BigBasket to tie up with 1,800 stores in private-label push

Bengaluru: Online grocery store BigBasket will tie up with about 1,800 grocery stores to sell its private-label products across categories such as vegetables, staples and bakery in a move aimed at increasing revenue four-fold and improving profitability this financial year.

The company sells fruits, vegetables, meat and bread under the brand name Fresho and staples under the Popular and Royal brands through 250 stores, apart from its website. It aims to close 2015-16 with revenue of Rs.800 crore as against Rs.210 the previous year.

Retailers do not manufacture private-label products. These are made by a third-party manufacturer exclusively for a retailer.

BigBasket, which started operations in Bengaluru in December 2011, also plans to expand its private-label portfolio; typically private-label products have gross margins between a fifth to a third higher than other products. The company will launch its coffee brand on 15 June, and follow with flavoured tea and cookies. Private-label offerings account for about 35% of BigBasket’s revenue.

BigBasket’s CEO Hari Menon said his company will launch products in categories that see more repeat purchases and where it can “create a differentiation”.

The big private-labels push will also entail expanding the company’s 40,000 sq. ft Bengaluru warehouse to 75,000 sq. ft by August.

According to retail advisory firm Technopak, Indians spend around $370 billion a year on food and groceries. Experts say private labels seem to be made for e-commerce. “Besides earning higher margins, online stores can also run promotions on private brands as they earn more on such products,” said Anand Ramanathan, director at KPMG Advisory Services.

Still, not every company has the scale to run a successful private-label business. An aggressive push on private labels may antagonize other suppliers and brands.

“Until you stop selling all other brands and sell only private labels like a Marks & Spencer does, it does not add much value in the early stages,” said Harminder Sahni, managing director of advisory firm Wazir Advisors. “You also compete with other suppliers on your platform and antagonize them.”

BigBasket is present in six cities—Bengaluru, Hyderabad, Chennai, Delhi, Pune and Mumbai—and will expand to 50 more by the end of this financial year. The 50 new locations will be categorized into clusters, each comprising 5-6 cities around six central locations. Products will be transported to the clusters every day from the central locations.

Co-promoted by serial entrepreneurs K. Ganesh and his wife Meena Ganesh, BigBasket is the most well-capitalized among all domestic online grocery stores. The company has so far raised about Rs.370 crore from Helion Ventures, Zodius Capital, Ascent Capital and LionRock Capital in a sector that has attracted more than Rs.750 crore from investors in the past 18 months.

Grofers, an app-based service, has raised more than Rs.270 crore in 2015 while ZopNow and PepperTap have raised Rs.62 crore each. The space is expected to become even more competitive with taxi-hailing services Ola, which has raised more than Rs.3,700 crore since October last year, launching a pilot for its grocery business in early June.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.