Here’s why Grofers may allow an American 'blank cheque' firm to buy it out instead of fighting Ambani and BigBasket for IPO

• The Softbank-backed startup is planning to head for a listing in the US through a special purpose acquisition company.
• Grofers is now seeking a valuation of $1 billion.
• Here’s a deep dive into Grofers’ business.

India’s grocery market is estimated to be $600 billion and less than 5% of it is organised, according to HDFC Securities. Grofers has a tiny sliver of that small pie. It is one of the top 10 organised retailers in India but it’s still a tough space to compete in.

Who leads in any competitive business also decides who gets a bulk of the investors’ money. In that, Softbank-backed grocery startup Grofers is running against JioMart, backed by the mighty Mukesh Ambani (Asia’s second richest man), and an early bird like BigBasket, a unicorn which the $100 billion Tata Group is in talks with for a majority stake.


Just as tight the competition is in everyday business, raising money may be as difficult as a spate of initial public offerings (IPO) from the retail ⁠— both online and offline⁠— space are in the works, at different stages. Therefore, as reports suggest, Grofers may opt for a listing in the US through a special purpose acquisition company (SPAC).

The reason why a SPAC is better than an IPO is best described by Don Butler, Managing Director at Thomvest Ventures. “An IPO is basically a company looking for money, while a SPAC is money looking for a company,” he recently said.

What is SPAC?

SPAC companies are generally formed as “blank cheque” firms with the specific purpose to raise capital through a market debut to acquire another company.

Grofers could either raise money from investors by selling shares directly. Or, it could sell to a company that is already listed.

When a deal is formed through SPAC, the companies have two years to complete the acquisition. If the deal fails to go through, the SPAC will have to return all money to the investors.

Through a SPAC deal, companies don’t have to go through the traditional paperwork hassles needed for an IPO.

There are many advantages of opting for a SPAC deal, first the company (here Grofers) would get direct expertise from a company that has been in the business of taking firms to the public markets, and SPACS also acquires companies at a premium, giving more value to the initial investors in the company.

And that’s how the Softbank-backed Grofers is now seeking a valuation of $1 billion. The startup had last raised funding in May 2018 when it got a $220 million cheque from SoftBank and was valued around $700 million.


Since then, the startup has had several talks for funding and acquisitions with rival companies like Zomato, Paytm Mall, none of which have worked out.

Some of the world’s richest people are competing for a slice of India’s growing online retail

India’s grocery segment which is a $545 billion market, according to Goldman Sachs. It has several players eyeing for the highest market share. Grofers, which until recently enjoyed being in a mostly two-player market, suddenly has many more competitors to watch out for.

A deep dive into Grofers’ business

Grofers in the last financial year reported an annualized Gross Merchandising Volume of $600 million. Even while Grofers in January 2020 had said that it had achieved breakeven in cities like Delhi and Kolkata, it continued to bleed red in its overall business. As much as 75% of its revenue comes from the top four cities alone.

Source: Tofler

During the COVID-19 pandemic, tables turned for Grofers as it did for other e-grocery startups like BigBasket, JioMart etc. In a Goldman Sachs report from November 2020, Grofers had said that its revenues were up by 85% from April 2020, as the demand for online grocery grew. “...it has been profitable (contribution margin) on every order delivered since the start of COVID-19,” said the report.

Snapshot of Grofers
Source: Goldman Sachs

Betting on private labels

Grofers has also been betting big on its private labels business, with the aim of running its business purely with its own brands. In April 2020, the company said that it would pump in $15 million into its private label business. And it made business sense as private labels are high gross margin products for the company, as much as 20% higher in consumer packaged goods and 5% higher in staples, according to the Goldman Sachs report.

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