India’s Grofers Grabs $120M To Bring Offline Merchants Into The On-Demand World

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The race for on-demand delivery services in India is on, and today one of the bigger startups in the market has picked up a large cash injection as it goes for pole position. Grofers, an Instacart-style app that links up with local, offline merchants to delivery groceries, medicine, flowers, and other daily items to customers, has raised $120 million led by new investor SoftBank. The Series C round also included existing backers DST’s Apoletto Managers, Tiger Global and Instacart investor Sequoia Capital.

Grofer CEO and co-founder Albinder Dhindsa and SoftBank have both directly confirmed the round and investors to TechCrunch.

Grofers has been on a fundraising tear to aid its expansion. This is the third round raised by the company this year alone, after earlier rounds of $10 million and $35 million. It brings the total to just under $166 million including an earlier seed round.

Japan’s Softbank has been pouring hundreds of millions of dollars of investment into Indian startups like OlaSnapdeal and more, and as part of this round it will take a seat on Grofers’ board.

The Times of India, which first reported the raise, cites sources that say Grofers now has a post-money valuation of over $300 million. Dhindsa, who cofounded the company with Saurabh Kumar, would not comment on the valuation and said he hadn’t even wanted to make this fundraise public.

“Very honestly it’s just a distraction for the team,” he told TechCrunch. “We’re in the middle of trying to build a business.”

Today, that business is currently live in 26 cities in India, with some 1.6 million downloads of the mobile apps that are used to order its services.

While Grofers looks on the surface like another Instacart clone, there is more going on under the hood. The company originally started as a B2B provider of a supply chain platform it built to help larger brands distribute consumables to smaller merchants, and for those smaller merchants who are almost completely offline to better keep track of their stock. “In India, retail is very unorganised, so we see an opportunity in helping small merchants come online,” Dhindsa says.

Still, perhaps to tap into a more mass market prospect, it recently pivoted — or expanded may be the more accurate term — to make its business more consumer-facing, by offering those small, offline businesses an additional service: a way of showing their stock to consumers, who can order and have items delivered.

Typically, Grofers offers some features to businesses for free, such as its inventory management system. It then takes a cut on other business software and services, as well as on the delivery, which can range at prices to consumers of between $1 for groceries to $0.40 for medicines (not as cheap sounding in India as it may be in the U.S.).

Dhindsa says that the funding will be used to continue growing its supply-chain management development, but also to continue building out its last-mile infrastructure.

Today, Grofers uses a mix of its own employees and contractors to deliver goods. Perhaps cleverly, it has chosen not to make delivery the cost-and-profit focus of its whole operation. In fact, it’s even considered partnering with others for that aspect of its business.

“We’ve been open to partnering with others for delivery,” he says. “We’ve experimented in the past but our needs are bespoke so we haven’t been able to work with others.” Still, there is now an obvious partner for Grofers in the Softbank network: Ola.

On-demand competition

E-commerce services are flourishing in India at the moment, with larger developments creating a perfect storm of sorts. The country’s economy is growing fast, leading to a rise of middle class consumers with disposable income. At the same time, smartphone usage is booming in India, and many consumers are using apps created for them as a way to bypass less efficient, older infrastructure in the country.

Flipkart and Snapdeal — India’s homegrown equivalents of Amazon and eBay — are vying to own the space for e-commerce marketplaces, where people flock to one-stop shops to buy everything from clothes to electronics, food and larger items like cars on a single platform. These companies have been raising enormous sums to money both to meet demand, but also to finance the capital-intensive process of e-commerce growth.

Grofers, focusing on last-mile services alone, is marketing on two fronts: first, to local merchants who may not have a strong online presence to give them a way of engaging with consumers who are buying more and more online; second, to consumers who are buying into the current on-demand craze of “I want it, and I want it now.”

With margins on delivery services relatively thin — especially in hyper competitive markets — Grofers will need to get very big to make a good return: one reason for the fundraise and drive to expand.

On top of this, however, is another reason for the large fundraise: competition. Grofers is not alone in going after this market. Other pure-play competitors in the on-demand delivery space include PepperTap (which is also backed by Sequoia and currently focuses only on groceries).

Snapdeal, which invests in PepperTap, and Flipkart are also investing in and sharpening up their own logistics operations. And of course transportation companies like Ola (and its arch competitor Uber) are also likely to expand to delivery as they look for better economies of scale on their own logistics and transportation investments.

This is before you consider what the bigger on-demand delivery companies in the U.S. may end up doing internationally.

Neither Postmates nor Instacart — which had its start in groceries but has since expanded to other categories of products sold by local merchants — have yet to make any moves to take its on-demand delivery platform into Asia. But we’ve been hearing that both are raising money again, which could be used in aid of just that.