Why did you choose to enter grocery, given that it is a low margin segment?
People think this is a low-margin business. It’s not. It’s a myth. This is a business that can generate gross margins of about 20-23%. The next best is apparel. Electronics and mobile phones are single-digit margins. The issue is if you are inefficient in this business, if you don’t handle the perishable business well, you will end up with a lot of dump and wastage. We have across our chain a wastage of about 2-3%, whereas a lot of people have wastage that runs at about 10-12%. Private label margin will run anywhere between 30% and 40%.
What are the biggest challenges you have faced while scaling up Bigbasket?
One big challenge is we are very people-dependent. Every time we grow, we have to add more people so that’s one issue that’s been there with us and continues to bog us. We’re going to invest in automation in terms of our warehouse and last-mile delivery but we will remain people-dependent for a very, very long time to come.
The second issue that we always faced is this fruits and vegetables thing. There’s a huge touch and feel to it. There’s this whole perception that I will get good quality fruits, vegetables, meat and rice which is something we are constantly working on. This is basically for new customers.
The other big issue is inertia. You’ve got a smartphone, you’ve got broadband, you are savvy, you earn reasonably well, you have a great job going, you are married. Why haven’t you bought from Bigbasket? The point is that it’s a lot of inertia. That old habit doesn’t die easily in terms of buying grocery, right? Buying a mobile phone online is easier. It’s the same product (that you will see in a physical store too). There’s lots of such issues in grocery because the number of items are large in an order, when I go out I just end up picking up something. Inertia-breaking is the second biggest challenge.
What are the key decisions that have made Bigbasket what it is today?
We were clear that we wanted to build a company which is extremely strong on processes. This is a very execution-focused business right, and to have high-class execution, we need to build a company which is built on processes and built on technology. These are two things that are absolutely the base of everything we said we would do, which is build strong processes and drive those through technology. We said till this becomes robust and strong—including delivery, perishables, the whole range—we will not market ourselves. We just did this for one year and we called it the year of the back-end. We said we will not go and make noise because it’s such a crucial category. The lady at home is going to trust you only if you deliver five times to her; well, otherwise the trust is not going to come.
The other thing we always knew we should bet on and really start from day one is fruits and vegetables as a business, which is perishables. We always knew that we will bet on this category and this category can do two things— either it can make you win or it can make you collapse because quality perception of a grocery store is built on the freshness and quality of your fruits and vegetables, staples and meat. It’s not the detergent and soap that decides the quality. We said that we should do that—if we don’t do it well, we’ll be dead. If we do it well, it’s a great opportunity. So these are the two things that we decided to bet on. One is processes and technology, and second is the fresh produce, fruits and vegetables. We decided to package it and brand it.
How did the Shah Rukh Khan campaign help BigBasket (Bigbasket)?
Shah Rukh Khan’s endorsement has helped massively. We were conscious that it was going to give us visibility. Today, we are very visible. Now, we got to convert. He (Shah Rukh Khan) can’t make people buy. We have to do it. That’s our focus, that’s what analytics will do.
Why did you choose to launch hyperlocal delivery given that most start-ups in that segment have struggled to scale? How did you go about it?
We wanted to maximize the basket of a consumer. A consumer buys in three ways—there is this planned buy of grocery in the beginning of the month or towards the end of the week, those things are not required urgently. It’s required the same day or next morning but can’t be three days later (obviously). That’s called the planned business which we are always running, we always have. What we were not catering to were two things for a consumer—beyond planned, consumer buys certain things every week. They buy fruits, vegetables, bread, dairy, eggs—all this is bought weekly because the shelf life is short. And those items you typically need fast and you buy it because you run out of something or there is a top-up required. That business we were not getting. People were going to the kirana or the neighbourhood store. We said let’s get that business and that’s how we introduced the 90-minute express service. We set up dark stores which are small warehouses in the city. We’ve already set up 63 of them and we are doing only tier I. In tier II, it’s not required because people have time. So, we set up the express delivery, which is on two-wheeler. We acquired Delyver and that business is running now. Typically in a household about 60-65% of the business comes from planned buying, about 20-25% comes from weekly top-up buying. And the balance comes from the specialty store buying. So, people have some favourite stores and I won’t buy from anywhere else. So, we said why not get those stores online in a pure marketplace model. This started about four-five months back.