At the time of publication: Seed | Total funding raised: ~6.3mn USD
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In India, Grocery is the single biggest retail category. It contributes to 70% of retail and is worth more than 600bn dollars in annual spend.
Even today 95%+ of Grocery is unorganized and is served by millions of 'kiranas' or mom and pop stores.
Even after many years, the big organized retail companies struggle to make a major dent in Grocery in terms of revenues. The top two companies in the space Reliance Retail and Dmart together make around 7bn$ in Grocery annual revenue and grow at 20% or so every year. The rest of the organized offline retail struggles quite a bit and have poor financials reflecting the low margins in Groceries.
The consumption in India is fairly staggered geographically. The biggest 8 cities (here noted as Metros) contribute to only 15% of India consumption. Majority consumption comes from lower tier cities (Tier 2 and Tier 3) even with all the migration.
Organized retail has very low penetration in Tier 2 and Tier 3 cities. For example, this is how the distribution of stores look like for the big Grocery offline retailers.
Kiranas have an advantage in having good local knowledge (knowing the needs of the local neighborhood population) and have low manpower costs (the owner attends to everything). Because they have good relationships in that community and neighborhood they also offer flexible credit to customers (sort of an informal buy-now-pay-later).
But the disadvantage they have is lack of scale and low selection due to small shop sizes.
Hence there is a sizeable opportunity to serve Tier 2 and 3 customers in Grocery with lower prices and wider selection than Kiranas.
Online Grocery players can potentially make a dent but currently the crowded Online Grocery market in India is yet to make a significant impact. The primary reason is the high fulfillment costs currently that are unsustainable given the low average order value. In India average order value hovers around 15$ compared to >70$ in developed markets like the United States.
But I think there is scope for more offline grocery models.
Which brings me to the Indian startup SuperK. SuperK currently operates in the Indian state of Andhra Pradesh.
SuperK aims to bring the benefits of organized retail (scale pricing and selection) to Tier 2 and 3 geographies. It does this through an asset-light franchise model.
This is how it works.
SuperK operates on a franchise model. SuperK helps small entrepreneurs (franchisees) launch their neighbourhood small supermarkets under the SuperK brand in their local area. The entrepreneur shells out initial investment for the land, infrastructure and working capital for the stock.
The entrepreneur (the owner of the store) needs to manage and serve customers while SuperK takes care of negotiation and central procurement from brands and vendors, branding, inventory replenishment and so on. SuperK also helps set up the interiors of the store (racking, billing and POS systems for example).
SuperK hence ‘centralizes’ brand negotiation and procurement and demand generation and gets benefit of scale (hence lowering prices) while localizing customer management to delight the customer.
There are a few strategic choices SuperK incorporates in its business model design:
A store must be able to serve a population of at least 30,000
The owner needs to sit in the store. In other words, the main source of income for the owner needs to be the store. This helps in ensuring good involvement and customer delight
The store expansion will be in a cluster fashion to ensure supply chain efficiencies. All the stores (currently 60 of them) are currently in Andhra Pradesh. The company plans to open up to 1300 stores in the southern (and neighboring) states of Andhra Pradesh, Telangana and Karnataka by end of 2024.
The store setup costs (usually Rs. 1.2 Mn or $15,000) are borne by the owners. This includes infrastructure and working capital for inventory
The stores are usually between 400 to 800 sq.ft - larger than your kirana store but much smaller than a hypermarket. The stores are self-serve - customers can walk in and pick the products they want and bill at the counter
The value proposition is straightforward
Customers in these locales often experience SuperK as the first neighborhood supermarket with a much wider assortment than the Kirana store. There is better quality and pricing and proximity
The franchisees have a shot at earning a good monthly income. SuperK claims franchisees typically earn Rs. 70k to Rs. 80k a month - a very good income in India. Launching a store can be done within 30 days.
SuperK also offers franchisees a minimum monthly guarantee for the first 6 months of operations to ease any concerns.
SuperK charges a franchise fee of Rs. 1 Lakh and makes a margin on the goods being sold to the stores (by acting like a wholesaler to the franchisees). One area of monetization that can open up later is partnerships - many companies and brands struggle to reach Tier 2 and 3 customers. SuperK franchisees can help in non-competing brand promotions and customer activation and can earn additional incomes.
Grocery is a difficult business to crack for organized retail and SuperK will need to have a multi-year disciplined execution - location and franchisee selection, demand forecasting, demand generation, branding, favorable margins in procurement etc. SuperK also needs to have loyalty programs for its customers. SuperK currently offers monthly surprise ‘gifts’ to customers who purchase more than Rs. 1500 (to encourage repeat purchases).
And the net monthly income for franchisees is a key metric. If that stays consistently above Rs. 70,000 or so, then there is going to be very high interest from talented local entrepreneurs.
SuperK is an interesting business model in an extremely large market. There is a real need for an organized grocery retail experience (wider assortment, more brands, better quality and pricing) in Tier 2 and 3 towns but currently is unfulfilled by established retail giants and is not going to be fulfilled by them in the near future. SuperK also seems to be very disciplined in store expansion and follows a ‘cluster’ expansion strategy. Continued expansion has the potential to unlock good economies of scale. SuperK is a high potential startup to watch out for.