We’ll not expand, we’ll go deep into cities we are in

By: and |
Bengaluru | Published: August 16, 2016 6:26:00 AM

Online grocer Big Basket hopes to turn in an operating profit by February next year, at least in tier-I cities. Founder and CEO Hari Menon hopes to treble revenues to Rs 1,800-2,000 crore...

Typically in our Express Delivery category, it is about Rs 600. For the full-service offering, it is now Rs 1,500; earlier it was Rs 800-900, said Hari Menon. Typically in our Express Delivery category, it is about Rs 600. For the full-service offering, it is now Rs 1,500; earlier it was Rs 800-900, said Hari Menon.

Online grocer Big Basket hopes to turn in an operating profit by February next year, at least in tier-I cities. Founder and CEO Hari Menon hopes to treble revenues to Rs 1,800-2,000 crore by March, next year from around Rs 600 crore at the end of March 2016 and Rs 178 crore in FY15. Menon tells PP Thimmaya and Darlington Jose Hector in an interview the business doesn’t really need funds right now and that expansion into new cities is
on hold. Edited excerpts:

The DIPP guidelines prohibit marketplaces from running an inventory model. Is Big Basket in compliance with the rules?

There is the policy for players in the food space, which doesn’t have too many conditions attached, and we can apply under those rules. One cannot run this business without holding inventory and that is the reason non-inventory players are struggling. There is high wastage and the supply chain has to be efficient. We are contemplating whether we should move to the food model or a marketplace one and should be able to decide in a month. Private labels account for around 32% of our total volumes and this can be spun off into a separate business.

What are Big Basket’s focus areas?

We are building out the business. We are through with our expansion in 25 cities — eight tier-1 cities and 17 tier-2 ones — and have decided not to expand. Instead, we will go deep into each city to create minimum critical mass. We want to bring tier-1 cities up to scale as these are behaving very similarly with convenience being the common driving factor for consumers. We will look at the tier-2 locations later as consumer behaviour varies with each city. Our delivery mechanism too requires focus and if we are able to deliver small volumes in 90 minutes, that will help our unit economics. The third big focus area is speciality stores. The focus is now really on execution.

Why have you decided to stop expanding?

In the grocery business one cannot expand horizontally as there are many elements involved in formulating the supply chain. We should also remember that the 25 cities where we are present in have good internet penetration. My business does not work in places where there is lower internet penetration.

What is the average ticket size of the orders?

Typically in our Express Delivery category, it is about Rs 600. For the full-service offering, it is now R1,500; earlier it was Rs 800-900. We do about 40,000 orders a day and our business is growing 12-15% month-on-month. Our average order size is about 26 items.

What is the roadmap towards profitability?

Our target is to achieve operational break-even in the tier-1 cities by December but my guess is it will happen by February of 2017. By 2018-19 we expect the company to break even as a whole. The volumes differ in each city, but with 8,000-10,000 orders a day, one can achieve break-even. In Bangalore alone we do about 11,000 orders a day.
The grocery business typically has gross margins of around 23% but we have built efficiencies in delivery
and warehousing. We are likely to report a revenue of R800 crore for FY16 and we will grow this to R1,800-2,000 crore by FY17.

Big Basket does not seem to have a competitor on a national scale…

We kind of had a free runway to grow the business and I agree there is no strong national-level competition right now. However, it is not going to remain like this. Amazon is here and all the domestic retail chains like Big Bazaar, More, etc, will go online — that is for sure.

Are you planning to raise fresh funds?

We are well capitalised now and have raised close to $245 million. Right now we don’t require funds.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Shivalik Bank ties up with LIC for insurance products distribution
2AIG nearing deal to sell unit to Arch Capital for $3.4 billion: WSJ
3Nalco has performed successfully amid market downturn: T K Chand