21 DECEMBER 2016
“There is a small poll and fight in the Mumbai office on who will go and deliver his order,” says Hari Menon, when YourStory asks him if Shah Rukh Khan really buys from BigBasket. This December, the online grocery startup completed five years, and it has been, in Hari’s own words, a great, roller coaster ride.
It’s not just their brand ambassador that adds glitter to the leader in the online grocery sector. BigBasket has broken the myth that e-commerce will not work for FMCG. They have grown slowly and steadily, with negligible discounts and a strong business model. BigBasket today boasts of over four million registered customers, 2.5 million transacting customers and sales of Rs 150 crore per month.
In the company’s headquarters in Bengaluru – a surprisingly small office in Domlur - CEO and co-founder Hari Menon, in conversation with YourStory, reminisces over BigBasket’s five-year-long ride to the top.
Earlier this year, the team also launched their B2B segment, Horeca, which is handled by a separate team.
Cracking a difficult model
With an average ticket size of Rs 1,500 for full stack and Rs 650 for Express delivery, BigBasket will be touching a revenue of Rs 1,800 crore by the end of this fiscal year. Though they are targeting close to $1 billion in revenue by 2020, grocery is an extremely difficult business. Hari says,
Five years into the business and we still start working at 7 am and finish at 12:30 am.
After acquiring Delyver last year, the team went on to build BigBasket’s Express business. They are looking at a cold chain investment and are setting up large facilities in Vijayawada and Ananthpura in Andhra Pradesh, which are slated to open in 2017.
BigBasket is today present in over 25 cities, and is shifting focus from further expansion to deeper penetration. Of the revenue, touching close to Rs 1,800 crore, fruits and vegetablescontribute 18 percent, BigBasket staples contribute to 15 percent, branded staples 20 percent and FMCG 45 percent. The team, currently made up of 120 people, claims to have broken even in over eight cities and believes that they will reach operational breakeven in the next six months.
While the business is growing at breakneck speed, one of the biggest challenges the company faces is with blue collar workers, which make up 75 percent of their workforce. Even if 30 people don’t show up, the entire business goes down. Hari says,
“We haven’t been able to solve it fully. We have hired more people, we run a trust, contribute to education for their children, and give them health benefits. But we aren’t able to retain them. Catchment of hiring around our hubs has dried up. This year, we will be going deeper. People come from smaller towns, try it out, and if they aren’t able to adjust, they go back.”
In cases where the team doesn’t have the staff up to full capacity, they have to hold back, push orders and talk to customers. Festival times are the most difficult. During this time, the team reduces its capacity. So, when a customer places an order, he would get a time slot for two days later.
“Customers don’t wait for two days for groceries. It is certainly a big negative and we are grappling with it,” says Hari.
This was the exact problem that the team faced during the demonetisation. “As a culture, we have a deeply ingrained belief in not trying to do things that we can’t or shouldn’t be doing. Don’t take more orders when you can’t deliver them. We will shut capacity and say that we will deliver it later, not promise a delivery on a day it cannot happen,” says Hari.
The first highs
Veterans in the on-demand grocery and e-commerce market, this is the second foray into entrepreneurship for the core team. Their FabMart business had pivoted from an online to a physical grocery business a decade ago.
Hari says that one of the key things that helps e-commerce is having an ecosystem that is ready and robust. When they started in 1999, the internet had just started making noise. “But there was more noise than actual transactions,” he adds.
With dial-up connections and poor online payment options, there was hardly anything that made e-commerce conducive. Suppliers didn’t trust and weren’t as open as they are now, and Cash on Delivery was the only mode that worked at the time.
“You can raise capital, which we did; but if you don’t have the ecosystem to support you, the business essentially doesn’t thrive,” says Hari.
A capital-intensive business
But the team was keen on building an online grocery store. By 2011, the ecosystem had started showing significant improvement, and the deal sizes had grown. Online transactions had started taking place.
When BigBasket began operations in 2011, they were probably the startup that raised the highest first round of funding at $10 million. With a core team that had gone through the business in the past and understood its complexities, it was a no-brainer for investors.
However, when the team met their VCs, the only thing they were asked was to show a successful model globally. The single biggest dotcom failure was in the grocery segment. But the team used the example of UK’s Ocado, which had seen a fair bit of success. The team used these slides as the first for their pitch.
Hari says,
“We were particular that we would first raise capital and start. Because businesses need capital. For online grocery, there is nothing to bootstrap. Either you start scaling from day one, or you don’t at all. You cannot do the business in a small way. The whole business works only on scale, the unit economics don’t work otherwise.”
Taking the bull by the horns
The margin in fruits and vegetables for BigBasket is 35 percent. But starting small, one gets 10 to 12 percent. Without reaching a critical volume, it isn’t possible to even open a warehouse, and the model that needs to be followed is a just-in-time model.
Helion Ventures Co-founder Sanjeev Aggarwal, who is also board member at BigBasket, believes that there is a huge market opportunity for online grocery.
Out of the $2 trillion retail market in India, $300 billion is grocery. At present, online is only a small percentage of the overall pie. According to Sanjeev, due to urban density and parking issues, online grocery service stacks up in convenience. He says,
“BigBasket’s value proposition is convenience and selection. This is a very valuable business in the making. People will easily migrate to the online channel from the neighbourhood shops they patronise now. But penetration is still too low to call this a maturing phase. In the rest of the world, 10 to 15 percent retail is online. Grocery is one of the fastest growing categories for Alibaba in China as well.”
From day one, BigBasket has focused on fresh produce, one of the most difficult segments to crack. “The perception of quality comes from fruits and vegetables, not Surf Excel,” says Hari. The category of fresh produce, the team felt, would make the brand, as it is something people buy four times a month.
The model that works
There are advantages unique to BigBasket’s inventory model. Arvind Singhal, Chairman of Technopak Advisory Firm, says that the inventory model lets you work with producers and vendors on contracts. Besides quality control, this helps in saving costs. “You can deliver to the customer at a certain lower amount, which is a unique advantage with private labels,” says Arvind.
Sanjeev also says that as a brand, BigBasket is developing better leverage with suppliers due to healthy margins. Hari, however, believes it was a difficult call, saying,
“Initially, we couldn’t buy from farmers directly, as we didn’t have the volumes. We had to buy from mandis and survive at lower margins. In our business, word-of-mouth is huge, and it is, therefore, important to ensure quality.”
But customer retention is not too hard if your service is great. Soon, when the team introduced staples, they saw that people were able to shift and choose convenience.
Getting high on ‘Cocaine’
But online grocery players want to spread pan-India very quickly. A national supply chain will not work for the sourcing and distribution of groceries. “Building a localised supply chain is essential for a business like this. So, for launching in four cities, it is like building four businesses separately,” says Arvind of Technopak.
Arvind believes that launching simultaneously in multiple cities will cause the player to collapse before they can succeed. It is better to focus only on metros, not 25 different tier 1 and 2 cities, to be sustainable.
The BigBasket team was concerned that people weren’t buying from them every time, but only once or twice a month. Hari attributes this to high inertia, people being unwilling to shift from their normal buying patterns simply out of habit.
“There is a strong focus on convenience, but customers are also wary of missing or not getting deliveries on time,” adds Hari. It was, therefore, critical for BigBasket to build trust. If a customer buys twice from BigBasket in a period of three to six months, then he is your customer.
The team, to ensure stickiness, built a ‘Cocaine’ model. The customers are classified under trial one, two and three, and silver, gold and platinum. Trial one refers to the first order, the second order moves to trial two and trial three is the third order. On the fourth order, the customer moves to silver, and this is when the team knows they have got a customer.
The highest churn is from trials one, two and three, and the retention rate at platinum is at 95 percent. So the team focuses on getting the customer to move higher up the chain by incentivising them. Their overall customer retention rate is 35 percent.
The idea is to understand what the customer has purchased in the past, and retain him or her on the available data. “We use different offers for different people. What retains Mr X is different from what retains Mr Y,” says Hari.
The past year, Hari adds, was focused on growth and expansion. This coming year, the focus will be on deepening their presence in the cities they operate in.
TAGS
BENGALURU STARTUPSBIGBASKETDEMONETISATIONE-COMMERCE GROCERYFABMARTHARI MENONONLINE GROCERY
ABOUT THE AUTHOR
Sindhu Kashyap and Athira A Nair
Sindhu believes that everyone has a story to tell, all you have to do is listen. She likes learning new things and believes that there can never be an end to learning. You can reach Sindhu at sindhu@yourstory.com
ECOMMERCE
Is the ban on currency notes the end of cash on delivery?
, 9 NOVEMBER 2016
FACEBOOKTWITTERLINKEDINREDDITTUMBLRGOOGLE+FLIPBOARDWHATSAPP
When Sanjay Sethi, the CEO and Co-founder of online marketplace ShopClues, first heard of the ban on the 500 and 1000 currency notes last night, he did not take it seriously. Around 10.30 pm, when the news was confirmed, ShopClues’ entire leadership team got on a frantic conference call to figure out the next steps.
The call, which lasted until past midnight, aimed to figure out solutions for immediate concern – what to do with the cash on delivery (COD) orders in transit. “We wondered whether we should put a threshold for CoD. We already have a cap of Rs 15000 for CoD orders [to ensure safety for courier partners]. We also had to talk to our logistics partners – we don’t have to worry if they can handle the cash. Tech also needed immediate attention as we needed to change delivery options for each item. We are not providing CoD for orders worth Rs 1000 and above,” says Sanjay.
Customers were notified by SMS this morning.
A compelling move
The government’s decision is to provide newly-designed currency notes which should be acquired by December 30, 2016. Experts believe this move will have a positive impact on the economy in the long term. However, in the short term, quite a few industries will be affected – e-commerce being one of them.
Anil Kumar, CEO, RedSeer Consulting, says that there are two types of customers opting to pay through COD – Type 1, who use COD mode because they are not very comfortable using electronic transactions at all. They may opt out of online shopping for the time being. Type 2 customers opt for COD out of choice. They are likely to shift to online modes of payment like card and wallet in the future, with online sellers providing incentives. “Overall, the share of Type 1 shoppers is not very high among the customer base, hence, we believe that the impact will not be on a very large scale in the short term,” he says.
Sanjay’s team at ShopClues has decided that if customers do not want to pay by cash, they can convert it to online payments. Sanjay says that their courier partners were already piloting a new system - delivery boys were trained to carry smartphones which enable customers to pay online at their door step. This service provides a better alternative to card-on-delivery service which only a few courier service providers give and in limited pin codes. Their coverage is poor in tier 2 and tier 3 cities, which provide about 70 percent of orders for ShopClues.
Curiously, online luxury goods platform Luxepolis has not seen cancellations as one would expect for the high value items at a time like this. But CEO Vijay KG says that people will probably stay away from buying high-value items for two months. “About 60 percent of customers prefer CoD. But this will now decrease. We provide card on delivery ourselves, very few others do that - but it is only about three percent in total.”
Curious timing
After October, which saw $2.25 billion GMV in online retail in India, customers may also take a pause in major online purchases. The next few days will see even less transactions as most customers are stranded without currencies of 100 denomination because ATMs and banks are closed right now.
However, this could be the beginning of something new in the e-commerce sector - CoD will dramatically fall.
Lizzie Chapman, Co-founder and CEO of online lending platform ZEST Money, says, “E-commerce companies will be subject to uncertainty due to a necessary reduction in CoD transactions, but in the long term, this will be a powerful move towards more efficient business models and unit economics. It is critical that e-commerce companies begin to offer alternative cashless payment options to their customers.”
Many e-commerce firms have stopped taking CoD orders for now. Amazon India’s website informs: “We've temporarily disabled cash on delivery (COD) for you to save cash for essential payments. Use your credit/debit cards, net banking and gift cards to complete your purchase.”
Food-tech startup Freshmenu is not accepting currency other than Rs 100 or below. Online grocery seller BigBasket has notified its customers that they will not be accepting Rs 500 and Rs 1000 notes. BigBasket gets 50 percent online payments usually. “For these two days, we are expecting 70-75 percent transactions to be online. We get hardly 1.5 percent returns, so there is no loss,” Co-founder and CEO Hari Menon told YourStory.
Flipkart has also stated that they are no longer accepting CoD payments in Rs 500 and Rs 1000 currency notes. Flipkart spokesperson said in an email interaction: “To enable customers to conserve smaller denomination notes for daily essential use, we are restricting CoD on orders below Rs 1000. Meanwhile, we urge our customers to opt for alternative payment modes such as card on delivery, internet banking, credit and debit cards, gift cards, and our easy and convenient PhonePe wallet."
Recent data from the Reserve Bank of India states that transactions via digital wallets in 2015 have grown to 153 million in October and December, compared to 65.9 million in the same period in 2014. Lizzie believes that adoption of cashless payment options will improve customer experience, reduce logistics pain and normalise unit economics for the entire industry.
Slow but strong steps
Cash is not disappearing yet. The government is just converting old series into new to bring out all the stashed up cash. The next three months will see a handful of categories being impacted: expensive holidays, dining at posh restaurants, alcohol, high value fashion, and used cars etc. for which black money is spent lavishly.
Arvind Singhal, Chairman of consultant firm Technopak, believes that e-commerce will be impacted only for a few weeks till people get new currency notes. “CoD will be lower till then. But for black money hoarders, e-commerce is not going to be very useful anyway. Online orders note delivery address, so you can’t convert black money to white there,” he says.
The 500 and 1000 denomination notes can be exchanged at RBI offices, banks, and post offices. Up to Rs 4000 is given in cash and any amount above that will be credited to bank account. Friday onwards, you can withdraw upto Rs 2,000 per day from ATMs until November 18. The limit will be raised to Rs 4000 per day from November 19.
Till then, the regular customer has to look for options which are provided by fintech players like Paytm. In fact, Paytm has seen 435 percent increase in overall traffic since the announcement came. Paytm wallets can also be used to transact offline.
Minimising the hurdles
To bring down CoD transactions, e-commerce players often provide incentives like free delivery for prepaid orders. ShopClues usually offers two percent in cash back schemes. For the items which are already in transit, they are offering up to 20 percent in loyalty programmes for certain categories.
To avoid cancellations, online fashion marketplace Voonik is doing some deliveries after November 24. “For CoD orders, we will give automated calls to pay by online transactions, credit card, and wallets for incentives, to switch to prepaid options. This should give a push to delivery partners who don’t give card-on-delivery option,” says Sujayath Ali, Co-founder and CEO of Voonik.
ShopClues, however, is taking a different route. According to Sanjay, “Instead of postponing deliveries, we keep the ordered items in the nearest warehouse for a couple of days, so that it can be delivered once the customer has enough cash to pay.”
Conclusion
Awareness is the first step towards mass adoption of any new idea. Although a behavioural change among online shoppers is too much to ask, this trend will spread awareness on the advantages of online payment. Arvind believes that the next few weeks will eventually lead to faster penetration of credit cards and faster growth of mobile wallets. “People will understand that they need not always keep a lot of currency, and will get comfortable carrying a credit card,” he says.
The currency ban has come as a jolt to not just black money hoarders but also to those who are not familiar with online payments. May be this is a wakeup call, which will eventually be a blessing to e-commerce companies who otherwise have to pay logistics surcharges of around Rs 40 per delivery for CoD orders.
India is one of the few markets where e-commerce is conducted more through CoD than online payments. China’s booming e-commerce is ruled by Alibaba’s payment wallet Alipay and Tencent's WeChat Payment. But CoD declined in China only when mobile wallets started offering interests. The money in an Indian mobile wallet is just idle today.
We still have light years to go before becoming a cashless economy – we need better internet, more smartphone penetration, and easier access to credit cards and digital wallets. But the ban on currency notes is definitely a step in the right direction.
No comments:
Post a Comment