Grofers' Kolkata operations headed for a shutdown?

India's e-grocer story, which has seen many chapters ending abruptly in the last one year, could have more troubled tales to narrate.

Close on the heels of reports of online hyperlocal grocery player PepperTap downing its delivery operations shutters, sources are murmuring about the trouble brewing in Grofers's backyard.

According to two sources dna spoke to, the Softbank-funded e-commerce player is in the process of exiting from the Kolkata market. They said it could happen as early as in the current month itself. This would its second operation in the east, after Bhubaneswar, to be shut down this year.

In January, the Gurgaon-based grocery aggregator halted deliveries in nine of its markets – Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysuru, Nashik, Rajkot and Visakhapatnam.

"Grofers is shutting down Kolkata operations in May. It is second city in east to be closed down after Bhubaneswar," said one of the sources, who did not want to be named. In a response to an email sent by dna, the start-up refuted looking at such a move saying, "Kolkata is one of the top five markets for Grofers. It continues to perform very well and is a focus market for us."

Clearing confusion over its business model, Grofers said it is operating its online grocery as a marketplace and offers over 1.3 lakh products.

The new foreign direct investment (FDI) rules for e-commerce recently announced by the government allows 100% FDI in e-commerce ventures operated as marketplace through automatic route.

Today, the start-up, which was founded by Albinder Dhindsa and Saurabh Kumar in 2013, is present in 17 cities – Agra, Ahmedabad, Bengaluru, Chandigarh, Chennai, Delhi NCR, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Lucknow, Nagpur, Mumbai, Pune, Surat and Vadodara.

One of the sources said Grofers, which raised $120 million funding last year, has been ramping down because it cannot handle its scale, which has grown very swiftly.

"They have entered into a lot more categories than they can digest. They have gone into ice-creams, mobile accessories and all sorts of categories. Now, they are finding it difficult to handle the scale," he said.

The source said the guaranteed delivery in 90 minutes by the online supermarket player was also adding to its cash burn; "That is actually making them build more and more buffer in their logistics system. That is biting into their margins because it increased the number of deliveries."

The Grofer website claims 1,000-plus people had joined it over the past six months and that its user-base was growing at 4X (four times) every month.A player in the online grocery space said given India's huge potential in the grocery segment of the retail sector, there can easily be more than 10 players in the space. However, they would survive only if they got their model and execution right.

"You have to focus on what you want to do and how you want to do. It's not a kid's play to open shops in a lot of market, offer discounts and burn money and then maybe one year down the line if the investors don't pump in money, you close shop. You have to find sustainable solutions, increase your margins. have tie-ups with the sellers," said a senior executive of a leading grocery app, who requested anonymity as he was in direct competition with Grofers.

Leading players in the market include Nature's Basket, Big Basket, Grofers, ZopNow, Askmegrocery and others.

The executive said investor sentiment was turning negative because of a few bad news that have hit the sector lately.

"Investors are negative. They always have a herd mentality. One exit and they will change their mind and turn cautious," he said.

As per a report published recently by financial data and information services group VC Circle, even as angel and seed funding in the first quarter (Q1) of the current calendar year grew 33% in volumes, it shrunk 35% in value terms to $59 million in Q1 of 2016 from $91 million in the same period last year. For series A and B, funding from investors has dropped both in terms of volume and value in the last quarter compared with last year.