Quick grocery has caught on, and BigBasket is smiling – today news


Online grocery has proved a tough market to crack even for the likes of Amazon, but quick commerce has emerged as a key engine of growth because of its convenience and habit-forming nature. But competition is fierce, forcing companies to burn through cash to hold on to their customers.

“Customers love quick grocery and they’ve adopted in droves. But this comes with costs and as a market, we’re still in the early throes of quick commerce growth,” co-founder Vipul Parekh said in an exclusive interview with Mint. “The costs and some of the customer behaviours will become more apparent over the next few years.”

Maintaining a tight lid on costs is crucial for profitability in the hyper-competitive space, where most quick commerce companies such as Swiggy (Instamart) and Zomato (Blinkit) grapple with high cash-burn rates. Growth, in effect, comes on the back of significant losses.

Parekh said BB Now, BigBasket’s quick-commerce division, has an edge over its rivals. To ensure orders are delivered in under 30 minutes, the company leverages the same dark stores, or warehouses, and infrastructure it uses for its other two divisions.

As a result, the quick-commerce business’s “profitability on a unit basis is going to be higher than [for] other brands,” said Parekh.

BigBasket was founded in 2011. Ten years later, Tata Digital Ltd, a unit of Tata Sons, acquired a majority stake in it. But BigBasket continues to operate as an independent entity.

The company’s main grocery app, BigBasket, which provides scheduled delivery, and its subscription-based grocery delivery app BB Daily, together contribute 60-70% of its total revenue. Both are already profitable.

BigBasket views its quick-commerce arm as a “marketing channel” to bring in more customers to its main grocery business.

Quick commerce, largely a five-player sector in India, has witnessed significant churn over the past year as companies wrestle with top-level exits, layoffs, and delayed payments amid a sustained liquidity crunch since the pandemic years.

The covid lockdowns had turned out to be transformative for the quick commerce sector as people were forced to shop online even for their daily needs, a habit that has since sustained.

BB Now’s competitors include Zepto, Zomato-backed Blinkit, Dunzo, and Swiggy Instamart. With funding drying out, each of these quick-commerce companies have been on a quest for profitability.

In October, Parekh told Times of India that BigBasket as a whole would become profitable by June 2024. But “as we plan to expand the physical retail business these timelines could move by 6 months, depending on the speed with which we deploy,” Parekh told Mint.

The company has started piloting a few offline retail stores that will cater to consumers directly, before it embarks on a larger expansion.

While acquiring new online users remains a challenge, average order value has increased as quick-commerce platforms have expanded their range of offerings, even including home improvement products, electronics, and toys, said a senior industry executive, asking to be anonymous.

“It is more e-commerce than ever [and not just grocery], which should reduce [cash] burn and help businesses navigate through profitability,” said this person.

Prior to BigBasket, Parekh was an investment director at private equity firm Peepul Capital. He had previously co-founded Fabmall, a supermarket chain that Aditya Birla Group acquired in 2006 and rebranded as More, as well as Fabmart.com, India’s first online grocery, along with BigBasket’s CEO Hari Menon and others.

BigBasket’s path to profitability

In chasing profitability for its quick-commerce business, BigBasket has eyes on two key metrics—revenue per dark store, and average order value.

Over the past two years, BigBasket has opened about 350 dark stores, some of which are already profitable. With the remaining stores, the company aims to either resize, relocate or merge them to ensure they all have a minimum order value to become profitable.

This would roughly translate to a growth of 50-60% over the next year, Parekh said.

For a dark store to be profitable, BigBasket had earlier estimated, each store would need to handle 600-700 orders daily, with an average bill value of 300-400.

Bigbasket also aims to provide more incentives and a larger assortment of products to customers to improve the average order value.

BigBasket is also eyeing a public share listing but did not specify a timeline.

“It doesn’t make sense to be highly unprofitable and go to the IPO markets. It’s not a good look,” Parekh said. “You have to get too close to profitability or [reach] profitability if you really want to do an IPO.”

In FY23, BigBasket improved its total revenue to 9,499.3 crore from 8,556 crore in the year prior, but its total loss widened to 1,785.4 crore from a loss of 1,040.7 crore rupees in FY22.

Quick commerce is key to crossing over to overall profitability.

“This is a business [BB Now] where mostly new customers are coming in. A lot of these customers can be transferable to our slotted delivery vertical, which is far more profitable than quick commerce,” said Parekh.

Offline expansion

While there is scope for greater penetration in the online grocery space, a large part of the grocery sector remains in the traditional, unorganised space. Even in a highly bustling market like China, online groceries only account for 10-15% of the overall industry.

Unlike electronics or fashion, grocery largely remains a touch-and-feel segment as people are conscious about what they intake, Parekh said.

To cater to this population of consumers, BigBasket plans to open 400-500 physical stores across the top 10 metro cities in India over the next three years, he said. Offline expansion, however, will be challenging due high property prices and wages.

So far, the company has rolled out a pilot version of these physical stores in Bengaluru and Hyderabad. These ‘neighborhood stores’ are 2,000-4,000 sq.ft. in size. The company has rolled out two formats so far, with fruits and vegetables, and packaged consumer goods.

The Tata factor

Tata Digital’s acquisition of BigBasket has provided a significant boost to the company, although many of the conglomerate’s retail customers are yet to use the grocery app.

BigBasket acquired 12-15% of its new customers last year via its partnership with the group’s Tata Neu app. The partnership also gives the online grocer access to customers from Tata Neu’s footprint across categories such as fashion and electronics, Parekh said.

“Through these categories, a lot of new customers who are not exposed to BigBasket will be introduced…,” Parekh said, adding that about 80% of Tata group’s retail customers were yet to use BigBasket.

Source Link