Daybreak - Tata needs BigBasket to fulfill its retail ambitions

Episode Date: June 19, 2023

When Tata acquired the e-grocer, BigBasket, at a reported valuation of $2 billion in mid-2021, the company was loss-making. For those at BigBasket, it was an opportunity to shift their focus back to the company’s core business: doorstep grocery delivery.    While it was a bit too late when Tata realised its new acquisition was left out from the quick commerce game, there is one game that BigBasket seems to be clearly winning.Tune in to find out.Recommended reading: Torn between growing competition and Tatas’ ambitions, $3.2B BigBasket is at a crossroadsDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Earlier this month, I told you that quick commerce is dying. Everyone believes it except for Zepto. Today, I'm going to tell you about the one that started it all in the first place. I mean the concept of ordering groceries online and having them deliver to your doorstep. We all know Big Basket.

And one of the biggest reasons why it's remained relevant for so long is how it's kept its focus on its own warehouses and not on existing grocery stores like some of its peers. Many years later, in fact in mid-20201, the Tata Group acquired Big Barclos. Meanwhile, QuickCommerce came into the picture and the whole game became all about dark stores or warehouses. But for some reason, despite its upper hand with regard to warehouses, Big Basket missed the Quick Commerce bus. It had been around for so long almost as a pioneer that it did not think that the likes of Instamart or Zepto could even be its direct competition. But very quickly, Instamart was already closing in on an elusive accomplishment. It was making consumers order groceries in small quantities as and when they needed it, just like food.

Instant deliveries completed in less than half an hour were disrupting the decade-old industry. And Big Basket, the undisputed leader that the Tartas had bet on, took a few hours or days to deliver. It was only later that year that Big Baskets management finally realized that a new challenge was emerging. The following year, in 2022, Quick Commerce already made up 15 to 20% of India's e-grocery segment. Now, after a $2 million dollar fundraise in December 2020, led by Tata, the ball is back in Big Basket's court. And now, As the e-grossor enters its second decade, it is scrambling to find ways to innovate and reassert its dominance. Welcome to Daybreak, a business podcast from the Ken.

I'm your host, Nick Das Sharma and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 19th of June. When Tata acquired Big Basket at a reported valuation of $2 billion in mid-20201, the company was loss-making. So for those at Big Basket, it was an opportunity to shift their focus back to the company's core business, which was doorstep grocery delivery. By 2022, when quick commerce was all the rage, companies were pushing the envelope. I'm sure you remember how 10-minute deliveries became a thing. What happened to it later is a whole different story, of course,

but at the time, the Tata's were quite concerned. So Big Basket did what it had done time and again. It imitated the competition with its own 20-minute delivery service called BB Now. A former senior executive who had spent over half a decade at Big Basket told the Ken reporter Somerjid Saha, and I'm quoting, you cannot let ego dictate things. Instamart had shown that this model was scalable, so we decided to follow. End quote.

Eventually, Bibi now became the first major project Big Basket had implemented under the Tatars. And employees could see that a shift had already begun. But it wasn't an entirely happy decision. According to many former employees, the Big Basket leadership was quite concerned about the quick commerce's high cash burn. Big Basket was still not profitable and had been trying to cut losses for years. Just three months into Bibi Now's launch, Big Basket's business to consumer arm saw its annual losses jump four times for the year that ended in March 2022. And though the Tata group had kept its promise of letting Big Basket operate independently,

it slowly started tightening the screws. Meanwhile, there is one game that Big Basket has clearly won. Stay tuned to find out. As the rivals began crowding the scene one by one, Big Basket remained the last largest e-grocer. But by 2022, with GeoMart in the picture, Big Basket was forced to double down on giving discounts. The Ken's deputy editor, Sita Raman, wrote about this recently in his newsletter Trade Tricks. Within a year of its launch, GeoMart had a 4% market share in online grocery. The main reason behind this was its aggressive pricing, and of course its presence in over 2,000.

cities and towns. Bigbasket's market share in the year that ended in March 2021 was 37%. So it is only fair to assume that GeoMart's share of the pie has gone up since. If you want to understand how GeoMart and BigBasket are approaching value etailing better, there are many similar examples in the offline world. Like Big Bazaar, GeoMart is going heavy on periodic sales. with heavy discounts. And just like Big Bazaar's rival Demot, Big Basket has decided to opt for low prices throughout the year,

which explains the Hardin Sasta tagline. For those who do not understand Hindi, hard-day-day-sast-a roughly translates into affordable every day or cheap every day. Big Basket may have over 50,000 SKUs, which is by far the largest among e-grocers. but it has finally realized that deals matter more than range. Big Basket was trying to be an alternative to GeoMot and Demart Ready, the online venture of India's second largest supermarket chain, Demart.

Now, Big Basket is an alternative. Stay tuned for more. Demart Ready is still cheaper than Big Basket for a wide range of products, but Big Basket is closing the gap pretty fast. A brokerage called Prabhuda's Leladhar recently compared the prices of 125 products across the three services and it found that Big Basket raised the price of one in every four of the products between February and May. Geo Mart and Demart Ready, meanwhile, did so for every one in three products. This has helped Big Basket narrow the difference in discounts.

Take Pulse's, for example. It is a category that does not have big brands. In all the products that the brokerage looked at, Big Basket's prices were closer to Demart Ready than they were a few months ago. It's not very different in dairy and personal care. The price difference between Demart Ready and Big Basket is now negligible for products like Amul butter and dove soap. Now, you may be thinking why is she telling me all this?

It is inconsequential. But trust me, it is not. You see, Demart does not pride itself on range or even fresh produce. But it is very particular about one thing. That is, offering great deals day in and day out. Matching that is a big deal for any rival. And that too, for a rival whose guiding principles are not rootless efficiency and complete attention to profits, and Big Basket knows how important this is.

For a company that is a category creator, there is no denying the heart truth. That Big Basket wasted its first mover advantage. It allowed rivals of all sizes and shapes to position themselves well in different, parts of the online grocery space. Geo Mart and Demart ready in the value segment and Instamart and Blinket in Quick Commerce. But Big Basket's value approach is very important to its parent, Tata. Tata spent about $2 billion on a super app called Tata New. But people shrugged it off after its launch last year. The app now has a new design and payment features. But for to succeed in its new avatar, it needs Big Basket to work. Four in five transactions on Tata

New in the first year were reportedly grocery or medicine orders. And let's be real, none of the other brands on Tata New app, like TataClick, Tata 1MG or Chroma or market leaders, forget about being category creators. So a lot is riding indeed on Big Basket. It is also clear as day that only one thing matters the most to grocery buyers. Neither geomart nor DMART ready or for anything close to an online shopping experience that you could actually enjoy. Big Basket may actually be far better in this regard. But what it actually really boils down to in the online groceries business is like Sita says, being bang on to the buck. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien. Thank you.