India’s online grocery space is headed for disruption, with the entry of Tata Group. The Competition Commission of India (CCI) on April 29 gave the go-ahead to Tata Digital to acquire BigBasket, one of the country’s leading online grocers.
Tata Digital, a wholly-owned subsidiary of Tata Sons, approached the competition watchdog in March to acquire 64.3 percent of Supermarket Grocery Supplies and for sole control over Innovative Retail Concepts, the company that runs BigBasket. The deal is pegged at $1.2 billion, giving BigBasket a post-money valuation of $1.8 billion.
Big boys to slug it out
The deal will not only intensify competition but also give the much-needed impetus to the digital grocery market, which lags segments such as fashion and gadgets in online penetration.
BigBasket, Grofers, Walmart-owned Flipkart, Amazon and Reliance Industries’ JioMart are the five big players in India’s online grocery space.
“Tata’s entry makes the space more competitive," Anurag Mathur, head-retail and partner, PwC, said. "But these five large players can also bring disruption to the segment.”
According to industry estimates, BigBasket has about 40 percent market share in the online grocery segment, Grofers 19 percent and Amazon is at 17 percent. The remaining 24 is with the other players
Huge market to play for
Online platforms only account for 0.7 percent of the grocery market, according to PGA Labs, the market intelligence unit of Praxis Global Alliance. FMCG companies draw just about 2-3 percent share of their sales from the channel.
Around 95 percent of the grocery market in India is led by local kirana or mom-and-pop shops. The Indian grocery sector is an $850-billion market, with groceries accounting for 66 percent of the total retail spend in India, a January 2021 report by RedSeer Consulting said.
“Tata Group and BigBasket combined will become more dominant and grow faster,” said Madhur Singhal, Managing Partner and CEO, Praxis Global Alliance.
BigBasket would also expand to more cities as it would not be dependent on external capital, Singhal added. It is present in over 25 cities, while JioMart operates in more than 200 cities.
The deal works in favour of Tata Group as well as BigBasket.
The deal works in favour of Tata Group as well as BigBasket. It dovetails with Tata Group's ambitions for a super-app plan to offer groceries, health, education, entertainment, electronics, lifestyle, etc.
“Tata Group has a significant presence in the Indian retail market across the categories and given an online presence is now necessitated, the potential deal will ensure faster entry into the e-grocery segment. For Bigbasket, the deal helps in getting the needed funds and support for the next wave of growth,” said Rohan Agarwal, a director at RedSeer.
The segment would also see several new models emerge. BigBasket has an inventory-led model and given Tata Group’s presence in offline retail through its supermarket StarBazaar, the platform can look at a greater omnichannel play.
“The development can alter the grocery retail space as several of these players could go for an omnichannel play now,” Mathur of PwC said.
Overall, online grocery space is headed for growth at a time when the coronavirus has hit India hard with people preferring the safety of their homes to shop for their daily needs.
E-grocery saw a rapid growth in the wake of the COVID-19 pandemic and clocked $3 billion in gross merchandise value in 2020 as compared to $1.9 billion in the previous year, RedSeer Analytics said. The segment is expected to grow to a $24-billion market by 2025.Disclosure: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.