In January, two sources alleged that BigBasket and Grofers are likely to merge businesses. According to the sources aware of discussions between the two online grocery rivals, talks of a merger were in the nascent stage. Based on recent reports, three sources have confirmed the initiation of merger talks between both firms.
Why would BigBasket and Grofers join hands?
Besides becoming a fierce force in the online grocery industry, the joint entity BigBasket and Grofers form will receive major funds of $60-100 million. The three sourced mentioned above stated that Grofers’ investor the SoftBank Group will participate in that funding round it a merger happens.
BigBasket needs funds
Both retailers suffer from losses.
Etailer losses and burn rate
However, BigBasket is in need of funding. IOS reported that the online grocer is looking for $150 million to expand its business in the country. The etailer is one of the best funded in online grocery. It has communicated with investors like Amazon.com Inc., Tencent Holdings Ltd, Wal-Mart Stores Inc. and Fosun International Ltd, for new funds. But, the three sources mentioned earlier said these talks to raise funds have not progressed much.
Grofers has funds and active investors
With a real high burn rate, BigBasket is looking to onboard Grofers’ investor SoftBank before its cash supply runs out. Grofers currently has a stack of cash worth $50-60 million in its bank. This is quite sufficient for the etailer given its low burn rate and intentions to decrease spends.
In fact, the company founder and CEO, Alibinder Dhindsa said, “The team at Grofers is focused on executing on our long-term strategy and we are well capitalized for that with an investor set that supports the vision. We don’t need to make any strategic moves at this time.”
BigBasket has private brands
Private brands are a new trend in the online selling space. And the big names in ecommerce are banking on them to touch profits. BigBasket owns brands like Royal, Fresho, HappyChef and Tasties. In December, last year, Hari Menon, the chief executiveand co-founder of BigBasket claimed that 45% of his company’s revenue came from these private labels in March. The online grocery firm aims to earn Rs.1,800-2,000 crore in 2016 -17 and private brands could help with this target.
Grofers has also got private labels like Freshbury and Best Value, through which it sells staples and snacks.
Grofers is trying to move away from its hyperlocal model towards an inventory-led model. The etailer is trying to cut losses this way.
One of the three sources with knowledge of the merger talks said, “Their business models overlap. BigBasket has always been an inventory led, private-label play while Grofers is trying to replicate it. The only upside for BigBasket in this deal is getting SoftBank as an investor.”
Online grocery players have suffered gravely in the past. However, with new hope and better planning, new entrants are expected. BigBasket and Grofers have stood strong since inception. So, maybe by merging they could end up strong against new competition too.
But, neither of the two companies have confirmed talks of a merger. One of the three sources revealed, “The talks are in early stages, but there is definitely interest from both parties. If the deal happens, SoftBank will invest in the merged entity but a lot hinges on the valuation. The stakeholders are yet to agree on a valuation.”