As reports float around that Amazon might pick up a stake in Future Group and is also eyeing a minority stake in Aditya Birla's grocery retail chain, More; the Godrej group's premium food retail chain, Godrej Nature's Basket is busy reinventing itself with a target of becoming a Rs 1,000 crore profitable business by 2022. Will the chain be a potential acquisition candidate for the likes of Amazon and Walmart? Avani Davda, Managing Director, Godrej Nature's Basket, chooses not to comment on it. In a conversation with Ajita Shashidhar, Davda talks about Nature's Basket's newly embarked journey of becoming a neighbourhood fresh food and grocery store from a premium global foods store.
BT: Can you tell us about your new positioning and what led to the change in the strategy?
Davda: In 2016, we were clear that we wanted to make Nature's Basket a scalable model and make it profitable even though we were a destination-gourmet store. Around this time, the Indian consumers' relationship with food was also changing. Earlier, people wanted and thought everything that was important would be available at a value, but that trend was changing. People were proud to consume what was locally grown and things that were sourced locally. There was conscious consumption of good-for-you food, people wanted to eat a lot more fresh food than what came out of a packet. We realized that in India there is definitely a market for neighbourhood stores, we also understood that for fresh categories such as food, vegetables, bakery, eggs and meats, there will be lot of touch and feel and they will want somebody close by to deliver. So, we narrowed down, changing from world gourmet food to daily food delights, which is really a neighbourhood local store. We said that the store itself will be a point of delivery to the customers. We said that we will demonstrate what daily food delights is, what is fresh business and we are going to scale that, especially in markets which are not profitable.
It took us two years to change. We reduced our SKUs from 30,000 to 7,000, focused on fresh and went out there and said that we are not just going to premiumise the products but bring bottom of the pyramid everyday items of consumption, be it grocery, tea, fruits and vegetables. We slowly started talking about penetrating further into the markets of Mumbai, Bangalore and Pune, once we hit store profitability. We focused a lot on supply chain and the way the fresh products are displayed and stored at the store level. Our damages and wastages which were high as 7.5 per cent came down to 3.7 per cent in all our stores, which flowed into our store profitability. So, assortment was changed, the way the brand looked was changed, we really contemporarised the brand, made it more approachable. We made lot of investments on supply chain as well as on technology; we used our online platform well. We found that even when consumers bought from us online, they were buying fresh, unlike other grocers who focus on their monthly purchases and not on their daily purchases. Therefore, getting the fresh supply chain right is key for a successful and viable business. The frequency of existing customers went up, new customers started adding up. The way our brand looked was very different, the hero categories which were important for the fresh value penetration, their penetration increased. Earlier, 25 per cent of the bill was from fresh categories, today, it is about 45 per cent, and in some categories it is as high as 55 per cent.
BT: Godrej Nature's basket had a similar strategy of being a fresh food and vegetables retailer when it was first launched, but the strategy didn't work. What made you go back to the earlier strategy?
Davda: In early 2000 when we started, the idea was to bring the farmers produce into the metro markets. But grocery business was challenging, it was fraught with lot of real estate issues and labour issues. We wanted to carve a niche for ourselves and there were people who wanted to buy imported wine and cheese. So, there was the halo of creating a premium good destination. So, we had fruits and vegetables, but we didn't carry the regular fruits and vegetable.
We used to carry sell exotics which were imported twice a week, but the same consumer was not completing his basket for us. We were not the go-to place for the consumer. We would have Davidoff Coffee, which is three times the price of Nescafe. But not all of us drink Davidoff every day. So, why not allow them to complete the basket with us? That was the whole consumer insight we had. People will come to us if we price it well and continue to give the same range.
We are price competitive, we benchmark with local markets. So, you will find a white asparagus as well as regular 'pudina' and coriander. We want the consumers to complete the shopping basket with us as that increases our average bill size and they will come to us more number of times. In grocery, we have national as well as regional brands. We are bullish about staples and expect lot of online traction, so we have put our own brand, Natures, which has done very well.
BT: Has this strategy started paying off?
The sales per sq.ft improved from Rs 2,700 to Rs 3,300, profitability at store level has moved by 8 per cent points. We had around 90,000 regular customers who came to us, their frequency has improved and the number of people who became high frequency has increased.
BT: You have recently picked up stake in a retail chain in Goa called Magson's. Why did you choose a regional retailer?
Davda: Our target is to be a Rs 1,000 crore brand by 2022. So, how do you scale up in an asset light way? That's when we thought of regional players. Goa came across to us where Magson's has 12-13 stores, it's well recognised, has been built slowly with the right blocks. It's profitable, but not at the cash profit levels we are talking about in terms of gross margin. We saw a good fit. We said that if we can without making massive investments in these markets build our own scale through partnerships, how would that look? We took a minority stake with the commitment that we would grow it, improve the profitability and in two years time we would co-brand the store.
One of the ways to grow is to set up your own stores, but it is capital intensive. You take a long risk as managing the stores is difficult. We believe in partnerships as it will give us strength to manage local issues.
The board is clear that we need to grow profitably. But it's not a wise decision to scale up for the sake of it. Even in online we will deliver within a 2-3 kilometre radius. Today, 15 per cent comes from online and unit economics is positive there as well.
BT: Why did you exit Delhi?
Davda: We moved out of Delhi in 2016. We were focussing on our consolidate phase. In a market like Delhi one has to have the scale, at least 12-13 stores within the main city and in NCR another 20-30 stores. It's a very large market for us. The reason we walked away is because it wasn't profitable for us. Our strategy now is to go deeper in a particular geography so that we can see the benefit of supply chain costs coming down.
BT: What has been the one big lesson that you have learnt about fresh food retailing?
Davda: Fresh supply chain is a local play, you can't do it at a national level because India doesn't have the cold chain, there isn't lot of infrastructure, and it will take time.