7AM: Reinventing the neighborhood grocery store
If there is one business that Mumbai-based Subhash Purohit knows best, it is retail. This is to be expected, since he has spent almost two decades in this domain. And he feels blessed that he had the opportunity to work with some of the best brands in this industry.
Starting his career with Decathalon as its international buyer, he later worked with McDonald’s India, where he was involved in leasing and commercial transactions. In between, he did a stint with Vornado, a US-based real estate investment trust that partnered with Mukesh Ambani-led Reliance Industries to invest in shopping malls a decade ago.
During his extensive career in retail, Subhash realized that there was one domain that was largely ignored – the grocery store. At one end of the spectrum was the local kirana store, where products were stacked haphazardly without any attention to visual presentation, while at the other end there was the hypermarket, which relied on deep discounting to entice customers. He felt that a huge potential existed for a modern, well-stocked, tech-driven neighborhood grocery store.
So, in 2017, Subhash decided to swap a fat paycheck for the thrill of starting a grocery store and co-founded 7AM. A year later, this brand has two operational stores in Mumbai, with five in the pipeline.
A step in a new direction
A key reason why Subhash got into the grocery store business last year was because real estate trends then were favoring retailers. “Realty is the most important business attribute for any retailer; the money-crunching element in the entire balance sheet is either rent or real estate investment in terms of capital. When I got into this business, banks and other institutions were not renting out huge spaces. So, I could negotiate with landlords for better rental agreements. Additionally, thanks to my previous professional background, I had great insight on how to structure rentals for better space yield,” Subhash said.
While setting up 7AM, he picked up valuable lessons about right sizing his stores, since this too can tilt the balance sheet’s performance in a big way. So, while the first store in Kandivali was 1000 square feet, he decided to upscale the upcoming ones to either 2000 or 4000 square feet. He dubs the latter as a ‘superstore’. It will act as an inventory hub, which will also fulfil online orders received at the smaller outlets, which might not stock all SKUs.
“Sizing of stores depends on the expected sales topline. In a superstore, the topline will average between INR 1200 to 2500 a square feet. So, the smaller the store, the lesser the stock, the lower the sales,” Subhash explained. “We feel that a 2000 square feet store can fetch sustainable topline of INR 2000, depending on the locality.”
Learning on the go
While launching 7AM, Subhash decided not to position it as a destination store housing several brands, but as a smart general store that locals from the neighborhood could flock to for their daily supplies. In the first year, it focused on stocking confectionaries, with some groceries, presuming that this would be enough to attract traffic. Soon, Subhash realized that for a grocery store to be successful, the groceries have to be front and center.
“Confectionary and bakery remain our strength and we have tie-ups with brands like KC Das and Ghasitaram Halwai. But, when we rolled out our second store, we ensured that the groceries were better visible to customers, because this product segment drives higher sales and sees quick turnaround,” he explained.
Also, he realized that the one feature that can spell success for a grocery store is hygiene coupled with quick delivery – even if it is for a loaf of bread. That is where technology gave 7AM the upper hand. The brand decided to invest in an app to make shopping more experiential for its customers and also streamline the delivery process with its backend inventory management.
“Initially, we had not planned on having an app; our focus was more on delivering quickly and efficiently to customers. But, we realized that most of our customers were housewives, and we wanted to provide them ease while shopping. So, our app has facilities where they can upload a photo of their shopping list or simply use the voice recording facility to narrate their order, and we will send the products across,” Subhash stated.
The app’s prelaunch test was much appreciated by customers. For instance, it received around 65 orders within four days of the test phase at the Kandivali outlet. Now, 7AM plans to launch the 2.0 version with integration of more digital wallets and other payment options in January 2019.
Building on loyalty
Aware that discounts play a significant role in grocery purchase, 7AM developed its own loyalty program, called Rainbow, which gives rebates to cardholder. “We did this to create a distinction from the kirana store and the hypermarket – the former offers regional products, while the latter offers discounts. We provide convenience, good quality, reasonable variety and free delivery. At the same time, we wanted to increase customer stickiness, which was possible by letting them earn and burn accrued loyalty points,” Subhash reasoned.
The privilege card offers three levels of benefits – discounts on product purchase and on the total bill, as well as redemption of points. Subhash claimed that his customers are delighted with this loyalty program and the Kandivali store already has 1800 cardholders. “Our aim is to enroll 3000 members in every area where we have a store, and then stop the enrolment,” he added.
When it comes to sales, the loyalty program generates around 35 bills daily in the Kandivali store and he feels this can go up to 100 bills shortly. “On an average, a grocery store like ours churns out 400 to 450 bills daily,” Subhash specified.
Currently, 7AM has two stores in Mumbai – in Malad and Kandivali – with a superstore coming up at Colaba in mid-January 2019. Two more outlets are in the pipeline, Subhash hopes open eight stores by March 2019. “We plan to have 50 stores within three year and by 2021 I would also want to enter New Delhi and Bangalore,” he said.
While, Subhash and his co-founder are self-funding the existing and upcoming stores, they are in talks with investors who will finance their expansion plans. He believes that with the operational stores, he has a successful proof of concept at hand. What he needs is someone who shares his vision of a modern value-added grocery store and is willing to back his gameplan.