'Soonicorns': Bullish BigBasket just $50 million shy of billion-dollar club

In the first of a five part series on soon-to-become unicorns, Business Standard takes a close look at BigBasket's business model

Years ago, local kirana stores gave way to big retail superstores. But professionals were still looking for better experiences in terms of pricing, ease of shopping, choosing better and particular brands and, most importantly, saving time. And this need for more paved the way for a business opportunity for Hari Menon and his team. 

Back in 2011, Menon along with V S Sudhakar, Vipul Parekh, Abhinay Choudhari and V S Ramesh were eyeing a growing base of professionals who valued convenience and experiences over completing mundane task of shopping for groceries from nearby stores. This led them to form BigBasket, which is on its way to become a unicorn — a term used for new-age companies valued at $1 billion or more.

The idea was simple – pick groceries from a list on a browser and get them delivered to your doorstep through BigBasket. In essence, it was the same idea the founding group had in its minds when it started Fabmart.com back in 1999. Fabmart, which over time turned into an offline grocery retail chain Fabmall, was acquired by Aditya Birla Group in 2006.

In the early 2000s, online retail was still considered a pipe dream. But a decade or so later, it had started showing promise. However, selling groceries online still remains a small part of the overall online retail play, despite the fact that over half of India’s $650 billion-plus retail sector is driven by food and grocery sales.

The opportunity in online grocery sales is so huge that it has the potential to eclipse every other category many times over. This is what is attracting giants such as Flipkart and Alibaba to establish a presence in the space. BigBasket, which has a half decade lead over the rest of the players in the e-grocery space, continues to rule. 

“We are the leaders in this space by miles and are about four times the size of our nearest competitor. Everything we do now in terms of enhancement in technology, data analytics and infrastructure will all be geared towards maintaining this (lead),” Menon, co-founder and CEO of BigBasket, told Business Standard.

In February, China’s Alibaba Group bought into BigBasket, leading a $300-million round in the company that valued the online grocer at around $950 million. Even American major Amazon, which had begun its grocery business by then, had shown interest in BigBasket, exploring a possible takeover or an investment in the Bengaluru-based firm.

In March 2018, BigBasket claimed it clocked sales close to $33 million, putting it at an annual sales run rate of close to $400 million. But Menon said he wanted to more than double the monthly sales to around $72 million by March 2019, putting it on the path to achieve $1 billion in sales sometime during FY20.

In 2017, the market for online grocery retail stood at around $750 million, of which BigBasket drove a major chunk of the sales, according to Satish Meena, senior forecast analyst at Forrester Research. Food and groceries account was around 4 per cent of the $18-billion online retail market. This is a far cry from the 55 per cent share food and groceries make up in India’s overall retail market.

“We do a lot of our grocery shopping from nearby stores and these people sometimes deliver to your house, so there’s not much hassle. If you go beyond tier-I cities, buying groceries isn’t a major pain for people. So, they keep buying from local stores,” said Meena, adding that the experience of shopping for groceries online was still cumbersome.

This, however, is expected to change given the amount of money that is being pumped into this segment and also the growing base of people who are becoming more comfortable shopping online. 

Menon said BigBasket would continue to expand to new cities, scale up the number of products it offers and introduce more private-label brands. However, to achieve 100 per cent plus year-on-year growth, the company is targeting subscriptions and is even planning to open tiny offline stores in large apartment complexes and IT parks, Menon said. In the early part of this year, BigBasket had 8 million customers who shopped from the platform at an average of three times a month. The company is working towards attracting them to shop around five times a month over the next one year or so. While Amazon and Flipkart claim to have over 100 million shoppers for all categories on their sites, they don’t come anywhere close to BigBasket in terms of repeat purchases.

Despite the might of larger e-commerce players, Menon is confident BigBasket would remain in the lead, as it steadily moves towards the break-even point. As a precursor to this, Menon said, the firm had already hit the break-even point in Bengaluru, the city of its origin. 

Meena said that if BigBasket was able to continually fix the roadblocks that online grocery retail faces, the brand should do well since it has a great market recall.