grofers (run by Locodel Solutions Pvt. Ltd) and PepperTap (Nuvo

Logistics Pvt. Ltd) that currently list neighbourhood stores on their
platforms, plan to launch staples such as pulses, rice and oil.
While PepperTaps products will be called PepperFresh, Grofers said it
has not decided on the name it would use.

Products such as staples have good margins, to the tune of 20-25%.

Besides, these are the categories which do not have established
brands in the market so far. Our target is not just to expand our source of revenue through this step but also to build a brand around it, said
Ashneer Grover, chief operating officer, Grofers.
The company earns revenue from the commissions it gets from the merchants listed on the site and the advertisements it runs on its platform.
Typically, private-label products have gross margins much larger compared with the commissions that hyperlocal delivery firms get from their
merchants, whichrangebetween 1% and 5%.
Both companies said they would be procuring staples from wholesale markets and sorting and packing them. Grofers plans to hit the shelf with
its products by December end. PepperTap did not share a deadline.
The product is nearly finalized but we do not have an exact go to date yet. We are working on it, said Tahseen Quadri, vice-president,
marketing,PepperTap.
Mint reported on 7 October (http://mintne.ws/1Nm0JXc) that Grofers is in talks to raise $120 million in fresh capital, largely from Japans
SoftBank Corp. and Russian entrepreneur and venture capitalist Yuri Milner.
This comes after a failed round of discussion to raise funds from Indias largest e-commerce marketplace Flipkart for a potential strategic
investment.
Grofers recently raised $35 million from existing investors Tiger Global Management and Sequoia Capital. In February, both Tiger and Sequoia
invested $10 million in the company.
Snapdeal (run by Jasper Infotech Pvt. Ltd) bought a minority stake in PepperTap in September leading a $36 million investment round, which
also saw participation from Russias Ru-net, Japanese private equity firm Jafco, BeeNext, and existing investors Sequoia India and SAIF
Partners.
There is a regulatory hitch, though.
Indias single-brand retailing laws do not allow companies having investments from foreign investors to sell their private label products to
consumers directly, according to Aksh Gupt, leader, regulatory services at consulting firm PricewaterhouseCoopers (PwC).
The companies can, however, do a B2B business. They can sell products to merchants and distributors, he said.
Grover says Grofers plans to sell its private label offerings to the merchants listed on its own platform, who can sell them through either its
online platform or offline through their retail stores.

27/11/2015 11:20 AM

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He said the company expects 20-30% of its business to come from private labels by December 2016.
Currently Grofers has over 5,000 merchants across 27 cities on its platform, while PepperTap has 200 merchants across 18 cities.
Private labels come with their own set of risks, according to Rohit Bhatiani, director at consulting firm Deloitte in India.
There is an inventory risk because the companies are procuring and doing the packaging and then selling the products. There will be larger
working capital requirement. Also, in certain commodities, such as pulses, there are instances of price fluctuations. This could erode away all
their margins, he said.
Grofers and PepperTap recently announced plans to offer consumer companies a platform to display ads on their mobile applications and
websites to sustain margins.
Online grocery store BigBasket also sells private label items such as fruits, vegetables, meat and bread under the brand name Fresho and
staples under the Popular and Royal brands. In June, the company said that private-label offerings account for about 35% of its revenue.

27/11/2015 11:20 AM