On my desktop, Groove music is not finding any of my local music files that I have in the folders I have added (mostly my existing iTunes folders). I've tried resetting the app but still no luck. Grabbing my OneDrive files with no problem.
Any thoughts?
I had this problem on my desktop (Windows 10 version 1607) too, I tried other solutions from different websites but none of them work on my device.
But I have found a found a solution (accidentally)
Go to Settings > System > Apps & Features> Groove Music > Advanced Options > Reset
And you're good to go.
I hope this works on your device as it works on mine.