SUMMARY
The Deal Will Give BigBasket A Post Money Valuation Of $850 Mn With Major Investors Expected To Take An Exit
With the year 2017 stepping to an end, yet another big deal is on its way in the Indian startup ecosystem. Alibaba along with Paytm Mall is all set to acquire around 35% – 40% stake in hyperlocal grocery delivery startup BigBasket against an investment of $300 Mn.
As per recent reports, the deal is expected to be announced soon and will make BigBasket gain a post-money valuation of $850 Mn. Further, the transaction is expected to involve a primary investment of about $220 Mn while $80 Mn will be used to acquire shares from existing investors.
Also, with this deal, a few of BigBasket’s major investors are also expected to take an exit from the hyperlocal grocery delivery startup. These include K Ganesh and Meena Ganesh’s GrowthStory and investment firms Ascent Capital, Zodius Capital and Helion Venture Partners.
BigBasket co-founders Hari Menon, Vipul Parekh, Abhinay Chaudhary and VS Sudhakar are also likely to sell a portion of their holding in the company.
Alibaba and Paytm Mall have been eyeing to acquire a substantial stake in the online grocery platform since July this year. At that time, it was reported that Paytm had started due diligence on Bigbasket accounts and operations. Also, Alibaba was recently said to have been taking approval of the Competition Commission of India (CCI) to acquire BigBasket.
The grocery delivery startup was also reportedly in talks with Singapore’s sovereign wealth fund Temasek Holdings and China’s Fosun Group during the same time. As per sources close to the development, Fosun’s VC arm Kinzon Capital was looking to make a $20 Mn-$30 Mn co-investment in Bigbasket along with Alibaba and Paytm.
Earlier, the reports of Grofers merger and Amazon’s intentions to acquire a majority stake in BigBasket were also surfaced. However, none of them got materialised.
What BigBasket Acquisition Means For Alibaba And Paytm Mall?
At present, Alibaba’s premium bet in India is Paytm, while the two booming sectors in the country are digital payments and ecommerce.
Paytm’s digital wallet has already gained popularity among Indian masses and Paytm Payments bank has also formally started its operation. However, so far Paytm has not been able to rise on the ecommerce ladder. Moreover, the two leading players in the ecommerce category, Amazon and Flipkart, have already prepared their maps to tap into the food retail and grocery delivery respectively.
Led by Chinese strategist Jack Ma, Alibaba seems to have identified that grocery is the next opportunity in the Indian hyperlocal space and with both the leading ecommerce players pulling their strings, it’s time that Paytm should take a first mover advantage. Recently, Paytm also revealed its plans to invest up to $2.5 Bn in its ecommerce division within next three to five years.
With BigBasket, Paytm Mall will not only get a go ahead with its existing delivery fleet and over 5 Mn consumer base, but will also get a chance to capitalise upon the brand’s presence in 30 major cities as well its current association with over 1000 retail brands.
As per reports, BigBasket’s in-house brands, including Fresho for fruits and vegetables and Happychef for gourmet foods, accounted for more than one-third its sales. It also started express delivery in 60 minutes last year and registered about $216 Mn (INR 1,400 Cr) in revenue in the fiscal year 2017.
In 2017, BigBasket also raised three funding rounds back to back, the latest being in October of $8.02 Mn (INR 52 Cr) from four of its existing investors including Abraaj Basket, Bessemer Venture Partners along with International Finance Corp and Sands Capital. Just a few days prior to this, it raised a funding of $5.8 Mn in two tranches from Helion Ventures and Trifecta Venture.
This indicates that although the hyperlocal grocery delivery startup was facing a burnout, the investors are still positive towards the growth of the company.
Major Players Currently Trying To Tap The Online Grocery Space
Amazon, for one, has adopted a multi-pronged approach to conquering the country’s grocery and food retail market. The ecommerce giant is already running its grocery delivery arm Amazon Pantry in the country since February 2016. Later, in December 2016, Amazon India also came up with Amazon Now, a two-hour grocery delivery service. Its biggest arsenal, perhaps, is its proposed $500 Mn investment into its food retail business in India.
Flipkart, on the other hand, made its first foray into the space way back in October 2015 with Nearby, which was shut down in February 2016. Later in July this year, the unicorn once again ventured into the grocery space after it began the pilot of its on-demand grocery delivery service in Bengaluru. Most recently, in November, Flipkart made a soft launch of its online groceries category under Supermart in Bengaluru. The service can currently be availed by Flipkart employees only.
The newest entrant in the online grocery segment is Quikr, the classifieds platform founded by Pranay Chulet in 2008. It was recently reported that Quikr was in the process of partnering with neighbourhood stores and restaurants from where customers can order products ranging from grocery to food items.
BigBasket Acquisition: Another Failure Or A Success In Indian Online Grocery Space?
BigBasket is among the few names in the Indian online grocery space which not only gained investors attention, but also managed to pass the 2016 funding winter, which led to the death of many in the space.
Now is the time when Indian hyperlocal segment is again getting back on track. As per a Goldman Sachs report, “The domestic online retail industry is evolving into a hyperlocal, on-demand market. India’s ecommerce market is estimated to grow 15 times to $300 Bn by 2030.” The Indian online grocery market is estimated to reach $40 Mn (INR 270 Cr) by FY ’19 growing at a CAGR of 62% from 2016 to 2022.
Morgan Stanley expects the online food and grocery segment to become the fastest-growing segment, expanding at a compounded annual growth rate of 141% by 2020 and contributing $15 Bn, or 12.5%, of overall online retail sales.
Even its arch rivals such as Grofers, ZopNow, Satvacart, Godrej Nature’s Basket and DailyNinja, are still holding their stand. But even the industry pundits accept that hyperlocal is a tough cookie to crack. Peppertap (B2C business), Local Banya, TownRush, Paytm Zip, Ola Store, Flipkart’s Nearby – the list has kept growing so far, while both small and big players revoked their operations in major cities, got acquired, pivoted to B2B or got shut down.
Being a low margin business, it does not offer much scope for deep discounts unlike in ecommerce. Also, with an increase in the status of living as well as opening up of plethora of mom and pop shops in the vicinity of the consumers, there has been seen a rise in brand loyalty in the consumers. This further increases difficulties for an online grocery retailer to lower down its cart abondement rate.
In essence, with Alibaba’s acquisition of BigBasket, once again questions have been raised upon the viability of existing business models in the online grocery delivery space. At the same time, one can also see it as a positive indication as despite running with lower revenues, BigBasket has been able to get its investors some good returns on their exit. Going ahead in 2018, how things roll out for BigBasket in the Alibaba camp will be worth watching out.
