Who Will Buy India’s Leading Online Grocer BigBasket?

According to Technopak, the grocery and food market in India is estimated to be about $400 billion, out of which organized retail accounts for just $12 billion with online e-grocers garnering a 4% share. BigBasket is a leading online grocer trying to tap its potential.

BigBasket’s Journey

Bangalore-based BigBasket was founded in 2011 by Abhinay Choudhari, Hari Menon, VS Sudhakar, VS Ramesh, and Vipul Parekh as an online grocery store. Prior to BigBasket, Hari, Vipul, and Sudhakar had started an e-commerce site Fabmart.com in 1999, but it was well ahead of its time. Internet penetration in India was as low as 0.27% in 1999 compared to 18% in 2014. So, they pivoted to retail with Fabmall, scaling to a network of 210 stores before being acquired in 2006 by Aditya Birla Group. In 2011, when e-commerce was taking off with the likes of Flipkart, they got back together with Sudhakar’s brother Ramesh and Abhinay Choudhari, who was running an online grocery business called Shop As You Like.

BigBasket’s main value proposition is the convenience it offers in buying fruits, vegetables, groceries, and toiletries from a range of 20,000 products. It offers slotted deliveries: weekly, emergency, top-up buy through express delivery, or from neighbourhood speciality stores.

In 2012, BigBasket expanded to Mumbai and Hyderabad. It crossed the $1 million revenue milestone in mid-2013. In 2014, it expanded to Chennai, Pune, and the National Capital Region, with a warehouse in each city. It also got actor Shahrukh Khan to be its brand ambassador in 2015.

In 2016, BigBasket expanded to Kolkata and Ahmedabad and 17 tier II cities. It also launched a 90-minute express delivery service to cater to perishables. It has also launched its B2B food-service segment called HoReCa (Hotels, Restaurants and Caterers), which is expected to contribute 15% of the annual turnover in the near future.

Unlike other e-commerce vendors, BigBasket.com was focusing on groceries including fresh produce and staples. The founders’ experience with Fabmart and Fabmall helped and they focused on building private brands for groceries, where the margins could be as high as 30%-40%. Today, it owns brands Fresho for fresh produce, bakery, meat, cut vegetables, batter, and cookies; Royal and Popular for staples; Tasties for coffee and snacks; and Happy Chef for gourmet sauces, dips and ready-to-cook meal kits. It also sells its private brands through about 1,000 neighborhood stores in eight cities.

BigBasket operates in 25 cities with 25 warehouses and 63 storage facilities and claims to have three million repeat customers. It has about 12,000 employees.

BigBasket had plans to expand to 50 cities but scaled back its plans after two of its major competitors, Tiger Global Management-backed Grofers and PepperTap faced a hard time. Grofers, which has raised $165 million so far, had expanded rapidly and had to shut down about 10 locations in early 2017 due to poor demand. PepperTap, which has raised $51 million so far, shut down its operations in April, about seven months after raising $36 million from investors.

BigBasket is instead focusing on analytics with its Smart Basket feature. The feature aims to alert customers if they have missed out on adding their frequent purchases or if an item they normally buy is about to run out. Other key focus areas include the fruits and vegetables supply chain and organic and private labels.

BigBasket’s Financials

BigBasket’s revenue for FY 2016 tripled to Rs. 563 crore ($83 million) from Rs 170 crore ($26 million) in FY 2015. But the losses have also increased to Rs. 277 crore ($43 million) from Rs. 61 crore ($9.5 million) a year ago. Private labels account for about 35% of its revenues. Revenue in FY 2017 is estimated to be  Rs 1400 crore ($215 million) and it has projected annual turnover of Rs 2500 crore ($385 million) for FY 2018. The contribution of private labels to the annual turnover is expected to increase from 35% to 40% by March 2018.

BigBasket has raised over $570 million from investors including Abraaj Group, Alibaba Group, Ascent Capital, Bessemer Venture Partners, Brand Capital, Helion Venture Partners, ICICI Venture, IFC Venture Capital Group, LionRock Capital, Paytm Mall, Sands Capital Management, Sands Capital Ventures, Trifecta Capital, and Zodius Capital. This month, it raised $280 million in a round led by Alibaba Group and Paytm Mall at an estimated valuation of $600 million -$800 million.

The food and grocery market accounts for about 70% of the retail market, which is why Amazon is eyeing the market. In February, it launched a platform called AmazonNow where grocers can sign up, get orders based on the location and fulfill them. Amazon now has 31.2% share in the e-grocery market, up from 2.6% in 2016 after reducing Grofers’ 55.9% share in 2016 to 31.5%. BigBasket is the leader with 35.2%, down from 39.2% in 2016.

Amazon was in talks to acquire BigBasket, but BigBasket turned down its offer of $450 million. The e-grocery market with its wafer thin margins is hard to crack. Amazon was eyeing BigBasket for its private labels and inventory-led model. Following the failed bid, Paytm is showing interest in BigBasket. Even Flipkart is eyeing the e-grocery market. Competition is definitely heating up and might earn BigBasket a decent exit in the arms of a larger player.