BigBasket setting up separate warehouses for supply to hotels, restaurants

Bengaluru: Online grocery store BigBasket (Supermarket Grocery Supplies Pvt. Ltd) is planning a big push into institutional sales and is setting up separate warehouses to cater to businesses, a move that will help the firm increase sales of private labels and improve profitability, said a senior company executive.

BigBasket launched HORECA, a programme under which it sells high-margin private labels and products from other brands to hotels, restaurants and caterers, in July last year. The vertical generates about Rs12 crore in monthly sales; three-fourth of the sales comes from private labels, co-founder and head, new initiatives, Abhinay Choudhari said in an interview.

Private labels are brands owned by retailers, and typically, the profit margins on these are higher than on brands that are owned by other firms. In the case of groceries, the margins could be as high as 30-40%, at least twice the margins on other brands.

BigBasket currently serves institutions in eight metro cities including Bengaluru, Delhi and Mumbai, and some of the smaller cities such as Jaipur. The company plans to open separate warehouses, each about 20,000-25,000 sq. ft, to cater to the institutions in each of these cities. The first such warehouse in Bengaluru will be operational this month.

“We are setting up dedicated business-to-business distribution centres starting with Bengaluru. Some customers have different specifications. Getting vendors to meet those specifications becomes a challenge. With a centre of our own, we can meet those specifications easily,” said Choudhari.

BigBasket will primarily focus on selling fresh fruits, vegetables, meat and staples.

“In fruits and vegetables, we make good margins and the clients also save money. We will also start bringing in additional specifications in terms of staples, say different qualities of rice or larger packs of other commodities meant only for the B2B business,” said Choudhari.

The institutional business currently counts about 1,500 hotels and restaurants as clients, including the likes of JW Marriott, Le Meridien and Sheraton in Bengaluru, apart from start-ups such as Oyo, an online hotel aggregator.

The company had hired former Metro Cash and Carry executive Kanishka Mazumdar to head institutional sales.

This apart, BigBasket also sells private labels through about 2,000 bricks-and-mortar stores in the eight metro cities. The company, which expects to clock at least Rs1,800 crore in sales in the current fiscal, is aiming to generate at least $500 million in sales to institutions and small stores in the next three years, Choudhari added.

According to industry experts, an increased focus on institutional sales may imply that retail sales are slower than expected. According to a January study by RedSeer Management Consulting Pvt. Ltd, sales for online retailers fell from $14 billion in the March quarter of FY16 to about $13 billion each in the June and September quarters, before swelling to about $18 billion in the December quarter. This is in sharp contrast to 2015, when sales grew 17-27% every quarter.

“B2B will bring volume, but it also shows the growth in consumer side has stagnated. B2B is a volume business, but negotiating margins may become difficult. Any institution that buys from you will look to sell the products again at a profit. Even if it is with private labels, which are high-margin products, institutions will look to buy at the cheapest price possible,” said Harminder Sahni, founder, Wazir Advisors, a consultancy firm.

BigBasket’s nearest competitor, Tiger Global Management and SoftBank-backed grocery delivery start-up Grofers India Pvt. Ltd, also launched its private labels—Freshbury for fruits and vegetables and Best Value for staples—earlier this year, Mint reported that development on 15 September.