The ambitions of Tata Group for a super-app venture were fuelled by the competition regulator’s nod to the acquisition of BigBasket, one of the leading online food portals in India, by Tata Digital. The offer is worth $1.2 billion, which gives BigBasket a $1.8 billion post-money value. It is also near to the purchase of a big stake in the online pharmacy player 1mg, some sources reported.
BIGBASKET IS ADDED TO TATA’S CART
The Competition Commission of India (CCI) has declared its approval to let Tata Digital acquire up to 64.3 per cent stake in the Supermarket Grocery Supplies and its exclusive leverage over BigBasket’s Innovative Retail Concepts. Tata Digital is a wholly-owned Tata Sons affiliate. If Supermarket Grocery Supplies works for the corporate sector, Innovative Retail Concepts works with BigBasket.
BigBasket and Tata Group all refused to comment on the deal. BigBasket will continue as a separate entity, according to sources, and its existing management, headed by co-founder and CEO Hari Menon, will remain in place. The transaction is valued at more than $1.2 billion and is a combination of primary and secondary sales, allowing two of BigBasket’s owners, Alibaba and Abraaj Group, to leave. Actis also holds the Abraaj Group’s portfolios in the MENA, Africa, and Asia markets. BigBasket is also expected to go public in the next year or two.
“This is a great advancement. Tata is the most well-known brand. I’m hoping that this sets a precedent for Indian conglomerates to invest in new business models. Historically, Indian corporations have been hesitant to invest in or take risks in technology-based, valuation-driven, initially high-loss-making companies. As a result, overseas investors and funds have reaped all of the valuation gains,” says K Ganesh, the promoter of BigBasket, Portea Medical, and HomeLane.
THE ONLINE GROCERY MARKET
Grofers, JioMart, Swiggy’s Instamart, Amazon, and Flipkart are among BigBasket’s competitors. The Indian grocery market is an $850 billion market, according to a RedSeer report published in January 2021, with groceries responsible for 66 per cent of overall retail spending in India. Local kirana or mom and pop shops control 95 per cent of the Indian grocery market, owing to their ability to offer affordable and localized service to consumers.
On the back of a simplified supply chain tech-enabled retail layer, digital supermarket systems are now transforming the grocery room and producing a vast variety of items, labels, and SKUs (stock-keeping units). Following the Covid-19 pandemic, e-grocery, an essential focused e-commerce segment, reaped significant benefits as more consumers choose to sit at home and shop online. In 2025, the e-grocery industry is projected to account for 3% of the overall grocery market, with a market value of $24 billion.
THE JOURNEY OF BIGBASKET
Hari Menon, VS Sudhakar, Vipul Parekh, VS Ramesh, and Abhinay Choudhari formed BigBasket in 2011. The first four of these had previously marketed Fabmart, which was later purchased by the Aditya Birla Group and rebranded as ‘More.’ Players in online grocery either own inventory or use an on-demand, hyper-local model in which they call a supplier and supply the commodity.
BigBasket has always operated on an inventory-led model, ensuring greater efficiency and availability by controlling the whole supply chain. On a GMV (gross merchandise value) run-rate basis, it surpassed $1 billion last year and made contribution margin positive.
SUPER APP STRATEGY OF TATA GROUP
The Tata Group has big plans for the e-commerce market, which is currently dominated by Amazon and Walmart‘s Flipkart, with Reliance Industries’ JioMart still expanding vigorously. It’s working on a mega app under the Tata Digital banner, with plans to include groceries, fitness, education, entertainment, technology, apparel, travel, makeup, and lifestyle. It also intends to combine the strengths of group companies Titan, Voltas, Trent, Tata Consumer Products, Tata Motors, Vistara, Tata AIG, Tata Capital, and Taj Hotels to provide customers with a variety of services in one platform.
According to Anurag Mathur, head-retail and partner, PwC, Tata’s entry makes the room more competitive. However, he said, these four major players have the potential to disrupt the market. This isn’t just for grocery shopping. Tata Group can understand consumer patterns and drive demand through different categories such as apparel, hospitality, and other verticals using BigBasket’s data, which is used by people on a daily basis. The deal is about how BigBasket should be used for more than just what it is. As a result, it is a very important deal for the long term plans and distant vision of the Tatas. “The Tata Group will make even more use of that commodity,” according to Arvind Singhal, Chairman and Managing Director of Technopak.
After being the biggest contributor to Indian consumers’ shopping baskets, grocery has had a lower online penetration than other categories such as apparel and gadgets. The COVID-19 pandemic has boosted the segment significantly, with a gross merchandise value (GMV) of $3.3 billion in 2020, up from $1.9 billion in 2019. As these players struggle to onboard more and more customers online, the overall segment is expected to expand.
