Paytm may back BigBasket: Will it be Amazon vs Alibaba eventually?

By Binu Paul

  • 11 Jul 2017
Paytm may back BigBasket: Will it be Amazon vs Alibaba eventually?
Credit: Ankit Kumar/VCCircle

Even as the anticipated merger between e-tailers Flipkart and Snapdeal continues to grab headlines, an interesting story is unfolding in the online grocery segment. Two of the world’s largest e-commerce players—Amazon and Alibaba—are eying a stronghold in the space by acquiring or, to begin with, investing in BigBasket, the segment leader by a distance.

Last month, it was reported that Amazon had entered into a 60-day exclusivity agreement with BigBasket for a potential acquisition. However, the talks seem to have fizzled out over differences in valuation.

The Economic Times reported earlier in the day that online marketplace Paytm Mall, majority-owned by China's Alibaba Group Holdings, was in advanced discussions with the homegrown e-grocer for investing about $200 million for a significant minority stake. BigBasket is seeking a pre-money valuation of at least $550 million, and due diligence for the deal has already started, the report added.


BigBasket vital to Paytm's e-commerce ambitions

An investment in BigBasket will give Paytm the firepower to fight Amazon, which has just received the government’s nod to invest $500 million in India’s food retail sector.

“The Paytm investment is not going to have a ground-breaking effect on the online grocery market. BigBasket has done reasonably well to stand on its own. The investment is a good bet on a company that, investors and industry feel, has what it takes to win it in the long term.


But, most important, the investment should be viewed in the backdrop of Paytm’s larger connections with Alibaba, which has been spearheading consolidation in the e-commerce space. Everything is expected to come under one umbrella eventually. Paytm investing in BigBasket should be viewed in the context of this interdependency.

It’s going to be an Alibaba versus Amazon play in the long run,” said Ankur Bisen, senior vice president at Technopak Advisors.

Meanwhile, Paytm Mall has hit the gas on scaling up its partner network, and is working on adding 3,000 agents across the country. The company is looking to tap offline customers with an offline-to-online strategy even as it focuses on shopkeepers in tier 2 and tier 3 cities. Last month, Paytm E-Commerce Pvt. Ltd, which runs Paytm Mall, received $200 million in funding from Alibaba and venture capital firm SAIF Partners.


The investment increased Alibaba’s and its affiliate Ant Financial’s stake in Paytm E-Commerce from 40% to 62%.

A partnership with BigBasket, which has built commendable customer trust and remarkable reach in several key markets, will significantly ease Paytm's venture into the online grocery space.

More important, it is part of Paytm's diversification strategy so as to create an ecosystem of its own.


“E-wallets will be challenged by payment platforms like UPI, BHIM and prepaid cards. Paytm has no option but to create an ecosystem where the preferred choice of transaction is Paytm itself. The creation of its e-commerce wing is a natural extension, and it’s also natural that they get into high-frequency purchases like grocery.

Instead of setting up its own business, the acquisition of an existing player and merging it with the company’s offerings...is a very relevant strategic move,” said Anup Jain, managing partner at consumer & retail consulting firm Redback Advisory Services.

Paytm Mall, which recently named One97 Communications vice president Amit Sinha as its chief operating officer, has put together a team at the top.


Saurabh Vashishtha will oversee marketing, Amit Bagaria will take care of customer experience, Bhushan Patil will lead the logistics team and Sunil Goyal will look after product and technology. Goyal is the founder of Near.in, which was acquired by Paytm in 2015.

In May, One97 had raised $1.4 billion from Japan’s SoftBank Group Corp in the largest-ever funding round from a single investor in India.

In an interview with VCCircle late last year, Sharma had said that Paytm would be one of the two eventual winners in the Indian e-commerce contest. “We have taken a long-haul journey in e-commerce. Since we find that it is becoming an independently sustainable business, we are making it a standalone unit. If we were to take a five-year forward view, we will be one of the final two marketplaces,” he had said.

Amazon pins hopes on food retail

On Monday, the Seattle-based e-tailer received government approval to enter India’s food retail sector with investments totalling $515 million over the next five years.

Given Amazon’s unparalleled war chest and superior technology infra, consolidating BigBasket under its wings would have meant commanding the lion’s share of the market, much like the Myntra-Jabong combine that controls almost 70% of the online fashion business. However, with the deal failing to materialise, it seems Amazon is choosing to grow organically in India.

“Amazon’s strategy so far has been organic growth. They are not afraid of making investments to build business in their own way. I don’t think Amazon has lost an opportunity by not acquiring BigBasket. They have the deep pockets, a clear understanding of the market and a proven strategy that wins,” Jain said.

The Jeff Bezos-led company plans to open brick-and-mortar outlets, apart from an online portal, to sell grocery in the country. The revised foreign direct investment regulations allow multinationals to set up wholly-owned subsidiaries in India to retail food products as long as the items are produced, processed or manufactured in the country. The new business unit will sell third-party or Amazon’s private labels of locally-produced and packaged food products, which would give Amazon significant mileage in a segment that’s predicted to drive e-commerce growth in future.

Amazon already offers online delivery of grocery and daily essentials through its app Amazon Now and its online supermarket service Amazon Pantry. However, BigBasket is the segment leader by a distance and, 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.

The Bangalore-headquartered e-grocer has raised nearly $250 million so far and registered an over-three-fold increase in revenue to Rs 563 crore for the financial year ended March 2016. It has expanded operations to over 30 cities from six last year and signed up Bollywood actor Shah Rukh Khan as brand ambassador. It is betting big on its private-label business and expects to become profitable by March 2018.

SuperMarket Grocery Supplies Pvt. Ltd owns and operates BigBasket. A separate firm, Innovative Retail Concepts Pvt Ltd, runs the BigBasket property under licence from SuperMarket Grocery. Last December, the company had claimed that it saw 300% growth in revenue, and said it expected to cross the Rs 2,000-crore milestone by the end of this fiscal.

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