Flipkart, which retreated from grocery within months of starting and closing down a pilot called Nearby in early 2016, wants a second coming. Its CEO Kalyan Krishnamurthy was quoted at an event organized by TiE that the company wants 60% of the wallet share of the consumer who stocks up on grocery and FMCG every month.
Online grocery app Grofers, which has raised over $165 million from investors including SoftBank and Tiger Global, is the only other name in the space which has continued to survive despite multiple pivots and by rescinding markets.
Role of artificial intelligence
According to KalaGato, market research and intelligence platform, BigBasket commanded 73% of the online grocery market by order volume in February. Grofers was a fifth of BigBasket’s market share while ZopNow and Amazon Now had a percentage of the market in lower single digits.
The company started as an on-demand platform for grocery in 2013, aggregating orders on the app, picking it from stores and delivering it to the customers through its fleet. The company lost money on each order, according to an analyst who chose to be anonymous.
Since then, Grofers has tried models including offline kiosks near residential areas to service a high-density area and is finally resting on the inventory-based model, procuring its own fresh produce and pushing private label in the staples segment.
“Unlike mobile, grocery will be a local play. It is important to procure locally for fresh products. There will be local winners and losers. There will be ABC doing well in Mumbai, others doing better in Bengaluru,” says Mukesh Singh, co-founder of ZopNow which has a restricted play across cities, delivering groceries in a three-hour window. He adds that while BigBasket is a stable business model, it is not a winner-takes-all market.
According to Singh, it is a wait of two to three years to make money with the grocery business. Till then it is the well-funded companies that will bear the brunt of educating the market, read as ‘burning money to convert users’.
BigBasket Stays Independent, For Now
The acquisition of Whole Foods by Amazon in June in the US has brought back the focus on grocery as one of the low-value segments, which can increase the number of transactions done by a customer online. Amazon Inc bought Whole Foods in an all-cash transaction valued at approximately $13.7 billion including the company’s debt. With the acquisition, Amazon has entered the offline food retail business with 460 stores owned by Whole Foods.
In the US, the sale of FMCG products online is only 25% of the shopping according to a report by Kantar Worldpanel. China tops the global list as far as online grocery and FMCG purchase is concerned.
In this scenario, it makes perfect sense for BigBasket to align with Paytm Mall, which brings on board the right set of investors to execute the company’s expansion.
Alibaba, which is an investor in Paytm and will also be a part of the BigBasket deal, has seen a similar story work out in the South East Asian markets. Lazada in Singapore, which is backed by $2 billion from Alibaba, acquired online grocer RedMart in November 2016. Alibaba invested $305 million in discount supermarket chain Sanjang Shopping Club in China and acquired an 18% stake for $81 million in Lianhua Supermarket chain owned by Bailian Group in Shanghao.
What BigBasket got right from the start was the inventory-based model of procuring fresh produce, building its own supply chain with the farmers and creating a private label.
“Before we built the supply chain for BigBasket, we would pick up the products from Metro Cash and Carry and Safal. The fill rate (back then) was low at 70%. What fill rate means is that if you order 18 items on BigBasket and you get only 17 of them, the pain is still 100%. For that single item, you have to go to the store. You may as well buy the other items during the trip,” says Ganesh.
He further adds that grocery is a low margin business unless you have a private label which guarantees a 25% to 30% margin. This again needs working closely with mill owners and farmers. For BigBasket, the private label business contributes 35% to its revenues which it plans on growing to 40% by March 2018, according to a previous interview given by CEO Hari Menon to another publication.