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The biggest challenge is to get the supply chain right: Marketing Head, bigbasket

18-April-2018
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The biggest challenge is to get the supply chain right: Marketing Head, bigbasket

bigbasket, the online supermarket seems to be on right track with over 7 million customers. It is one of the few online grocery stores doing well in terms of revenue and staying ahead of the rival brands. The company is clocking monthly sales of about Rs 200 crore and plans to scale it to Rs 300 crore in five months.

This is the company’s third year on Indian television in terms of marketing. The recent TVC conveys how bigbasket sources the fresh products directly from farmers.

“The aim is to educate audiences about our farmer connect programme and how we strive to make lives of the farmer community better as well as deliver a better quality of fresh produce as a result of eliminating middlemen,” said, Meera Iyer, Head of Marketing on their latest campaign.

exchange4media spoke to Meera Iyer to know about the visible trends in the domain and why offline kiosks have taken a position in the business suddenly.

Excerpts:

After spending seven years in the market, you must have developed a know-how on consumer needs. According to you, what trends are leading consumers to buy groceries online?

There is a shift in consumer behaviour today with regard to online buying. The increasing trend of buying groceries online is fuelled by many factors, the primary reason being convenience. Groceries are a very basic need for people in both Tier I metro cities and Tier II non-metros. Fast-paced lifestyles and tedious commuting mean many consumers don't have the time to buy groceries or would like to avoid the chore. Customers are very picky about what they buy as the health of their family is a priority for them. Another factor is that there has been a very marked and positive change in the infrastructure for online connectivity and cellular data. It is much better and cheaper today.

Retailers like us offer the convenience of both delivery and the so-called click-and-collect service. What makes bigbasket lead the way is the 90-minute delivery system, something that is a first in this segment. Apart from this, our range is unmatched by physical stores.

You are looking to challenge the local corner stores by opening offline kiosks? Was it a conscious decision to go offline and how it will help BB in the long run?

It is still in the planning stage. We have installed five machines in apartment complexes and offices. The pilot is working well. The idea is to install 10,000 machines over the next 24 months. These machines carry 24 to 48 products depending on the size of the apartment complex. These machines are unmanned. The objective of these kiosks is to increase the frequency of buying by our customers.

What portion of orders comes from the app compared to the website?

The app to website ratio stands at 75:25 currently.

Selling groceries is a low-margin business, but at the same time, it requires extensive investments to build the high-end supply chain, storage facilities and efficient delivery system. At what profit margin you are currently playing and what are your plans to improve this ratio?

In FY 2016/17, we clocked a revenue of INR 1400 crore. We currently stand at 70,000 orders a day, with operations in 25 cities. There are about 16,000 employees working with us. In terms of operational profitability, Bangalore and Hyderabad are profitable while Chennai, Ahmedabad and Kolkata will start accruing profits in the next quarter. The remaining cities will be operationally profitable by year-end.

Selling groceries is definitely a low-margin business. It thrives on rotation. At bigbasket, with a technology-enabled backend, the inventories are on rotation thrice a month or 36 times a year. This is by far the best in this industry worldwide and ensures good sustainable business for us. Apart from this, about one-third of our business comes from private labels which translates into better margins for us.

This year you received $300 million from e-tailer Alibaba. Could you tell us, where and how are you going to allocate this money to the business?

The target is growth and more of it. With our backend sorted, the next 18 months will see investments in marketing, infrastructure expansion and technology. This growth will translate into two key numbers: reach a revenue of Rs 300 crore in the month of September 2018 (in March 2018, we closed at Rs 202 crore) and Rs 500 crore in the month of March 2019. This will take us to an exit revenue run rate of Rs 6000 crore. We are advancing this goal by one year.

What are the three biggest challenges the online grocery space is facing currently and how will you combat these issues?

The main challenge is to get the supply chain right. This includes solving the complexity of the fresh produce/low shelf life products supply chain. We also face the problem of cracking the exodus of customers in online shopping, with the inertia increasing rapidly. Apart from this, there is the issue of managing a very large blue-collar workforce. Over the last six years, we have pretty much solved all these challenges.

After the government nod to 100 per cent FDI in food retail, how is the online retail space going to change in the next couple of years?

More than FDI, what has aided businesses and the ease of operations is GST. The 100 per cent FDI in retail will encourage more foreign players to set up shop in India. It will only go a long way in increasing the online tribe and the number of people advertising and putting money into online retail. With other aiding factors such as rising internet penetration, awareness of online shopping and lucrative deals and discounts, the number of online spenders will surely witness an increase in the next few years.

Until last June, grocery retail market in India was growing at 10 per cent CAGR, while the e-grocery stood at 0.1 per cent only. These are not very encouraging numbers. How do you see this improving in the next three to four years?

The grocery retail market should be considered as a sum total of rural and urban areas. It is definitely poised for growth in individual cities of the country. As per a Goldman Sachs report, the Indian online grocery market is estimated to reach $40 million (Rs 270 crore) by FY19, growing at a CAGR of 62 per cent from 2016 to 2022. Morgan Stanley expects the online food and grocery segment to become the fastest-growing segment, expanding at a compounded annual growth rate of 141 per cent by 2020 and contributing to 12.5 per cent of overall online retail sales. The growth in e-grocery would be driven by investments, new strategies adopted by grocery players like introducing private labels, same day and next day delivery, as well as B2B food services.

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