A BigBasket distribution center. Photo credit: BigBasket.
On-demand grocery startups Big Basket and Grofers say they are not merging, irrespective of what media reports today claim.
Big Basket CEO Hari Menon and Grofers CEO Albinder Dhindsa responded to an article in The Times of India, which said the companies have held merger talks, though the discussions are in a preliminary stage and have moved slowly.
“The report is all bunkum, it doesn’t make sense for us to buy Grofers,” Hari tells Tech in Asia.
Ganging up on Amazon
The TOI says that merger talks between the two companies started in November last year, and will be brought up during BigBasket’s board meeting scheduled for end of January.
A deal will depend on BigBasket’s upcoming financing round, the report says. The Bangalore-based startup is set to raise US$150million in a fresh funding round.
Albinder Dhindsa, cofounder and CEO of Grofers. Photo Credit: The Week.
What are called “mergers” in the business world are rarely those in reality. A true 50:50 partnership almost never occurs. In this instance, it is likely that BigBasket would buy Grofers, if at all, rather than “merging with it.”
A source close to the matter tells Tech in Asia that the company heads have met time and again, and have sometimes discussed the advent of Amazon and ways to counter that in the past. Last year, that duo raised the topic of a possible merger, but only conversationally, “and nothing came of that. They didn’t even follow up.”
BigBasket is one the few companies in the country that seems to have cracked on-demand grocery deliveries in India – a space so hard to navigate that others, including Flipkart, Ola, and even Amazon have struggled with.
See: BigBasket’s secret to handling 35,000 orders a day, where even Amazon fumbles
Different paths
Amazon piloted its grocery unit in India starting September, but it doesn’t deal in fresh produce in any major way.
Grofers is on a path to rebuild itself after making some false moves in the past. Flush with cash, it chased new markets instead of building its core logistics team. The move backfired. Albinder has since taken up a number of measures to correct his mistakes, including investing around US$10 million in its supply chain.
“We are still doing that. We’ve been growing on a trot these past four months,” CEO Albinder told Tech in Asia. Initially just an online runner boy, Grofers is now going the inventory-led way, like BigBasket.
BigBasket says it averages about 50,000 orders in a day. Grofers services around 10,000.
See: Grofers 2.0: inside the startup’s big mistakes and learnings
On the face of it, a BigBasket-Grofers merger could create a local giant that would be in a stronger position to take on Amazon when it eventually launches grocery delivery in full force in the country.
However, BigBasket is run by a team that strongly believes in being “grocers first, that just happens to be online.” Grofers is the opposite, where the team says they are “a tech company first, and then we are a grocery company.”
The differences of principles aside, a Grofers sales would free its investors for an exit, but it is likely to add to BigBasket’s chores.
An employee cuts vegetables at BigBasket’s distribution center. Photo credit: BigBasket.
Bangalore-based Bigbasket has been working on its back-end platform for years to build a logistics team that can deliver on time, with minimal hassles. Tech in Asia tested those claims last year. The company was on time with every order bar one. In two instances there were items missing, but BigBasket sent prior notifications about that, and reversed the money immediately. In the one instance the delivery was late, the company refunded some money as compensation.
“In grocery, you need tech but have to keep it simple. You have to make it simple for the shopper to find rice and daal,” Hari says.
Grofers, in comparison, still struggles with glitchy tech and erratic deliver boys. Its revenue shrunk from US$129,449 in financial year 2015 to US$85,586 in 2016, according to official filings. It lost US$8.9 million in 2016, compared to US$572,141 in 2015.
BigBasket saw revenues jump to US$82.6 million from US$24.9 million in 2015. Losses came in at US$40.6 million, compared to US$9 million in 2015.
Adding Grofers – which is in the middle of rebuilding its team and setting its house in order – to its portfolio will involve taking up added responsibilities that Hari and team could do without at this stage, unless it guarantees future investments from Grofers’ top tier investors, Tiger Global and SoftBank.
In November, Albinder told Tech in Asia that Grofers had more than US$90 million in the bank.
“It’s a dilemma for Grofers whether to spend money or seek a merger. For BigBasket, it finds little value in Grofers’ technology, customers or revenue,” the Times of India quoted a source as saying.
“It’s a different issue if Tiger and SoftBank want to talk a merger with follow-on investments. The hurdle to the deal making is the fact that BigBasket would dictate terms, but Grofers wouldn’t give up because it still has a lot of cash left on its books,’ the source elaborated
India has recently seen an increasing number of tech deals aimed at market control. Just last year, Flipkart’s Myntra bought distressed rival Jabong.
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