 "Sushanto Mitra")
Noted consumer activist Jehangir Gai has been shopping at BigBasket.com since the firm started its services in Mumbai. "The site provides the comfort of purchasing household items from home, helping avoid travel, running around for purchases, waiting at billing counters and carrying the load home," he says.
"I had stopped eating mangoes because the ones available in the local market were treated chemically; but the ones from BigBasket were chemical-free. Similarly, the selective pieces of boneless shoulder mutton are better than what is generally available in the market and is well cleaned," he says. Besides BigBasket offers customers the option of choosing a suitable delivery slot, he adds. The firm adheres to timings and deliveries are seldom delayed.
Says Hyderabad resident Deepti Manohar: "When my last order was to be delivered, there were unexpected and incessant rains in Hyderabad and the order was delayed by half an hour. BigBasket credited ten per cent of the order value back to my account due to the delay." She has shopped at the BigBasket in Bangalore, too.
In December 2011, V S Sudhakar, Hari Menon, Vipul Parekh and V S Ramesh launched BigBasket in Bangalore. The idea was seeded by serial entrepreneurs and angel investors Krishnan and Meena Ganesh. This wasn't the founder team's first e-commerce venture. In 1999-2000, it had started a company called Fabmart. The Bangalore-based firm sold various products online - music, books, groceries, etc. However, given the low internet penetration in India at that time, the venture failed. In 2003, Fabmart was rebranded as Fabmall and launched as an offline grocery store. Subsequently, it was acquired by the Aditya Birla group and is now called More. The online entity was acquired and merged with US-based Indiaplaza.
He recalls the initial six-nine months were challenging, in terms of building capacity to meet customer demand. Since its inception, the company has seen demand grow 25-30 per cent on a month-on-month basis. Parekh says BigBasket records 2,000-2,500 orders a day, or 75,000-80,000 orders a month, across the three cities. The average monthly order size stands at Rs 1,500.
"We see 60-70 per cent repeat customers," says Parekh. BigBasket doesn't advertise much; to acquire customers, it primarily depends on word of mouth. "Around 45 per cent of our customers come through reference and 20-30 per cent through online searches and traditional media," he adds.
Financials
"Our Bangalore business saw revenues of Rs 20 crore in FY13. In FY14, we should clock revenues of Rs 300 crore and Rs 500 crore in FY15," says Parekh. The Bangalore business was expected to break-even by the end of this year and operations in the other two cities were likely to be profitable by July 2014, he added.
Currently, BigBasket has a 600-strong team across three cities.
The company has two working models. When it started operations, it adopted the just-in-time model - not just perishables, every item was brought against an order. BigBasket now buys products directly from suppliers - HUL, P&G, farmers and mills - and stocks these in warehouses. It sets initial inventory levels and later, re-ordering levels. The entire process is automated.
"We buy directly from the manufacturers or suppliers and add a margin to the product price before selling. At a mature stage, the blender margin stands at 20-25 per cent," says Parekh.
BigBasket has started delivering perishable items, too. Compared to other e-commerce segments, here, it is critical to hit a minimal basket size; else, you end up with negative contribution margins, says Navin Honagudi, investment director at Kae Capital.
BigBasket has a warehouse each in Bangalore, Hyderabad and Mumbai, as well as hubs (where delivery vehicles wait). Goods are sent to hubs and from there, to customers. The routing is done automatically and the vehicles are GPS-tracked. Each city is split into zones and each zone has a hub.
"Using analytics to predict weekly demand, the company can optimise logistics and supply volumes to drive better margins," says Honagudi.
Funding
Initially, venture capitalists weren't very comfortable with the business model. Often, they drew parallels with Webvan, a US-based online grocery store that lost a reported $800 million (about Rs 4,880 crore) in venture capital and initial public offering proceeds before being shut in 2001.
In February 2012, BigBasket raised $10 million (Rs 61 crore) from Ascent Capital in series-A funding. "We don't need to raise funds for sometime now," says Parekh.
Raja Kumar, founder and chief executive of Ascent Capital, says, "Grocery is a $160-billion (Rs 976-crore) opportunity, where the online model could potentially be a scalable and capital efficient to overcome many challenges organised retail faces. The success of Ocado and Tesco in the UK, Yihaodian in China and FreshDirect and Amazon Fresh in the US pointed to an emerging untapped opportunity."
Parekh says as of now, the company's unique selling point lies in its range of products, both in fresh and frozen categories. "We have significant experience in own-branded products and that helps keep a check on quality. Our delivery track record is strong - 99.99 per cent orders are delivered on time, else we refund 10 per cent of the order cost to the customer's account. We also track the delivery and update the customer of the status," he says. Also, if the company cannot fill an item, it refunds one and a halftimes the item value back to the customer. If a product is returned, the money is refunded.
Challenges
The grocery business has to be expanded city-wise, as rice or perishables cannot be shipped across cities. Here, the marketing needs to be local - what may appeal a grocery buyer in Bangalore may not appeal to one in Mumbai. Therefore, one has to establish links with large suppliers. Establishing a supply chain to deliver a wide range of products on time at competitive prices involves considerable operational complexity. Besides, grocery items are a low margin category, without much scope for large discounts, says Kumar.
Now, consumers can buy at attractive prices in hypermarkets; so, the company will need to clearly define its value proposition. Moving to an inventory holding model will require substantially higher working capital. Consumer preferences vary from city to city; so, the firm has to establish a significant network of regional suppliers. As the company scales up, logistics will be a challenge, as scheduling slot-based delivery is complex and delays in delivery can lead to wastage if the produce isn't handled correctly, says Rahul Khanna, managing director, Canaan Partners.
EXPERT TAKE
The truth is no player has broken even and the market is littered with shutdowns across the country. It is estimated online groceries contribute less that one per cent of the total food and groceries market in India and an equally small percentage of the e-commerce market in India is dominated by travel, electronics and apparel.
While no one doubts the eventual ascent of this segment, when that will happen and at what cost remain unanswered, primarily because of its single-digit margins, low order values and complex logistics, as well as the high cost of customer acquisition. So, few online groceries have been funded and fewer still will be able to get subsequent rounds of finance.
BigBasket is among the largest Indian online groceries. It was founded by an experienced team that started one of India's first e-commerce sites, Fabmart, which was shut, and then offline grocery store Fabmall, which was acquired by the Aditya Birla Group. So, no doubt it knows what it is doing.
It now operates from Bangalore, Hyderabad and Mumbai and is likely to enter new cities in the next few years. As it does so, it will undoubtedly improve its margins.
But given the low margins, the growth has to be funded by capital infusions, making the company venture capital-dependent. The question is, would it not be less expensive for either a grocery chain or a larger online player such as Flipkart to do this?
Given the nature of start-ups and the quirks of the grocery trade, BigBasket makes it a better bet. But whether their investors and founders eventually make money remains a billion-dollar question. There are no easy answers, definitely not at the moment.
Sushanto Mitra, Founder & CEO, Lead Angels
