How BigBasket got bigger, and better
To get a perspective on BigBasket, you need to get on a call with K Ganesh, and ask him what makes the online grocery firm click in a market, where everyone else has struggled.
Ganesh, few know, is the brain behind BigBasket. After selling Tutor Vista to UK-based Pearsons for ₹700 crore in 2011, he and his wife started Growth Story, a platform that scouts for ideas and enables entrepreneurs to become successful. They also launched Portea Medical and online jewellery platform Bluestone.
“We get the idea, get the founders together, get the money to start the company, and handhold them through the initial days,” says Ganesh.
E-grocery was an idea Ganesh thought six years ago, and started BigBasket. There were already 26 players in the space (However, most of them have shut shops since then).
Unlike most of BigBasket’s competitors, Ganesh knew online grocery was not just getting shopkeepers on the platform and delivering products. To run the business, you need people with deep domain knowledge of grocery.
So he handpicked the team that launched Fabmall and FabMart, which was acquired by Aditya Birla More. It took Ganesh three months to convince the five founders — Hari Menon, Vipul Parekh, VS Ramesh, VS Sudhakar and Abhinay Choudhari — to run BigBasket.
“I wouldn’t have done this if it was not for this team,” says Ganesh, who is also the promoter of BigBasket.
Ganesh also knew it was important to raise some early money. BigBasket raised $10 million in series A funding from private equity player Ascent Capital. Most of the others couldn’t raise that much amount of capital.
BigBasket does around 50,000 orders a day and has 2.5 million active customers, most of whom do three to four transactions a month. It is on its way to achieve a gross merchandise value (GMV) (the total number of goods and services sold on e-commerce platform excluding discounts and promotions) of ₹1,800 crore. Its nearest competitor, though the numbers aren’t available, would be half its size, according to estimates.
In the initial days, BigBasket got its products from METRO Cash & Carry and HyperCity. It gave the company some scale, but only 60% of the order basket was filled (Which means customers did not find four out of every 10 products).
It was then that the founders — Ganesh calls them “maniacs of execution” — knew it was time to build the supply chain, get the products into warehouses, ensure that fill rates (the fraction of customer demand that is met through immediate stock availability, without back orders) go up. Only then, the business could be sustained.
“Others thought keeping inventory was a cost... We did it from early days. From the beginning, we bought fresh foods and staples. For other items we used METRO,” says Vipul Parekh, co-founder, BigBasket.
But soon, Parekh and the other founders realised that it was important to build the supply chain further. They went to farmers and procured directly from them, which saved the cost of middlemen. It also kept prices lower than the neighbourhood vendor.
Currently BigBasket procures 70% of all its fruits and vegetables from farmers. The category contributes 45% to the company’s sales.
Buying vegetables online was a big shift, and a challenge. Buyers like to see and check fruits and vegetables before buying, which wasn’t possible on an online platform. Parekh and his team had to understand the ripeness of the fruits like bananas and mangoes. “Now, we have size, shape and ripeness index for every fruit and vegetable,” says Parekh.
Onions come from Nasik, apples from Himachal. The company has 25 collection centres near farms. It has engaged agronomists to help farmers produce fruits and vegetables.
Meanwhile, while BigBasket built its supply chain, others started lagging. PepperTap, funded by Snapdeal, shut shop. LocalBanya and others failed to raise money. Grofers, BigBasket’s biggest rival, closed operations in nine locations.
“Our understanding of the offline grocery market came handy… the fallouts were a set of indications that we were doing the right thing,” says Parekh.
Basket fill rates are at 99.6%. But returns are as low at 1.2% — the e-commerce industry average is 15% to 20%, depending on the category. On-time delivery is 98.5%. Parekh wants to take it to 99.5% in 2017.
While getting the scale helped BigBasket get contracts with large consumer goods companies, including Hindustan Unilever and Nestle, Parekh and his team knew that the money was in private labels, and food and grocery.
Already, 40% of BigBasket’s business comes from private label, and Parekh hopes to take it to 45% next year. Margins are 6% to 15% higher in private labels – in products, such as honey, snacks, stationary, fruits and vegetables, and staples. Private labels, apart from fruits and vegetables, bring in 15% of its revenues.
The company has also increased its total stock-keeping units (unique number of products) to 22,000. Even a large-format store like Big Bazaar has 10,000-12,000.
But there’s a new competitor doing the rounds. Amazon has started delivering groceries in eight cities. But Parekh is not worried. “We have very low marketshare in each city we are present in… We want to become the biggest grocer in each of the 25 cities,” he says.
Meanwhile, the company has also launched a wholesale vertical to supply to hotels, restaurants and caterers. The business is called Horeca. “We will eventually sell them (private labels) to retailers,” says Parekh.