BigBasket plans to invest up to Rs 90 crore to recruit hundreds more farmers to its network, beefing up its supply chain ahead of a potential entry of deep-pocketed global corporations including Walmart and Amazon into India’s online grocery market.
The investment, which follows a $150 million (about Rs 1000 crore) fundraise in March, will be directed at building networks of farmers who will primarily supply fruits and vegetables, which account for about 20% of BigBasket’s revenue, Chief Executive Hari Menon said. The business is growing at 10% every month, he said.
The company has already invested Rs 80 crore to build supply chain. Tying up directly with farmers will allow for better profit margins and control over quality for BigBasket.
“Forging tie-ups with (fast-moving consumer goods) companies may be an easier task but repeat and loyal customers are won by keeping the quality and stock of fresh products including fruits and vegetables consistent,” Menon said, adding he expects the Bengaluru-based company to record sales of Rs 2,000 crore for 2016-17. That would be a nearly three-fold increase over its 2015-16 revenue.
A significant portion of this growth will come from becoming a supplier to hotels and caterers and using the company’s existing network of 1,800 neighbourhood or ‘kirana’ stores to sell its own brands of staples and fresh fruits, Menon said.
Overall, the company’s private-label business, which includes fruits, vegetables, breads and staples, contributes 35% of the revenue, Menon said.
BigBasket presently has 21 collection centres across the country to procure fruits and vegetables directly from farmers. About 60% of the fruit and vegetables it sells is sourced directly from farmers, which Menon expects will increase to 80% this year with the addition of nine collection centers.
“The farmers bring their produce to the CC, where the produce is sorted and graded and the payment for the same is processed immediately and credited to their bank accounts within 48 hours,” Menon said.
Morgan Stanley in a recent report said it anticipates a lot more people to begin shopping online for groceries this year because of the convenience this model affords. “We expect online penetration (to purchase grocery) to increase to 2.9% in 2020, partly led by large general merchandise players also entering this category,” it said.
The government’s recent decision to allow 100% foreign direct investment in businesses engaged in trading of food products, including through ecommerce, has given a fillip to companies like Walmart, which currently operates cash-and-carry stores in India that sell to retailers and traders.
Amazon’s online grocery business model in India is a marketplace that hosts third-party sellers on its app ‘Amazon Now’.
Even hyper-local delivery startups, which source products from a network of neighbourhood stores and don’t keep their own stock, are looking at creating their own supply chains for fresh fruits and vegetables, similar to how BigBasket operates. Grofers already sells fruits, vegetables and staples under its brand called Freshbury.
BigBasket employs an inventory-led supply chain model and has established partnerships directly with brands as well as farmers across the country to source inventory at competitive prices.
“The business is as much about understanding the grocery market as it is about understanding online commerce and technology. There is a reason why Amazon piloted ‘Fresh’ (online grocery) in Seattle for a number of years and it’s not a tab on their website but a separate vertical,” said K Ganesh, a BigBasket board member and promoter.
As for the expansion plans of Walmart and Amazon in India’s food sector, Arvind Singhal, chairman of retail advisory Technopak, said the biggest challenge to that was government regulations. While 100% FDI has been allowed in the food sector, there is not much clarity on how it will apply to multi-brand entities, he said.
Also, under existing provisions, Walmart is a multinational retailer with physical stores and is not allowed to sell directly to consumers.
“Government policy will determine who is going to be competition,” Singhal said.
Harminder Sahni, Managing Director of Wazir Advisors, agrees. Walmart is not a big grocery business globally, he said, “and when you talk about Amazon, I think it has a lot of work to do in India than worry about fruits and vegetables. They have a lot more potential in other areas.”
Source: The Economic Times
