How BigBasket is playing catch-up with Q-commerce

By September or so, they decided to try out DunzoDaily, the recently launched instant grocery service of hyperlocal delivery startup Dunzo. They also tried out Swiggy Instamart and Zepto. Soon they were pressing the add-to-cart button when they had sudden cravings for chocolates, chips and other indulgences. “We ordered from DunzoDaily and Instamart twice a week, probably because they had better offers," said Mathur, who lives in Bellandur, a prominent tech and startup corridor in the city.

Eventually, they settled down to a rhythm—they ordered grocery staples from BigBasket once a month, and for impulse needs they used the quick commerce grocery apps. Their monthly budget on BigBasket shrunk to ₹6,000-6,500.

For the longest time, there was nothing impulsive about buying groceries—it was all about that boring thing: planning and thinking ahead. But 2021 changed all that in Indian metros, as a host of e-commerce companies pampered the consumer with the promise of super-quick deliveries, whether of detergent or flour or chocolates.

In the first six months of 2021, Zepto launched its services, Dunzo rolled out DunzoDaily, and Swiggy Instamart, which had launched in 2020, began to promise 20–30-minute delivery. E-commerce unicorn Grofers rebranded itself as Blinkit and entered the quick commerce or 10-minute delivery space in December.

From not even existing as a category, quick commerce occupied about 9% of the $5.5 billion online grocery market in 2021, according to Redseer Strategy Consultants. This is expected to double in 2022, and by 2025, it is estimated to constitute about 20-25% of the $21 billion online grocery market. “It’s a category impossible to ignore for incumbents," said Abhishek Gupta, engagement manager, Redseer.

BigBasket, India’s largest online grocer, with over 30% market share according to analyst estimates, knows that. True, it has been slow to enter the game. By the time BigBasket rolled out its first dark store or mini warehouse for quick deliveries in Bengaluru’s Hoodi area in December 2021, the quick commerce wave in the country had already taken off and other operators were doubling down on expansion.

With consumers not really spending more on grocery, for BigBasket, it would have been a case of wallet share —where even loyal consumers were likely to split expenses between planned and unplanned purchases.

It launched its quick-commerce service BBNow in April this year, at least six months later than its competitors. Enough time for them to have stolen a lead. “We saw Instamart emerging as the market leader in terms of GMV (gross merchandise value), as of April, moving beyond being just a metro-centric operator," said Gupta. As of February, Redseer estimates Swiggy Instamart, DunzoDaily, Blinkit (acquired by Zomato) and Zepto are the top four players in the Q-commerce, or quick commerce, space. Can BigBasket now catch up?

Enter BBNow

BigBasket launched its express grocery service BBNow earlier this year – it is available across the top 10 tier 1 cities and some tier II cities now. “We knew we had to enter the segment from May-June 2021, but we were very clear we had to get our backend ready before we jumped into it. In grocery, the one thing that will determine who is going to be better than the others is customer experience —from the way the app looks, stocks are managed, availability, ability to pick and deliver on time," said T K Balakumar, chief operating officer, BigBasket.

The ‘grounds-up approach’ as Balakumar calls it, took the company a few months. With BBNow, BigBasket is also targeting another consumer category—millennials. “In our internal analysis and market research, we saw that one segment that had not adopted BigBasket fully were the millennials. With both partners busy professionally, many of them resort to impulsive buying of grocery products. Strategically, it was an important segment for us not to lose out on," he added.

This would be the e-grocer’s second tryst with quick commerce. In 2015, it launched BB Express, a 90-minute delivery model. Later, it was merged with its regular or slotted delivery model. Balakumar said the unit economics didn’t really make sense the last time around.

But this time, BigBasket couldn’t ignore an expanding customer base.

The competition

A Zepto commercial in 2021 showed a girl polishing off a bag of nachos, and then ordering one on the app, which promised to deliver it in 10 minutes. The debate over the possibility of delivering every order in 10 minutes notwithstanding, what it did was create a buzz, which worked well for a new entrant like Zepto. Founder and CEO Aadit Palicha, however, says beyond the slogan, Zepto offers an inventory that is 20-25% bigger than the next best offline equivalent. “We have the full-stack grocery including FMCG products, fresh fruit and vegetables, milk, meat, etc. Even a DMart doesn’t do fruits and vegetables as significantly as we do," Palicha said.

DunzoDaily CEO Kabeer Biswas said the two reasons people keep coming back to his platform is “that we can cater to their daily and weekly basket fully and because the quality of the fresh produce is top-notch". About 60% of DunzoDaily orders get delivered in 12-13 minutes, while the average delivery time is 20 minutes. Fresh products constitute about 40% of its orders, and 20-25% is top-ups and indulgences, Biswas said.

“Consumers value the right assortment of products to choose from, as well as quality of fresh products, availability, and reliability of the delivery (actual delivery against promised time). These are metrics we are focused on," said Karthik Gurumurthy, senior vice-president, Swiggy Instamart, which is present in 29 cities, including 14 non-metros.

The intense competition in the instant grocery delivery space has led operators to build a war chest with multiple funding rounds. In 2022, Reliance Retail Ventures led a $240 million funding round in hyperlocal delivery startup Dunzo, for a 25.8% stake. Zepto raised nearly $360 million within just a year of operation, in three funding rounds. In December, Swiggy said it would invest $700 million in Instamart as it looks to double down on non-food delivery categories. Most recently, in June, the Zomato board okayed the acquisition of Blinkit for ₹4,447 crore; the food delivery firm’s CEO Deepinder Goyal called q-commerce the ‘next big category’.

“Business has scaled dramatically. In the last six months, the overall business is up three-fold and DunzoDaily is up eight- or nine-fold. In the next 18-24 months, we want to be able to scale about five-fold of where we are now, in terms of volume or revenue," Dunzo CEO Biswas said. In May, DunzoDaily said it would serve 75 million orders in 2022. “Most likely we will cross that number," Biswas said.

The BB push-back

BigBasket’s Balakumar said what will set apart the winner in this race is the ability to understand what the customer needs. While initially, it just incorporated the buying behaviour of online grocery consumers, it is now paying attention to what Q-commerce customers want, so that decisions are tailor-made for every dark store. “Hari Menon (co-founder, CEO) has always pushed us and said keep the stocks that the customer wants, not the stock that you want to. In Bengaluru, what the Whitefield customer will look for will be very different from what Malleswaram customers want. Our ability to understand and adapt to that will be critical, and that is what we have been good at," Balakumar added.

The focus for BigBasket is on setting up dark stores, bringing inventory and warehouses closer to customers. To gain ground, it has rolled out 182 dark stores (each 2,500-3,000 sq ft) as of July, and plans to have 300 by August-end. Of these, 262 stores will be in the top 10 cities, and 38 stores in the next 15 smaller cities.

It has also tweaked its strategy. BBNow, which earlier this year said it would deliver in 15-20 minutes within a 1.5 km radius, is delivering in 15-30 minutes, within a wider 2.5 km radius. BB Express will deliver in 45-60 minutes, with larger stores and a wider range of products. “As we speak, 96% of BBNow orders across the country are getting delivered in less than 26 minutes," Balakumar said. In the current year, quick commerce is BigBasket’s fastest growing business segment, and therefore its growth is critical. In 2022-23, BBNow revenue is expected to touch ₹1,000 crore or a little over. In 2023-24, it will comfortably cross ₹2,500 crore, he added.

Tata-owned Innovative Retail Concepts, which runs BigBasket, in March received ₹1,000 crore and ₹350 crore from the holding company Supermarket Grocery Supplies, most of which would be used to build the Q-commerce business unit. In 2021, Tata Digital acquired around 64% stake in Supermarket Grocery. Innovative Retail Concepts was made a subsidiary of Supermarket Grocery after Tata Digital acquired the BigBasket operator.

The long view

While BigBasket missed out on the first-mover advantage and will take a while to match the expansion frenzy, its experience as an online grocery market leader makes it a formidable player. “There is no reason companies like BigBasket or Instamart cannot deliver orders faster. They already have everything needed in place—the back-end logistics, supply chain, customer base, funding, technology," said K Ganesh, promoter of firms such as BigBasket, Portea Medical, HomeLane and BlueStone.

As operators race to find suitable real estate to open dark stores and expand deeper in the metros and beyond, there have been concerns over cash-burn, profitability and long-term survival. “Quick commerce needs more customers buying online grocery and an increase in average order value, without which it is tough to make money. Maximum (profit) margin is in fresh fruit and vegetables, which they need to scale up," independent consultant Satish Meena said. “For BigBasket, which has a loyal customer base, this is an advanced, add-on service to their customers. This would help just to retain customer spending which otherwise may go to others."

BigBasket is confident that its long experience of running an online delivery business profitably will come in handy. “We know what it would take to optimise our unit economics. For Q-commerce, we were able to make a business plan keeping that knowledge in mind," Balakumar said.

For a store to be profitable, BigBasket estimated that each store has to do around 600-700 orders daily, at a bill value of ₹300-400. If delivery cost of ₹45 per order is added (besides some delivery income in the near future), it should be able to break even at a store level in about 12-15 months’ time, Balakumar said. “Of course, 600 orders won’t come on Day 1. The ability to serve will also improve and mature slowly," he added.

The question remains—till how long will the party last for consumers if the path to profitability remains unclear? “In recent months, quick commerce has grown 20-25% faster than e-commerce. Investors are bullish but the focus is on acquiring new customers now. Currently everyone is burning cash. But at some point, everyone will have to charge delivery fees, and sell products with higher margins," said Naveen Malpani, consumer lead partner, Grant Thornton.