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Will Amazon’s food retail foray end BigBasket’s reign at the top?

24 March, 2017

Seattle-based e-tailing giant Amazon.com, Inc has sought government approval to enter India’s food-retailing sector with investments totalling $515 million (Rs 3,368 crore) over the next five years. The company, which is already the number 2 player in India’s fast-growing e-commerce market, will open brick-and-mortar outlets as well, apart from an online portal.

Industry experts VCCircle spoke to feel that given its might and business strengths, Amazon’s foray into food retailing could be bad news for BigBasket.com, which is the segment leader by a distance and the only player that has been able to scale its business at a brisk pace. It is aiming to turn profitable by March 2018.

Upsetting the existing order comes naturally to Amazon. To refresh one’s memory, it arrived in India’s e-commerce space in 2013, a late entrant by all measures. In the close to four years since then, however, 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.

One of the biggest advantages that Amazon has over the likes of SuperMarket Grocery Supplies Pvt. Ltd-owned BigBasket and Grofers is its huge captive user base, which it can tap seamlessly. Besides, says Sanchit Vir Gogia, chief analyst at Greyhound Research, Amazon’s ability to attract more suppliers through better guaranteed volumes, rates and incentives gives it a natural edge over others.

Without a doubt, Amazon is a master at handling the inventory-led business model and its superior technology infrastructure helps keep customer acquisition cost (CAC) in check.

“The art of doing e-commerce does not always lies in category expertise, but in keeping costs low from a technology and customer perspective. Amazon’s ability to sell, upsell, cross-sell and offer better discounts can be traced to its low CAC,” adds Gogia.

The Jeff Bezos-led company is deep-pocketed and fighting it will mean fast cash burn, and require an even faster operational ramp-up by BigBasket. Gogia feels BigBasket will not only have to build a huge war chest, but also develop a different level of expertise and USP to fight the Amazon invasion.

The timing of Amazon’s entry seems opportune, too. The Indian market, which has opened itself to 100% foreign direct investment in locally produced and sourced food products, has attained global readiness over the last five years as more consumers shop online. In fact, according to a recent report by India Brand Equity Foundation (IBEF), the country’s food retail market is expected to reach $915 billion (Rs 61 lakh crore) by 2020.

While the market may seem big enough to accommodate multiple players, Amazon’s onslaught has the potential to dislodge BigBasket from the numero uno position. But BigBasket is no pushover either.

Running an inventory-led model, the Bangalore-headquartered e-grocer has raised nearly $250 million so far and registered an over-three-fold increase in revenue to Rs 563 core for the financial year ended March 31, 2016. It also 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. BigBasket has expanded its operations to over 30 cities from six last year and it is betting it big on its private-label business. With over 4 million registered users, the e-grocery platform expects to become profitable by March 2018.

What about other smaller players like Grofers? The Delhi-based e-grocer has raised nearly $200 million so far, starting off with an asset light-model and expanding quickly. In January 2016, it shut its operations in nine cities where it didn’t see any traction despite running costly marketing campaigns. Subsequently, Grofers tweaked its business model to a 70% inventory-led business where it sources products from different brands directly and stores them in its warehouses for delivery.

“For Grofers to exist amid this game, it will have to significantly change their internal processes, designs and expertise. While they might be pivoting, one must remember that the business was
designed to handle hyperlocal delivery and not inventory” said Gogia.

All in all, it appears the food e-tailing sector is headed for a shake-up.

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Will Amazon’s food retail foray end BigBasket’s reign at the top?

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