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Tata Group Finalises Deal to Acquire 68% of BigBasket, Forays into Online Grocery Market in India

Feb 18, 2021 7:25 AM 4 min read

The Tata Group has reportedly finalised a deal that could see it acquiring a 68% stake in Supermarket Grocery Supplies, the parent company of online grocery market BigBasket.

The deal, expected to close in the next four to five weeks, values the e-grocer at $1.8-2bn and could involve a near-complete exit of existing investors including China’s Alibaba, which owns 30% of BigBasket.

Tata’s interest in the country’s largest e-grocer has been long-rumoured. It would give the conglomerate a strong foothold in the rapidly expanding online grocery market and aid Tata in its endeavour to develop a “super-app” for the world’s second-largest digital economy.

As for BigBasket, the deal could mean an IPO as early as next year - something that many Indian startups are working towards. Which implies potentially more capital to finance its expansion (particularly in tier-2 and tier-3 cities) even as the e-grocery sector witnesses increasing competition.

India’s Online Grocery Market in 2021

The coronavirus pandemic and lockdowns were relatively kind to the tech sector. E-grocery was no exception. It enjoyed a 1.7x rise in gross merchandise value in June 2020 vis-a-vis January 2020. BigBasket’s annualised gross sale run-rate, for instance, crossed $1bn for the first time in May last year. Most notably, online sales of fresh vegetables and fruits witnessed 144% growth while FMCG products grew 150%. (More on e-grocery’s 2020 spike here.)

Bank of America analysts estimate that India’s online grocery delivery market could be worth $12bn by 2023. But if you look at the bigger picture, e-grocery is a minuscule part of the entire grocery market, which is still overwhelmingly unorganised (95%+). As of 2019, online grocery had only 0.3% market share - a number that is expected to grow to merely 2.3% by 2024.

The challenge before the main players in the sector is converting this unorganised market into an organised one.

Speaking of the main players...


Who Rules the E-Grocery Roost?

As of 2019, the online grocery segment was essentially a three-player market, with the majority of the market shared between BigBasket, Amazon and SoftBank-backed Grofers.

But that was two years ago. Since then, the sector has witnessed significant competition from disruptor-in-chief RIL. JioMart was launched in mid-2020 and has since expanded its footprint across the country, aided by the clout and logistical prowess of its parent, which raised over $26bn last year from a slew of investors including Facebook and Google, empowering its telecom and retail empires.

A game-changing deal with Kishore Biyani-promoted Future Retail (which Amazon is working around the clock to undo) could give JioMart a commanding 40% share of the organised grocery market. Then there’s Reliance Jio’s tie-up with Facebook, which paves the way for a lucrative retail-tech-telecom partnership wherein JioMart could harness Jio and WhatsApp’s 388 million and 400 million users respectively.

But is JioMart’s takeover of Indian e-grocery a done deal?  


Say Hello to Tata

One company that could give JioMart a tough fight is BigBasket. And one conglomerate that has the warchest to fund such a fight with RIL would be the Tata Group.

Tata is a salt-to-software megalith that owns a slew of world-famous brands, including TCS, JLR and Tetley. Overall, the combined market cap of Tata’s companies is c. $123bn. And they’re doing quite well - the Group reported a smooth $106bn in revenue in FY20.

So why is Tata interested in BigBasket? For a long time, the former has been looking to foray into more consumer-oriented businesses - central to its ambitions to develop a one-size-fits-all super-app along the lines of China’s WeChat. To this end, Tata is also eyeing a majority stake in online pharmacy 1mg. It already has a host of consumer- and retail-oriented platforms including CLiQ, StarQuik, Titan, Tanisq, Croma, Star Bazar, Westside and Taj Hotels in its kitty. A controlling stake in BigBasket would be the logical next step.

If anything, Tata’s BigBasket deal is a long-due one. As early as 2016, the conglomerate was in serious talks to expand its presence in digital consumer services. That year, former Chairman Cyrus Mistry even met with Joe Tsai, Alibaba’s co-founder, to discuss a cross-sector alliance that would have coupled Alibaba’s technology and internet expertise with Tata’s assets and local know-how. This partnership might have materialised - but only days after this meeting, Mistry was ousted as Chairman and replaced with Ratan Tata. This began a years-long legal battle between two of India’s oldest and most powerful conglomerates. Meanwhile, the deal with Alibaba disappeared into thin air and plans to expand Tata’s digital footprint were put on the back burner.

But now, with Mistry’s SP Group seeking to sell its stake in Tata Sons altogether and the growing competition posed by heavily-backed rival RIL, Tata can’t afford to bungle things up and miss India’s accelerating digital revolution.

It’s a quid pro quo. Tata provides BigBasket with the monetary fuel and logistical support required to go up against JioMart. And in return, the e-grocer tries to give rival RIL a run for its money whilst propping up Tata’s super-app aspirations.

However, Reliance Retail commands significant presence across the country, from big cities to tiny towns. BigBasket, on the other hand, operates only in about two dozen cities, most of them urban centres. Putting up a fight against the Reliance machine is likely to be a costly and uphill battle.


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