BigBas­ket raises $150 mil­lion in fresh funds

The Pak Banker - - COMPANIES/BOSS -

On­line gro­cery BigBas­ket said on Tues­day that it had raised $150 mil­lion in fresh funds, giv­ing it ad­di­tional fire­power against smaller ri­vals Gro­fers and Pep­perTap, both of which have shrunk op­er­a­tions af­ter an ex­pan­sion spree led to losses with­out yield­ing suf­fi­cient sales.

The lat­est round of fund­ing, which has been in the works since July 2015, saw par­tic­i­pa­tion from new in­vestors, such as pri­vate equity (PE) firm The Abraaj Group, ven­ture cap­i­tal firm Sands Cap­i­tal Man­age­ment Llc and In­ter­na­tional Fi­nance Corp. (IFC), the pri­vate sec­tor lend­ing arm of the World Bank.

Ex­ist­ing in­vestors He­lion Ven­tures Part­ners Llc, Besse­mer Ven­ture Part­ners Lp and As­cent Cap­i­tal Llc also par­tic­i­pated in the round. BigBas­ket's fundrais­ing comes at a time when in­vestors have turned cau­tious about back­ing start-ups, af­ter a two-year fund­ing frenzy that lasted un­til the end of 2015. Large fundraises, such as BigBas­ket's, are be­com­ing in­creas­ingly rare as in­vestors are forc­ing start-ups to fo­cus on cut­ting losses and stop splurg­ing on dis­counts and ads. Ac­cord­ing to data pro­vided by Tracxn, a start-up tracker, there were 15 fund­ing rounds of more than $100 mil­lion in the whole of last year. So far this year, the num­ber stands at three, in­clud­ing BigBas­ket's lat­est.

Among the con­sumer In­ter­net busi­nesses, on­line gro­cery has turned out to be a par­tic­u­larly chal­leng­ing niche. Sev­eral start-ups, in­clud­ing Gro­fers, Pep­pertap and ZopNow, have emerged with the so-called hy­per­local model.

Un­like BigBas­ket (Su­per­mar­ket Gro­cery Sup­plies Pvt. Ltd), which holds in­ven­tory, the oth­ers sim­ply al­low shop­pers to book prod­ucts on their app from neigh­bour­hood stores and then de­liver them.

BigBas­ket, which claims to op­er­ate in 18 cities and de­liver more than one mil­lion monthly or­ders, largely ships prod­ucts di­rectly from its ware­houses.

While the in­ven­tory model helps BigBas­ket to ex­tract sig­nif­i­cantly higher mar­gins as it buys di­rectly from brands and man­u­fac­tur­ers, other hy­per­local start- ups op­er­ate on wafer-thin mar­gins. Th­ese start-ups es­sen­tially source prod­ucts from re­tail­ers and get paid 2-10% of the or­der value as com­mis­sion.

Be­sides, BigBas­ket also has a sig­nif­i­cant pri­vate-la­bel port­fo­lio, which ac­counts for about one-third of its rev­enue. The com­pany sells fruits, veg­eta­bles, meat and bread un­der the brand name Fresho and sta­ples un­der the Pop­u­lar and Royal brands.

Ac­cord­ing to in­dus­try ex­perts, while an in­ven­tory model may make a busi­ness as­set-heavy, the hy­per­local model may be con­strained by lack of ad­e­quate sup­ply. "In­ven­tory-led mod­els give you bet­ter con­trol on the qual­ity and, over a pe­riod of time, you can get bulk deals from man­u­fac­tur­ers. You also get slightly bet­ter mar­gins. But you can­not cre­ate too many in­ven­tory hubs. On the other hand, in hy­per­local model, you can source ef­fec­tively, but they de­pend on the qual­ity and va­ri­ety of prod­ucts avail­able lo­cally," said Ashish Basil, part­ner-tech­nol­ogy, trans­ac­tion ad­vi­sory ser­vices at EY.

Ex­perts said Gro­fers and Pep­perTap would now re­quire more cap­i­tal to sur­vive a heav­ily funded busi­ness like BigBas­ket.

Gro­fers In­dia Pvt. Ltd has so far raised about $165 mil­lion fromSoftBank Group Corp., Tiger Global Man­age­ment Llc and Se­quoia Cap­i­tal. Pep­perTap, run by Nuvo Lo­gis­tics Pvt. Ltd, has mopped up about $51 mil­lion from ru-Net Hold­ings Ltd, In­noVen Cap­i­tal, Snapdeal (Jasper In­fotech Pvt. Ltd) and SAIF Part­ners, among oth­ers. Gro­fers and Pep­perTap re­cently froze ex­pan­sion plans and shut op­er­a­tions in tier II cities, to con­serve cash amid a fund­ing slow­down.

The ex­perts added that the infu- sion of fresh funds will help ex­pand the on­line gro­cery mar­ket if BigBas­ket chooses to grow to new cities. De­ploy­ing cap­i­tal in the ex­ist­ing mar­kets may hurt com­peti­tors, they said.

"Most busi­nesses look at sim­i­lar mar­kets and there is a lot of over­lap. If ev­ery­one is go­ing to op­er­ate in the same mar­ket, then ob­vi­ously, more money creates more com­pe­ti­tion. But, if it is used to go into new ge­ogra­phies and launch new ver­ti­cals, then it helps ex­pand mar­ket as well," said EY's Basil.

BigBas­ket has been ex­per­i­ment­ing with hy­per­local de­liv­ery too. For in­stance, the com­pany has tied up with about 1,800 gro­cery stores to sell its pri­vate la­bel prod­ucts across cat­e­gories such as veg­eta­bles, sta­ples and bak­ery. The firm, which ac­quired de­liv­ery start- up De­lyver in June 2015, has launched the hy­per­local of­fer­ing es­pe­cially for cat­e­gories such as meat, fish and sa­vories.

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