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BigBasket’s ingenious journey to crack India’s complex e-grocery market

Written by Moulishree Srivastava Published on     7 mins read

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Indian conglomerate Tata Group has acquired a 68% stake in online grocery startup BigBasket, making the duo one of the strongest players in the booming e-grocery segment.

The idea behind online grocery platform, BigBasket, was conceived in the 90s by its founders.

In 1999, eight years before homegrown e-commerce giant Flipkart was born, six men in their 30s came together to build India’s first online retail store called Fabmart.com.

The company started operations by selling music CDs and eventually ventured into books, toys, computers, jewelry, watches, and groceries. However, it was too early for e-commerce to take off in India as internet penetration was abysmally low, and online payments were rare.

For the first couple of years, Fabmart.com managed to survive, but the infamous dot-com bubble burst in 2002 forced it to open a chain of physical retail stores called Fabmall.

Two years later, Fabmall merged with a South Indian retailer Trinethra Super Retail.  The new entity had about 150 stores when it got acquired in 2006 by the Indian conglomerate Aditya Birla Group, which rebranded it as the supermarket store chain More.

Even as five of the six co-founders left, Vaitheeswaran K, also known as the father of e-commerce in India, made desperate attempts to revive Fabmart.com and even rebranded it as IndiaPlaza in 2007 after acquiring a US-based online shopping firm Indiaplaza.com. But the company had to eventually shut down in 2013.

Although Fabmart.com didn’t turn out to be a success, it did teach them the do’s and don’ts of running an online store. In 2011, the four men out of six–V S Sudhakar, Vipul Parekh, Hari Menon, and V S Ramesh–got back together and roped in another co-founder Abhinay Choudhari, to start India’s first e-grocery platform BigBasket. This time, they had a better chance at success as internet penetration had exploded in the country, people had warmed up to paying online, and smartphones were proliferating.

Over the last ten years, BigBasket has emerged as the leading online grocery platform with backing from marquee investors such as Alibaba Group, Trifecta Capital, Bessemer Venture, and Mirae Asset, which have poured USD 1.1 billion into the company. It hit the annualized gross sale run rate of USD 1 billion in June 2020 and currently sells about 18,000 products and receives 300,000 orders daily.

Grocery, kirana
A vegetable seller at a wholesaler market in Tumkur, a small city in South Indian state of Karnataka. Photo by Avanish Tiwary

Last month, when USD 106 billion worth, salt-to-software conglomerate Tata Group, reportedly acquired a controlling 68% stake in BigBasket for USD 1.3 billion, the startup became the most successful exit story in India’s online grocery space.

BigBasket’s handshake with Tata Group makes the duo one of the strongest players in the segment. In a January 2021 report, consulting firm RedSeer projected the e-grocery market to reach USD 24 billion by 2025–6% of the overall projected USD 852 billion grocery market. The projection was spurred by an increase in online transactions due to the pandemic. In comparison, e-grocery was a USD 1.8 billion market in 2019, accounting for a mere 0.3% of the total USD 603 billion grocery-spend in the country.

Laying the foundation

BigBasket has seen a number of rivals like ZopNow, PepperTap, LocalBanya crop up and perish. Grofers has been the only direct competitor among the early entrants to survive. As the e-grocery market grew more lucrative in the last few years, deep-pocketed e-commerce players like Amazon and Flipkart, top tier VC-backed startups including food-delivery giant Swiggy and hyperlocal service Dunzo, as well as JioMart, owned by India’s largest company Reliance, jumped on the opportunity and sunk their teeth deeper into the booming sector.

Despite the hyper-competition in the segment, BigBasket has managed to maintain its leadership position. The experts that KrASIA spoke to attribute the success of the startup to the experienced founding team, which knew exactly what consumers wanted.

Their previous venture had taught them that building an e-grocery platform would be a capital-intensive battle given the complexity of the grocery market and a broken supply chain in the world’s second-most-populous country. In March 2012, BigBasket landed a USD 10 million-check from Ascent Capital, one of the biggest Series A rounds then.

“We were particular that we would first raise capital and start. For online grocery, there is nothing to bootstrap,” Menon, co-founder and chief executive of BigBasket, said in a 2016 interview with local media YourStory. “Either you start scaling from day one, or you don’t at all. The whole business works only on scale, the unit economics don’t work otherwise.”

In its first year of operation, BigBasket relied on wholesalers, retailers, and fruits and vegetable markets, locally knowns as mandis, to procure goods. However, its eyes were set on establishing an inventory-led model, and to that effect, it set up a supply chain network that included refrigerated warehouses and a temperature-controlled fleet of trucks, among other things.

With full control on inventory, BigBasket struck deals with manufacturers and farmers to directly source fresh fruits and vegetables, staples, and personal and home care products. This bumped its margins manifold.

In its initial days, BigBasket procured products from mom-and-pop stores, retailers, and wholesalers. Photo by Alin Andersen on Unsplash

According to Satish Meena, senior forecaster at research firm Forrester, BigBasket had realized early on that its growth relied on having an inventory-led model and can’t depend on third-party suppliers.

“An inventory-led model helped them have a high fulfillment rate as they could stock up a wider assortment of products, compared to other players that depended on retail stores to fulfill orders. Without a high fulfillment rate, they knew customers would not come back,” Meena said. A company has a 100% fulfillment rate if it delivers all the items that a customer has ordered.

“It relied on superior customer experience to sustainably grow and retain customers rather than giving discounts.”

As the company scaled operations, it mopped up more venture capital to strengthen its operational capabilities and back-end infrastructure. In the first five years of operations, BigBasket’s gross merchandise value grew from USD 4 million to USD 200 million, as its customer base reached 4 million. But by then, the competition in the e-grocery space had intensified with Grofers getting user traction and Amazon beginning to experiment with this category.

The moat

Being the early mover and acquiring a customer base that was loyal gave BigBasket an upper hand over its rivals.

“They had gained the creamy layer of customers who were willing to spend more for convenience and BigBasket did not give them a reason to look for a change. That’s why its market share has remained stable for years,” Meena said.

In contrast, Grofers targeted price-sensitive customers, he explained. “This is why JioMart, which also focuses on mass-market and offers products at a lower cost, impacted Grofers more than BigBasket.”

What BigBasket also did better than anyone else was delivering fresh vegetables and fruits to the customers’ doorstep.

Fresh fruits and vegetables (F&V) has highest margin of 30-35% in groceries under the inventory-led model. But the lack of a proper supply chain needed to keep the produce fresh and reduce wastage makes it a difficult nut to crack. This is where BigBasket’s investments in building a dedicated supply-chain has paid off.

The company implements a just-in-time delivery model for F&V. Once the orders are placed, it procures the fresh produce and through its refrigerated warehouses and fleet of trucks deliver them within a couple of days.

Moreover, unlike other players, that roped in kirana stores and retail chains to quickly expand across cities, BigBasket went for calculated expansion. It took its time to understand and scale in one city, before spreading its operations to other cities, an industry expert told KrASIA, who did not wish to be named as he works with different e-grocers. BigBasket reportedly personalizes its assortments of products according to local preferences across different cities.

By mid-2016, BigBasket established its presence in eight cities, which has now gone up to over 25.

Trying different recipes

Once BigBasket reached a certain scale and hooked on millions of customers, it began exploring ways to stay ahead of the competition and add new revenue channels.

For instance, in 2016, it tried a 90-minutes express delivery service, dubbed as BBExpress, like other players, only to shut it down three years later. However, that didn’t deter the company to push new initiatives.

To improve its margins, BigBasket dabbled in private labels and sold grains, pulses, as well as fruits and vegetables under its own brands. It subsequently started selling its products to kirana stores, retail chains, hotels, and restaurants under its B2B initiative HoReCa.

In 2018, the company acquired vending machine startup Kwik24 and rolled out a new offering called BBInstant. They installed kiosks that could be used via its app to purchase condiments in housing societies and offices. In the same year, BigBasket acquired a micro-delivery startup Morning Cart to venture into daily deliveries and expanded this service by buying Sequoia-backed DailyNinja in 2020.

Startup

Also read: The making of Reliance’s omnichannel retail empire in India

While since its inception, BigBasket had focused on catering to the planned weekly purchase of groceries as they tend to have high order value, subscription-based daily delivery allowed it to capture a bigger share of users’ wallet. Planned purchases, along with daily grocery, according to experts, make up for 90% of total grocery spend in a household, while urgent purchases constitute the rest 10%.

In its list of new endeavors, it added a same-day delivery service in 2019–promising users they would get their orders within four hours–after realizing BBExpress was not profitable. It created a hybrid of warehouses and dark stores, meant to hoard up to 5,000 products and fulfill same-day orders, said the industry expert quoted above.

Express deliveries are tricky because people use them for urgent or impulsive purchases, making the total order value low. But they cost the same as the next-day deliveries, which cater to high-value orders, as customers plan them in advance, he explained.

“People choosing three to four-hour delivery will likely order more than those opting for instant purchase. This optimizes the delivery cost for the company,” he said.

Running these experimentations had allowed BigBasket to create a full-stack service, he added. Now, BigBasket has a gamut of offerings ranging from delivery within three to four hours, next day delivery for more planned grocery shopping, daily deliveries for dairy produce, vending machines, and a B2B business catering to kiranas and hotels, among others.

Meena believes BigBasket has created a solid product that is being used by high-income households and premium online buyers. And now that Tata has BigBasket in its kitty, the Indian conglomerate has an entry point to the high-spending customer base, which it will eventually tap for the integrated e-commerce platform that it has been working on.

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