Big Basket Investing Rs. 500 Crore To Enhance Farmer Sourcing & Technology!
The Online Food & Grocery shopping is still in its nascent stage and is expected to grow at a compounded annual growth rate of 141% by 2020.
Quite recently, Big Basket doubled their business figures and crossed the Rs. 1,000 crore sales mark in FY17, and with the growing preference for online grocery in India, the companies are trying to tap into the broader consumer market.
The Alibaba-backed Big Basket is planning to spend up to Rs. 500 Crore to boost their technology and the back-end farmer supply chain, as the company is expecting to double their customer base to 20 million by the end of 2020.
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Farmer Connect
The company has shifted their focus on strengthening the farmer supply chain programme called Farmer Connect. Currently, Big Basket has around 1,800 farmers working with them, and the online grocery company is looking to add 5,000 more.
Recently principal owner Innovative Retail reported a total revenue of Rs. 1,090 crore in last fiscal year (FY 2017), a 107% jump of Rs. 527 crore from a year back. But, their losses have also increased to Rs. 191 crore, compared to Rs. 103.4 crore in FY16.
At present BigBasket has two operating entities, Supermarket Groceries and Sources Products. The company acts as a middleman and sells the products to Innovative Retail and Big Basket, in turn, runs the consumer-facing portal and makes the last mile delivery. The model complies with the norms on foreign direct investment (FDI) in the direct online retail structure in India.
Better Prices & On-Time Delivery
The online grocery company has more than 85% of their products directly from farmers and the company wants to strengthen it further. Big Basket is now closely working with hotels, restaurants and around 2,000 Kirana stores and plans to deepen their engagement with farmers for supply with better delivery options and lower prices compared to the market.
All the Big Basket hubs are close to the farming locations and it has around 26 warehouses in 30 cities at present.
Big Basket is aggressively working to grow their user base and is eyeing 20 million customers by the end of 2020 from 8 million now. The company also plans to invest in technology to strengthen their customer service areas and the back-end efficiencies.
The expected investment in all these projects would be up to around Rs. 500 crores.
In the last few years, the delivery on time has improved with accuracy in deliveries and accuracy of stock levels. The company plans to allocate resources towards advertising and other activities to achieve their growth targets and at present has about 16,000 employees, including delivery staff.
Talking Reality
The online food and grocery penetration is less than 1% in India, which suggests that the sector is still in its infant stage in the country with an undiscovered potential in a Rs 2.6 lakh crore market.
The online food and grocery segment are expected to grow at a compounded annual growth rate of 141% by 2020 and the sector will contribute around $15 billion or 12.5%, to overall online retail sales.
Last year Big Basket became operationally profitable in two cities – Bengaluru and Hyderabad. It is expected that the next quarter, three more cities including Kolkata, Chennai and Ahmedabad will be operationally profitable.
The Competition
Now more and more retailers are trying to offer a multi-channel market and it meets the demands of customers who can easily switch between the channels to buy the products.
Amazon India recently received a government approval for their proposed $500 million investment in the retail food sector, and are ramping up their grocery business with Amazon Pantry and Amazon Now.
Offline players like Tata, Reliance Fresh, Spencers, Big Bazaar and Godrej Nature’s Basket have also launched their omnichannel initiatives. As of now, the omnichannel strategy is only restricted to a number of lifestyle retailers, which includes Shoppers Stop, Arvind and Aditya Birla Retail.
