In the US, Amazon.com Inc. is testing everything possible to expand its online grocery business. The latest experiment is the introduction on Wednesday of Dash Wand, a handheld Alexa-powered device with voice-enabled smart assistant, to help users order groceries by scanning bar codes or using voice.
In India, the rules of the game are different. The market is in its infancy, an undisputed leader is yet to emerge, and the big spending marketplace unicorns are way behind the existing leader—the homegrown BigBasket.
But online grocery, like most other segments in India’s e-commerce sector, appears to be moving toward consolidation as startups struggle with mounting losses amid a cautious fundraising environment. Amazon, on the other hand, has made its grocery ambitions crystal clear. No wonder, then, that rumour mill is abuzz about a potential acquisition of BigBasket by Amazon.
According to a recent report by Bloomberg, Amazon has held preliminary discussions to buy BigBasket. The online grocer, however, denied any such move, according to the report.
Still, industry observers believe such a deal can change the power dynamics of India’s e-commerce sector and give Amazon a clear edge over rival Flipkart. Unconfirmed reports also claim that Flipkart is itself in talks with BigBasket to bring it under its fold.
“BigBasket suits both Flipkart and Amazon,” says Satish Meena, analyst at Forrester Research. “Both of them are looking to establish themselves in the grocery sector. Amazon needs it for expansion while Flipkart needs it to protect its leadership position.”
BigBasket is the segment leader by a distance and is, perhaps, the only player that has been able to scale its business at a brisk pace in a segment that recorded at least 20 casualties over the past two years.
Running an inventory-led model, the Bangalore-based company has raised nearly $250 million so far from investors including the UAE-based private equity firm Abraaj Group and registered an over-three-fold increase in revenue to Rs 563 core for the financial year through March 2016. It claims to have achieved 300% growth over the last one year, and expects to cross the Rs 2,000-crore milestone by the end of this fiscal year.
BigBasket has expanded its operations to over 30 cities from six last year and it is betting big on its private-label business. With over 4 million registered users, the e-grocery platform expects to become profitable by March 2018.
For Amazon, upsetting the existing order in a new market has become a habit. To refresh one’s memory, the Seattle-based company entered India’s e-commerce sector in 2013, a late entrant by all measures. Since then, the e-tailer has overtaken the likes of Snapdeal, ShopClues and Paytm, and is now snapping at Flipkart’s heels, which is hanging onto the pole position by a slender margin.
Amazon’s ability to attract more suppliers through better guaranteed volumes, rates and incentives gives it a natural edge over others, besides its unparalleled financial war chest. In India, the company has committed to invest $5 billion. In addition, Amazon is a master at handling the inventory-led business model and its superior technology infrastructure helps keep customer acquisition costs in check.
Where does BigBasket fit in? Amazon stands to gain most from BigBasket as it looks to establish its growing grocery business. The US company has been vigorously focusing on its Prime subscription, which offers faster delivery, video streaming and other services. Prime users contributed significantly to Amazon’s last season sale events. And BigBasket will easily blend in.
“BigBasket offers monthly subscription plans as well as on-demand hyperlocal delivery. Amazon can channel these services through its Prime offerings, prompting customers or households to order more frequently. It will help Amazon grow its wallet share and increase the categories its customers buy online,” Meena said.
Prime customers spend at least 30-40% more than the regular customers, and bringing BigBasket’s loyal customer base to its premium fold can help Amazon outclass Flipkart. Grocery being a daily purchase, a potential BigBasket acquisition can also help Amazon convert and bring the top spending and more frequent Flipkart customers onto its platform.
Flipkart’s grocery re-run
Flipkart CEO Kalyan Krishnamoorthy recently said the company was planning to take a second plunge into grocery business. “Yes, we will get into grocery… 80 percent of units bought in India is grocery, so we have to get into it,” a PTI report quoted him as saying.
In February last year, the company had shut down its grocery delivery app Nearby, five months after it was launched in Bangalore.
For Flipkart, BigBasket’s strong revenue numbers and customer base offer a perfect opportunity to solidify its market leadership over Amazon, just like Myntra and Jabong helped it to create a fashion monopoly online.
Shahil Shah, founder of Rooh E-commerce, a marketing and distribution channel for e-commerce companies, says Flipkart should have a better grocery category because it dominates only in smartphones and apparel. “BigBasket has built high credibility over time and it could be Flipkart’s best option to stay relevant in the segment,” he says.
Flipkart, in early signs of a reversal in fortunes, had outrun Amazon India in gross sales in two consecutive months at the beginning of the year, after trouncing the US rival with its Big Billion Day sales in October 2016. The Bengaluru-based Indian unicorn made a strong comeback when it sold 15.5 million units at its last Big Billion Day sale, beating Amazon’s 15 million units in its five-day Great Indian Festival.
For a new player, the grocery segment will be a tricky space to gamble on. While the market is still growing and offers enough room for more players, the dynamics are changing fast and online grocery is transforming into a combination of online and offline. The top three players – BigBasket, Grofers and Amazon – have applied for government approval to invest in food-only retail business under the new foreign investment policy.
“When the top e-commerce players open offline stores as well as click-and-collect services, it is going to be a difficult task for new players to enter and establish in this market,” says Meena. “The only players who have a distant chance are the existing offline players like Big Bazaar, which may try their luck in the omni-channel business.”
Shah concurs with Meena but says offline players must be ready to spend a lot of money to gain market share. “The omni-channel strategy is here to stay and any deep-pocketed offline player can get into the game and pose a threat to the online-first players,” he adds.