India’s largest online grocery company Bigbasket is striving to capitalise on rising consumer spending and e-commerce trends in Asia's third largest economy, with fresh funds at its disposal and a possible public listing on the horizon.
The e-commerce company recently raised $200 million in funding from Tata Digital and other investors, taking its valuation to $3.2 billion, as it plans further expansion.
“A combination of trust, convenience, reasonable price, fresh supplies, delivery at your convenience along with first mover advantage worked well for Bigbasket,” says Anil Joshi, managing partner of Unicorn India Ventures, a Mumbai-based early stage fund house.
Bigbasket sells and delivers thousands of products through its app and website, serving households’ everyday needs, from basmati rice to toothpaste.
The company, which operates in more than 30 cities, handling about 15 million orders a month, generated $1.2 billion in revenue in 2022 and recorded a loss of $140 million, according to research firm Tracxn.
As part of its growth plans, Bigbasket is considering an initial public offering in the next two to three years, according to Bloomberg.
BigBasket was founded in 2011 in the information technology hub city of Bengaluru — often described as India's answer to Silicon Valley.
Its founders are largely veterans of the dot-com boom and bust era — Hari Menon, Vipul Parekh, VS Sudhakar, Abhinay Choudhari and VS Ramesh.
In 2021, Tata Group took a 64 per cent majority stake in the company, as it hit a $1.8 billion valuation.
“In the last two years, India has seen surge in digitisation and increase in online shopping, meaning the outlook looks good for online business,” says Mr Joshi.
“Bigbasket now being in the folds of Tata has an added advantage of trust and customer loyalty, which will certainly add to business growth.”
Ramesh Babu Sontineni, assistant professor at KL Business School, says that “factors and determinants driving consumer demand for Bigbasket are urbanisation, [a trend towards a] nuclear family structure, dual careers [among couples], and lack of disposable time at the customer's hand and customer convenience”.
Discounts on products are also a growth driver for the online platform, he says.
As well as going up against India's physical grocery stores, Bigbasket's main online competitors include Amazon, Reliance Industries' JioMart, Swiggy, and Walmart-owned Flipkart.
All these companies are racing to tap India's growing market for grocery shopping online, amid an increasing number of internet users in India and an expanding economy.
Rising internet access in the world’s second most populous country has been spurred by cheap data plans and budget smartphones, helping to bring consumers online.
The trend of online shopping was accelerated by the Covid-19 pandemic, which saw the country imposing some of the world's strictest lockdown curbs.
India has one of the fastest growing grocery markets in the world, expanding annually by 8 per cent. The industry, which includes online as well as brick and mortar store shopping, is expected to become a $850 billion market by 2025, according to RedSeer Consulting. It forecasts the country’s online grocery market alone to reach $25 billion by then.
“Only 2 per cent of all e-commerce sales are made through online grocery shopping at the moment, and therefore Bigbasket has a tremendous untapped opportunity to grow and attract new customers,” says Neha Singh, co-founder of Tracxn.
“All platforms in the industry are now expanding their network.
“The growing rate of internet penetration in the country, growing digital awareness, and new supply chain models being implemented in the sector that drastically reduce delivery times are some of the factors that are driving growth.”
To attract customers and be more competitive online retailers including Bigbasket are using a portion of their funds to offer discounts on products and vouchers.
In turn, this is helping boost the popularity of buying goods online in India.
“Consumer demand in India is a combination of secular growth trends, and particularly in tech enabled consumption sectors, a spurt of equity-fuelled consumer subsidies,” says Utkarsh Sinha, managing director of Bexley Advisers, a Mumbai-based boutique investment bank.
“The combination has led to a rush to customer acquisition, which has created a lot of subsidised spending.”
He notes, however, that liquidity conditions are tightening, which could have a negative impact for many companies.
“It is difficult to foresee this trend continuing in the face of interest rate hikes and a slowdown in equity funding,” says Mr Sinha.
But he believes that Bigbasket is in a strong position to weather the storm.
“Given Bigbasket’s historical grip on consumers and their integration into consumer lifestyles, it is likely that they will be isolated from an equity funding slump; they will likely continue to attract customer and sales, particularly if they are able to keep deploying their scale to create the best cost options for price sensitive consumers,” Mr Sinha says.
Bigbasket over the years has managed to attract more than $1 billion of funding from investors including Alibaba and the UAE's defunct Abraaj Group.
In December, Bigbasket's chief financial officer Vipul Parekh said the company was profitable and open to receiving more private capital before a possible listing in the next three years, Bloomberg reported.
“We’ll head to public markets at some point in time,” Mr Parekh told the news agency. “The right time to approach capital markets is when you have a stable, growing business, when you have reasonable confidence in your forward forecast and we have increasing profitability — the markets can be brutal.”
This comes as market conditions have been tough globally and India has seen several high-profile tech start-ups slump following their listings in 2021 due to factors including overvaluation and a challenging macroeconomic backdrop.
“The overall investment scenario across world is dull and India is no different, however with deep penetration of digitisation and online payment, the digital-first businesses are looking good in India,” says Mr Joshi.
“Though the current investment scenario is not in favour of high valuation, once it stabilises the online businesses will attract good investment and companies like Bigbasket will benefit more due to first mover advantage.”
The company still has several areas to work on to improve its attractiveness to customers and investors, analysts say.
managing partner of Mumbai-based Unicorn India Ventures
“Bigbasket has several obstacles, one of which is reaching people in small communities”, according to insights shared by Rajeev Gupta and Neeraj Bhanot, associate professors at Mittal School of Business, Lovely Professional University (LPU).
“Most small Indian towns have their own local marketplaces, making it difficult to convince consumers to convert from their present choices to online businesses.”
They add that “internet food stores operate with a razor-thin margin of 5 to 7 per cent”.
“Making a profit with such small margins is one of the toughest obstacles encountered by online grocery stores.”
There is also a reluctance among consumers to pay for delivery, the associate professors say, which is only free if customers spend over a certain amount on Bigbasket.
“The biggest challenge for online businesses is to lower the cost of acquisition,” says Mr Joshi.
Other issues include “managing delivery time, consistent quality and at a reasonable cost”, he adds.
This becomes more of a hurdle because the company is handling perishables.
“Expanding into cities beyond tier one cities will also prove to be a challenge considering the heavy infrastructure requirements to sustain its business,” says Ms Singh of Tracxn.
“Companies like JioMart already have a widespread presence in [smaller] tier two and tier three cities which will pose additional challenges in the expansion attempts of the company.”
As Bigbasket considers going public, analysts say that market dynamics and recent history point to a tough market, but one where there is enormous potential for growth.
“It is difficult to predict how the calculus will play out, but two chief factors are at play — the lack of fundamentals for most tech stocks that listed has created headwinds for tech in equity markets,” says Mr Sinha.
“However, tech continues to be a long-term growth segment, and a company with solid fundamentals will likely continue to attract investors. It would be interesting to see which side of this equation Bigbasket emerges on.”
