How will BigBasket’s acquisition give Amazon a competitive edge

Though Amazon already has a hyperlocal online grocery application in place, acquiring Big Basket will not only ramp up its inventory portfolio but its national network

BigBasket

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An author who has a keen interest for the ‘off-beat’

Indian online grocery store, BigBasket, has entered into a 60 day exclusive agreement with ecommerce giant, Amazon, during which the online grocery firm cannot engage in any potential sale talk with any other party, states a TOI report.

Apparently the two-month period agreement does not stop BigBasket from being on a lookout for fresh financial investors. However, the agreement makes Amazon the sole player to acquire the e-grocery firm in the stipulated period.

Eyeing grocery

Recently the ecommerce giant’s CEO Jeff Bezos had announced that the company will be investing $3 billion more in India bringing the total investment of Amazon to $5 billion. Various media reports also suggest that the company will spend at least half a billion dollars on online grocery endeavors in the country, even though it has been spending big-bucks for entering the brick-and-mortar grocery market.

Having said that, Amazon itself is also biting into the online grocery pie in India. But its reach is only limited to specific cities. The ecommerce firm launched a 2-hour grocery delivery service in Bengaluru last year and has spread across, Delhi NCR, Mumbai and Hyderabad since then.

The company has positioned Amazon Now as a separate application only for groceries and has tied up with local hypermarket stores or groceries stores (depending upon the locality), in these cities. But, the app still does not have enough penetration when it comes to users and vendors, as compared to BigBasket. The Amazon Now model is very similar to how Grofers (another hyperlocal online grocery app) operates.

E-grocers realm

There were speculations in the market two months back about BigBasket and Grofers merging and SoftBank investing from $50 million to $100 million in the combined entity. A report by Inc42 stated that the talks were in early stages and the stakeholders were yet to agree upon a Valuation.

BigBasket is currently valued at $450 million post its $150 million round of funding last year. From Abraaj Capital. Few media reports cite that the company is pushing for a price of $700 million, which apparently has been an obstruction in a successful sale. TOI also reports that the company had assigned rights to Morgan Stanley for a $150 million fund-raise, which was expected to close by April this year. Seems like the funding did not go through, and now the company has turned to Amazon.

Amazon’s interest?

So what will happen if the deal goes through? Apart from Amazon tapping into BigBasket’s network and channels, the company might just make Amazon Now available to Prime customers and pit Big-Basket against Grofers and Godrej Nature’s Basket app. Or the company might just shut down the hyper-local model and invest in BigBasket’s own warehouses and in-house private labels as its own. The ecommerce entity might also shut down the e-grocer after customer, vendor and merchant data acquisition. Or it can merge BigBasket with Amazon now and call it Amazon Now.

But why does Amazon want to acquire BigBasket? It seems when Flipkart, which is the strongest contender of Amazon in India, acquired Myntra and Jabong, it conquered the fashion space. Flipkart also claims to lead in the online mobile phone sale segment and is soon planning to get into the grocery side of the industry. With the acquisition of BigBasket, Amazon may be able to take a lead in the online grocery part of the race.

Harish Bijoor, Chief Executive Officer of brand and business strategy, Harish Bijoor Consults, feels that Amazon has been progressive looking at consolidating itself as a one stop shop for everything. “Any ecommerce player looking at establishing that kind of play can do it beautifully in its core competence areas. For Amazon, core competence area is everything that every other ecommerce player has, but the non-core competence area is fresh fruits, meats, vegetables, groceries,” he says.

“Again there are different specialists in this area. if you look at fresh fruits, groceries and vegetables its BigBasket. So Amazon plus BigBasket plus tomorrow maybe Nitsches which is all about meat, these are competencies that will give the one stop shop attitude to Amazon in India. So it makes sense for these investments and deals to happen.”

Bijoor further adds that its not about taking a leadership position, its about saying that there are so many spaces that can give the customer a 360 degree approach to shop at home. “Flipkart’s move into fashion by acquiring Myntra was reasonably close to what it were doing. But grocery, vegetables, fruits, meats etc. are totally not contiguous and are separate areas. Amazon’s step into this space will make more significance than Flipkart stepping into this space. Clearly saying that at the end of the day, Amazon is likely to be the leader.”

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