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E-Commerce

BigBasket takes a leaf out of Alibaba’s book to scale up business

"Alibaba has an ingenious way of making the best use of space in their distribution centres, for instance the way they stack products is unique. We plan to use their know-how in our upcoming warehouses."

Nov 15, 2018 by Avanish Tiwary
BigBasket takes a leaf out of Alibaba’s book to scale up business

The entry of two global behemoths- Amazon and Walmart- into the Indian online grocery space has thrown the competition wide open. As things stand, Bengaluru-based BigBasket leads the pack with a 35.2% market share, dovetailed by Grofers and Prime Now (Amazon) at 31.5% and 31.2%, respectively, according to market research company Kalagato (data as of March 2017).

Amazon has set its sights on physical retail. Prime Now’s (Amazon’s grocery wing) acquisition of More, Aditya Birla Retail’s food and grocery chain in September 2018, in partnership with PE firm Samara Capital, betrays Amazon’s burgeoning interest in the sector. Prime Now holds 49% stake in More as opposed to Samara Capital’s 51%.

Earlier this year, BigBasket, run by Innovative Retail Concepts Private Limited, raised USD 300 million in its largest funding round led by Alibaba Group. Currently, the company is present in 25 cities with Cochin joining the list soon.

The Passage spoke to BigBasket co-founder VS Sudhakar about the challenges and opportunities in the online grocery market.

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Besides funding, what does Alibaba bring to the table?

Alibaba is a fantastic partner to work with- always willing to help out. Alibaba is huge in Chinese grocery market, and we had a lot of things to learn from the other side of the border. However, it is important to repurpose these insights for the Indian market before implementing them here. We have already put a couple of routines to work based on Alibaba’s feedback.

Alibaba’s ‘recommendation engines’ have made a huge difference in the way the Chinese giant does business. Such engines use algorithm and analytics to anticipate customer interest before launching products.

Alibaba has an ingenious way of making the best use of space in their distribution centres, for instance the way they stack products is unique. We plan to use their know-how in our upcoming warehouses. We will stack products at warehouses in line with Alibaba’s methods. We have realised such practises bring huge value in terms of efficiency.

How many warehouses do you have?

We have at least one warehouse in all major cities. Bangalore has the most number of warehouses at three. Pune and Mumbai have two warehouses each. In total, we have 33 warehouses at present. Typically, the average size of our warehouses is 100,000 square feet. The fourth warehouse coming up in Bangalore is around 170,000 square feet. We are in the process of slowly bumping up the average size of our warehouses from 100,000 square feet to 150,000 square feet.

How big is private label for BigBasket?

We have a small team that focuses on private labels. Around 35% of our business comes from in-house brands. We hope to make it to 40%- a benchmark for the grocery retail business- which would also afford us the opportunity to look under the hood to better understand the customer psyche.

We have a range of in-house product categories such as staples, fruits and vegetables, home care, organic foods, snacks, etc. The idea is to launch private labels in categories with room for new products and gain market share on the strength of the products’ USP.

What motivated BigBasket to enter private label business? Grofers is playing the pricing game with their private label.

There are two approaches- 1) price and 2) quality and innovation. You can drive sales by setting a competitive price point. However, it’s a short sighted approach. In my opinion, it should be a combination of both. Playing a pure price game means tomorrow someone else can come and beat me in my own game.

Our major focus is on delivering great customer experience at a fair price across a range of products.

More than the price, what matters most is the quality and the range of products. Our organic products are a case in point. Apart from fruits and vegetables, we bring organic grains and millets under the in-house brand. The idea is to go deep into the supply chain. A rising number of our customers are health conscious, and as a responsible retailer, we ensure the quality of the products we sell are top-notch.

We win over our customers with a wide range of organic products. However, supply is a cause for concern. We are working very closely with farmers to turn them into organic farming.

You can play the price game many ways. But we don’t want to focus on just the price. When we launched our additives –free bread, we priced it on par with the market rate. In our experience, customer is not always looking for a cheaper alternative. Today’s sensible consumers are even willing to pay a small premium for better alternatives.

Customers using BigBasket Kiosks in one of the apartment buildings in Bangalore.
Customers using BigBasket Kiosks in one of the apartment buildings in Bangalore.

Do you have plans to launch physical stores along the lines of Amazon?

There is always the temptation as we have run physical stores in the past (Fabmall and Trinethra Super Retail). We know the ins and outs of the brick and mortar business.

In India, the real estate cost of the physical stores eats into the income big time. Unless you figure out ways to make significantly high revenue per square feet, the business is going to suffer. It’s not impossible, but it’s not easy either.

The good thing is we know how to do it. So the day we decide to do physical retail, we can launch in three months’ space. As of now, we will wait and watch.

With Walmart and Amazon entering the fray, how do you plan to stay ahead of the competition?

In grocery, the depth in supply chain is the key differentiator. A lot of grocery companies who delivered products to customers just from the stores have either collapsed or pivoted. Even Grofers says it is into the BigBasket model now.

The grocery business requires a deeper understanding of supply chain. We are riding on the strength of an in-depth supply chain built over past six years- right down to the farmer level. Unless the competition comes up with a better model, it’s not going to be easy to challenge us.

Meanwhile, we need to continue to be aggressive in terms of marketing and pricing.

With the competition coming, we have decided to go aggressive with pricing. Earlier, BigBasket was associated with premium offerings. However, it has changed over the last eight months. Now, the customers find our product pricing either the same as the competition or less. Although the change in perception took more time than we would have liked, we are happy it has started to happen now.

How’s BigBasket’s B2B arm coming along?

Though we have started the business three years ago, the focus was missing until last year.

It all started when we formed tie-ups with kirana stores to turn them into supply points for our “express delivery”. We had to ensure theirstocks are supplied by us to guarantee quality. That’s when we realised it would make a lot of business sense if we pushed our private label products through these stores.

We supply our own products to around 5,000 kirana stores. The stores order online from an app and get their entire range with a fill rate of 99%, compared to 60-75% fill rate from regular suppliers.

Apart from kirana stores we also work with hotels and restaurants for their daily grocery needs. They have little control over the price and quality of the groceries they buy. We work with them to streamline the process. It is a very powerful business for us as this also supports our overall private label business.

Is BigBasket going to acquire Grofers?

Media keep saying such things. As of now, there are no such plans. We have our plates full. However, we are looking at couple of acquisitions which could be of use to our overall campaign.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

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