This article has been written by Arushi Seth, pursuing the Diploma in M&A, Institutional Finance, and Investment Laws (PE and VC transactions) from LawSikho.

Introduction

In the present times, where the world is required to relocate its presence virtually, digitalization has rather become a need than a mere option by ensuring a steady supply of goods in households. Especially, e-grocery and e-pharmacy platforms have been a blessing in disguise since the onset of the Covid-19 pandemic in India. Even though these platforms have had a market presence for a long time, they have gained a significant popularity and consumer base since the last year, thus making them a lucrative choice as a stepping stone for big conglomerates, such as Amazon, Reliance, and Tata.

This article studies the reasons for the attraction of Tata Group, one of the biggest conglomerates in India, towards BigBasket, an online grocery startup which, according to reports, registered revenue growth of record 36% in the financial year 2020.

A peek into Tata’s tryst with digitalization

As a steel-to-salt conglomerate, Tata has its foot in almost every business one can think of, but the recent love affair of Tata with the e-commerce business is what currently is drawing the eyes of the world. Tata did not want to be left out of the buzz surrounding e-commerce in which many of its strong competitors (Reliance, Amazon, etc.) are emerging as leading players. Thus, Tata Sons in 2019 set up its subsidiary ‘Tata Digital Limited’ to strengthen its focus on the online consumer market and since then, it is aggressively strategizing to create dominance in the market. It has also recently acquired 1mg, one of the leading e-pharmacies in India, and undertook an investment in CureFit, an emerging fitness platform, to further its drive towards e-commerce.

An overview of the journey of ‘Unicorn Startup’

BigBasket started its journey from Bengaluru in the year 2011 with the help of V.S. Sudhakar, Hari Menon, V.S. Ramesh, Vipul Parekh, and Abhinay Choudhari, the previous founders of Fabmart.com. BigBasket set its foot in the e-commerce business when the industry was booming and everything was available online, except for the groceries. Although it was the first of its kind platform, the startup took several years to gain the trust of the masses, majorly because of the conventional approach of the people. Now, after almost 10 years of market presence, BigBasket caters to the needs of over 125 million customers spread over 26 Indian cities. It also reached a milestone in March 2019, when it achieved a unicorn status after roping in $150 million from Mirae Asset- Naver Asia Growth Fund, CDC Group, and Alibaba.

Since its inception, the startup has devised some exceptional market strategies to attract customers to its platform. It follows a very unique approach where it studies the population of each city and tailors the products on its platform according to the habits of the customers in that particular city. The company follows a time-based delivery system where a late delivery gives a discount to the customer. It engaged a public figure with a tremendous number of followers, Shah Rukh Khan, as the company’s Brand Ambassador. To explore new opportunities, the company also launched BB Daily, a subscription-based service that provides milk and fresh groceries every day to its subscribers, BB Instant, unmanned vending machines placed at corporate offices, apartment buildings in Tier I cities, and BB Beauty Store, that provides a wide range of personal care and beauty products online.  As for the business model, BigBasket follows both the inventory model, where it stores the products in its warehouses after buying from third parties and supplies them to its customers on orders, as well as the hyper-local model, where it has tied up with the local grocery stores to deliver the products within one hour of receiving the order. To further elevate its hyper-local model, the startup acquired ‘DailyNinja’, a hyper-local delivery platform in March 2020. Under its B2B market segment, the startup sells its private label to Kirana stores, big corporations, and HoReCa (hotels, restaurants, and cafes). 

However, what most attracted Tata Group is that BigBasket, as of 2019, recorded the highest market share at over 35%, even after facing cut-throat competition from emerging online grocery platforms like Grofers, Amazon Fresh, etc.

The big deal

Pre-transaction talks 

Though the official talks about the deal were hushed, the cat was let out of the bag when it was reported in October 2020 that the two companies were in between negotiation talks and Tata has proposed to buy over 50% of the stake in BigBasket.

Competition Commission’s blessings

 The Competition Commission of India on 28th April 2021, through a press release on its official website, officially approved the union and allowed Tata Digital Limited to acquire 64.3%, which approximately amounts to $1.2 billion, of the total share capital of Supermarket Grocery Supplies Private Limited, a B2B transaction platform and the parent company of BigBasket, through primary and secondary acquisitions in one or more series of steps. The CCI also cleared the way for Supermarket Grocery Supplies Private Limited to acquire sole control over Innovative Retail Concepts Private Limited, which manages the official website of BigBasket, www.bigbasket.com. However, it cannot be assumed that the CCI would not object to this union in the future. If after the deal, the Commission discovers any threat of adverse effect on the competition in the market, it has the authority of suggesting any modifications to the transaction.

The closing

After around 6 months of anticipation and rumors, Tata officially announced the deal on the 28th of May, 2021 through a press release on its official website. Tata has now acquired a majority stake of 64.3% in Supermarket Grocery Supplies Private Limited. Though the financial details of the deal were not disclosed by either party, the regulatory filings regarding the deal have hinted towards Tata Digital’s commitment of approximately $219 million (₹1,591 Cr.) investment, out of which Tata Digital has already given about $154 million (₹1,116 Cr.). Supermarket Grocery Supplies Private Limited, according to its filings with the Corporate Ministry, has issued 11 million fully paid-up and 4.7 partly paid-up equity shares at ₹1,005.59 each to Tata Digital to raise ₹1,116 Cr.  Even the valuations of BigBasket were not disclosed, but if reports are to be believed, then the valuation of the recently acquired startup stands close to a whopping $2 billion.

The board of directors of BigBasket, which included the company’s largest shareholders, Chinese internet giant Alibaba Holding Ltd. and Private Equity Firm Actis LLP, gave a green signal to the deal which resulted in the exit of both Alibaba and Actis LLP. However, as a part of the agreement, the founders will stay in the company itself. This agreement was also reached in furtherance of Tata Digital’s decision to give autonomy to BigBasket, as the founders have the much-required experience and expertise that drove the startup to record $1 billion annual revenue. 

Before the deal was on the table, BigBasket had plans to take the company public by the year 2022, and it seems the company, even after the acquisition, remains firm on its plans, as it is believed that Tata Digital has agreed for an IPO by the year 2022-2023. 

What’s in it for BigBasket?

• The biggest advantage BigBasket can reap from this acquisition is the much-needed back of a big investor to effectively compete against Reliance’s JioMart. The entry of JioMart gave birth to the hyper-competitive environment in the online grocery market owing to the heavy-discounts strategy of Reliance. This deal will place BigBasket in a better position in terms of capital to compete against JioMart.
• All was hale and hearty for BigBasket until conflicts between India and China arose last year. The company suddenly became in need of a strong investor as Alibaba Group, consequent to the tensions, refused to invest any further in Indian companies. Even BigBasket’s association with the Chinese investor received a backlash in India. Thus, Tata Digital’s investment has not only brought a strong investor in the company but has also helped BigBasket to steer clear from any association with the Chinese investors, as the deal resulted in the exit of Alibaba.
• BigBasket also sells under its private label and uses both hyper-local as well as inventory models, therefore it needed someone to help the company scale up the manufacturing operations and strengthen its supply chain. Tata, being a 153-year-old company, has a strong offline presence which will benefit BigBasket in elevating its manufacturing and logistics capacities and eliminating middlemen.
• BigBasket can now widen its reach and customer base by selling products through Tata’s platform as well.

Tata’s big advantage – a step further towards ‘Super App’

Tata might be a little late to join the party of digital transformation, nonetheless by noticing the pattern of aggressive acquisition strategies adopted by the conglomerate in recent months, it is clear that Tata is not just hopping on to the online retail market platforms through its recent acquisitions of the leading players in their respective areas, it is also using them as a stepping stone to creating something much bigger. The company through acquiring these new-age startup platforms is establishing a base for the foundations of a ‘Super App’.

Super App is pretty much a digital mall, where the customers can get everything they need. It is a one-stop app that has services ranging from groceries to digital payment to insurance services. WeChat’ for instance is a super app, which apart from providing messaging services to its users, offers them around 5,00,000 mini-apps on its platform. But as fascinating as the concept sounds, it is not quite easy to build such an app as thousands of mini-apps have to be managed on a single platform. For this reason, there are very few successful super apps operating around the world. But regardless of the difficulties surrounding it, investors are always ready to invest in these super apps because of the potential profits they carry. Even Amazon and Reliance have been in the process of building their super apps for a very long time.

Tata Group’s vision of launching a super app before any of its staunch competitors is evident from its vigorous acquisition strategy, which has seen an upward trend in the last couple of months. The company has even made plans for launching the ‘Super App’ in September this year. Currently, according to sources, Tata Digital is planning to acquire ‘Dunzo’, a hyper-local delivery platform that has doubled its business in the last few days, to strengthen its logistics network.  

Conclusion

The current pandemic has brought almost the entire world online. Who would have thought back in 2019 that within a year we will be sitting at home and still be just one click away from everything? While many local businesses were forced to close down, the e-commerce websites saw a boost in their daily customer base. Even the platforms, such as Zoom, that were previously unheard of, gained significant popularity among users. But the e-grocery and e-pharmacy platforms saw the biggest growth out of all. Statistics show that online groceries alone had a market value of about ₹100.7 billion as of 2019. According to the RedSeer report, the online grocery market of India is expected to touch the $10.5 billion mark in 2023. Therefore, it makes complete sense for Tata to start their digital transformation tryst with online groceries, because by acquiring a company that has over 35% market share, Tata has ensured a big entry into the online retail market in India.

References

• https://www.livemint.com/companies/news/tata-acquires-majority-stake-in-bigbasket-invests-219-million-11622223425635.html.
• https://economictimes.indiatimes.com/tech/startups/tata-says-acquired-a-majority-stake-in-online-grocery-bigbasket/articleshow/83029366.cms.
• https://www.business-standard.com/article/companies/tata-group-acquires-majority-stake-in-bigbasket-for-undisclosed-sum-121052800975_1.html.
• https://startuptalky.com/big-basket/.
• https://www.thehindubusinessline.com/companies/why-acquiring-a-stake-in-bigbasket-makes-sense-for-the-tata-group/article33264045.ece.
• https://dare2compete.com/bites/will-tata-be-able-to-deliver-better-with-acquisition-of-bigbasket.
• https://www.cnbctv18.com/technology/tata-digital-the-super-app-play-9584501.htm.
• https://agiletech.vn/super-apps-examples-review-2021/.

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