Fresh trouble for online grocery leader Big Basket. Department of Industrial Policy and Promotion (DIPP) has instructed the Bangalore-based e-grocer to prove whether it follows a marketplace model or an inventory-led one.
This move comes after the implementation of the new FDI marketplace policy, which allows 100% FDI in marketplace ecommerce format but not in inventory format.
Marketplace or Inventory, come clean
DIPP has made it clear that strict action will be taken against ecommerce companies that fail to adhere to new guidelines. The regulatory body has started scanning etailers’ business structure and has urged those flouting rules to make necessary changes.
Other grocery start-ups such as Grofers, and Peppertap follow on-demand (hyper local) delivery model. This means they don’t stock inventory and source fresh & packaged grocery from other stores on per-order basis. On the other hand, Big Basket stocks grocery and has several warehouses across India, which doesn’t comply with pure marketplace structure.
“They (Big Basket) have been asked to prove whether their model was pure marketplace or inventory-based. If they are able to prove that (they are a marketplace) then they can continue but if they are non-compliant then they will have to restructure their model to be compliant with the new rules,” revealed a source.
Future Group’s CEO Kishore Biyani must be happy with this development. After all, he was the one who had advised Big Basket to pack up. According to him, Bigbasket’s inventory-led model has become illegal since they don’t have any vendors and sell directly to consumers.
Another senior executive stated,
“I think it (Big Basket) is not in compliance (with the new FDI rules). I am not a lawyer but I feel they have a completely inventory-led model. They are obviously bypassing the retailer. They are doing their business directly with the companies and the brands and then directly with customers. So, they going against the government’s intent to ensure that the ecommerce companies do not affect the businesses of the brick and mortar retailers.”
Ecommerce leader Flipkart too has been obligated to change its operations by reducing (own seller) WS Retail’s share. All eyes are now on Myntra (Vector e-commerce), Jabong (Xerion Retail), and Amazon (Cloudtail) to see if these ecommerce companies will follow Flipkart’s footsteps.