BigBasket.

com: Redefining the Business Model

Case

Author: Sujo Thomas, S. Abhishek, Sanket Vataywala & Pivush Kumar Sinha
Online Pub Date: January 02, 2019 | Original Pub. Date: 2017
Subject: E-business Economics, Government & Business Economics, E-Commerce
Level: Intermediate | Type: Direct case | Length: 7959 words
Copyright: Certain material used with permission of Indian Institute of Management, Ahmedabad. © 2017.
All rights reserved.
Organization: BigBasket | Organization size: Medium
Region: Southern Asia | State:
Industry: Food and beverage service activities
Originally Published in:
Thomas, S. , Abhishek, S. , Vataywala, S. , & Sinha, P. K. (2017). BigBasket.com: Redefining the business
model. Ahmedabad, IN: Indian Institute of Management, Ahmedabad.
Publisher: Indian Institute of Management, Ahmedabad
DOI: http://dx.doi.org/10.4135/9781526487513 | Online ISBN: 9781526487513
SAGE SAGE Business Cases
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Certain material used with permission of Indian Institute of Management, Ahmedabad. © 2017. All rights
reserved.

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http://dx.doi.org/10.4135/9781526487513

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Abstract
The potential of online grocery retailing in India has seen different players trying out various
business models to capture market share and post a healthy growth rate. Among the different
players in India’s online grocery retailing, BigBasket has evolved into one of the major players. It
follows the inventory based model which has been generally criticized due to its high capital re-
quirements. The problem for BigBasket is further compounded, as after securing funding worth
USD 150 million from the UAE based Abraaj group, it has to tackle the challenge of the Gov-
ernment of India guidelines which stated that Foreign Direct Investment (FDI) in the inventory
based model of e-commerce would not be permitted.

This case discusses the online grocery industry in India, the supply chain challenges faced by
the industry as well as the opportunities for the industry by predominantly focusing on one of its
major players. Various business models followed by the industry are described in detail. Addi-
tionally, the case provides a brief background of the existing players in the online grocery retail-
ing market in India, while deliberating upon the ultimate choice of business model for BigBasket
to sustain itself in the competitive environment.

Case
BigBasket.com (Innovative Retail Concepts Private Limited), established in December 2011 with its head-
quarters located in Bangalore, India, had been operating in more than 23 cities in the country by the end of
March 2016. 1 In the last four years, it had evolved into one of the major players in the Indian online grocery
market. The online grocery market in India was transforming, as it was essentially preferred by the urban
class who sought a lifestyle of ease. It had also attracted many entrepreneurs who competed with each other
in a market characterized by thin margins. Intense competition ensured that only a few companies survived
and sustained themselves. One of these companies was Big Basket, which succeeded in spite of the compe-
tition. Big Basket’s success was captured by its Series D 2 funding worth USD 150 3 million from the United
Arab Emirates-based Abraaj group in March 2016. 4

In online grocery retailing, different players choose from a variety of business models – an inventory based
model, a hyper local based model, a hybrid model and a mobile app based model. BigBasket, one of the
prominent players with a customer base of more than 450,000 with a monthly order growth rate of more than
30%, operated under the inventory based model. 5 As BigBasket grappled with the challenges of a growing
and expanding business, the Government of India came out with guidelines on March 29, 2016 through its
Press Note No. 3 (2016 Series) which stated that Foreign Direct Investment (FDI) would not be permitted in
the inventory based model of e-commerce (see Exhibit 1). The government’s guidelines defined the inven-
tory based model of e-commerce as “an activity where inventory of goods and services were owned by e-
commerce entity and were sold to the customers directly.” 6 The BigBasket team had to evaluate the existing
business model along with the available business opportunities. While redefining the existing business model,
BigBasket aimed to reach out to a larger clientele, eventually formulating a business strategy for taking the
online grocery business further.

Online Grocery Retailing Industry Background

India’s online grocery industry was projected to be around USD 100 million by 2015 and was expected to

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cross USD 25 billion by 2020. 7 The online grocery retailing industry saw a major shift in the year 2015, when
the industry saw investments from venture capital (VC) funds for different entrepreneurs. Some analysts es-
timated that there were around 25 companies which had received external funding in 2015, which itself was
an indicator of the potential of the online grocery industry, as perceived by investors. 8 The growth in the
online grocery industry was due to several factors – the growing population of internet users/e-shoppers,
the increased penetration of internet connectivity, the increased possession of smart phones/usage of mobile
shopping, traffic on roads, parking problems, hectic work schedules and lastly the desire for a comfortable
lifestyle.

In the Indian online grocery industry, out of the four prominent business models explained below, the two most
widely adopted business models were the inventory based model and the hyper local based model. 9 While
the inventory based model was capital-intensive since it required large warehouses, the hyper local based
model was seen as a viable option by many, as the need for capital in this model was much lower. In India,
companies kept fine-tuning these models as per their requirements and suitability. For example, BigBasket
initially started its business by buying groceries based on orders received and then gradually switched over to
establishing its own warehouse. 10 Similarly, ZopNow.com had initially started with an inventory based model
but later operated as a hyper local based model. 11 Another player, AaramShop Private Limited used to work
with local vendors through its website and unlike other business models, AaramShop’s delivery mechanism
did not depend on its own delivery staff. AaramShop used to place an order with its associated grocery stores
which were in the same locality as its customers. 12

Inventory Based Model

In this model, the online grocery retailer’s own warehouse would be set up in order to have more control over
the quality of products, delivered through its own vans or trucks. Apart from timely delivery, the quality of the
product played a pivotal role in ensuring customer satisfaction. The retailer needed high working capital to set
up its warehouse and run its trucks and vans. Also, the warehousing of perishable items was a risky and cost-
ly affair due to the nature of the product. Inventory management would be another key area to concentrate on
as lack of stock would hamper the retailer’s reputation. BigBasket followed this model. 8

Hyper Local Based Model

In this model, the online grocery retailer established local tie-ups with kirana 13 or convenience stores to pro-
vide goods. This did away with the need to set up a warehouse and hence significantly reduced the capital
expenditure on warehousing, cold storage and inventory. This model led to a substantial reduction in expens-
es, thus freeing funds for geographical expansion. In the hyper local based model, due to tie-ups with local
vendors, delivery was expected to be faster. One of the limitations here was the supply-chain related issues
of local vendors who would have to understand the nuances of the online grocery business. Another area to
concentrate on was the inventory stocked with vendors which was limited. If vendors could not handle de-
mand in excess of inventory, they would likely lose business due to incomplete orders and dissatisfied cus-
tomers. ZopNow followed this model. 14

Mobile App Based Model

In this model, companies developed mobile apps and tied up with local vendors. Customers could place their
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orders with the online grocery retailer through mobile apps, from where the order would eventually be redi-
rected to the kirana store. The company’s delivery persons would pick up items from these local kirana stores
and deliver them to the customer. Grofers India Private Limited followed this model. 15

Hybrid Model
In this model, a company with a brick and mortar structure operated in both – online and offline models, fol-
lowing the concept of a franchising model. The company expanded its presence through franchisees, which
were given access to the company website, where various items were listed for customers. Once the cus-
tomers selected the products, the franchisees placed orders with the company, against which the company
would send an order confirmation message to the customer’s cell phone. The franchisees would then collect
the payment after which the company’s customer service department would take over. In this model, the fran-
chisees did not necessarily have their own stores nor did they need to deliver the items, as the delivery was
done by the company. This way, the traditional brick and mortar companies could reach out to customers in
small towns where they did not have a presence. Future Group (Big Bazaar Direct) followed this model. 16

As companies kept trying various permutations and combinations, there were other models which were
unique. For example, in the model followed by AaramShop, the company provided an online platform to local
vendors through its website and unlike other business models, they did not have their own delivery boys.
Through the company’s mobile app, the customers created a list of items that they required, after which the
order was redirected to the associate local vendors who delivered these items to customers. In this kind of
business model, delivery charges, delivery timings and refunds were a matter of agreement between local
retailers and customers. Here, the company provided free space to retailers but did not charge a fee or get
commission from the retailers and charged no money from customers for using online services. Instead, the
company charged from the brands which were keen to have an online presence so that they could increase
their sales.

BigBasket – Background and Business Philosophy

In 1999, one of India’s first online businesses named Fabmart.com, was kicked off by a team consisting of
Hari Menon (current CEO and Head of Merchandising at BigBasket.com), V. S. Sudhakar, Vipul Parekh, Ab-
hinay Choudhari and V. S. Ramesh. 17 In 2001, this team made the grocery business a part of Fabmart,
which dealt in jewellery, music, toys and books. The success of the grocery business led the team to rebrand
Fabmart as Fabmall, which projected it as an offline grocery retail chain in southern India. In 2007, the Aditya
Birla Group acquired Fabmall and launched it as ‘More’. Later, their sheer passion for the online grocery retail
business led the team to launch BigBasket in 2011. BigBasket was valued at USD 500 million in 2016 with
its services being offered in the major cities of India. 18 BigBasket was offering its services in various cities
and was covering more geographical areas than its competitors. (See Exhibit 2). BigBasket’s revenue and
profit after tax (PAT) for FY 14–15 was USD 27.4 million and USD (9.3) million respectively. Sales of products
through the website constituted 96% of BigBasket’s revenue. 19

In managing its business, BigBasket concentrated on three major areas – customer focus, range of products
and technology usage. BigBasket’s delivery mechanism was robust and effective, so it was able to deliver
items on the same day, if order was placed before 12 noon. Moreover, in case a defective (broken, leaking,
expired) product was delivered, BigBasket had a pro-customer ‘no questions asked’ customer policy, where
returned items were accepted without cross questioning customers and the refund amount was credited to
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the customer’s account for upcoming purchases. It was also very important to ensure that a wide range of
products was available in BigBasket’s offering (see Exhibit 3). The availability of a variety of products could
ensure that customers stayed with BigBasket. It offered ease of purchase to customers and won customer
loyalty. Technology played an important role in customers’ experience of BigBasket – be it the introduction
of Andriod/iOS mobile apps or the “Smart-Basket” feature which predicted the generic requirements online.
This feature would eventually reduce the time to order to nearly five minutes and thus save the time of online
shoppers through suggestive selling. 20

Operations at BigBasket
BigBasket which was operated on the inventory-based model had different warehouses located in the cities
as part of its supply chain management. It sourced directly from farms, mills and companies like Hindustan
Unilever Limited (HUL), P&G and then stored the supplies in its warehouses. It aimed at setting up warehous-
es so that it could earn extra margins compared to its competitors in the online grocery business. The serving
of fresh products was the key to BigBasket’s success and hence it acquired refrigerated vans/trucks to de-
liver products to the customers. At the beginning of the day, goods were dispatched from collection centers
to warehouses. Later, the goods were delivered to the customers through delivery vans or trucks. BigBasket
usually offered prices to farmers around collection centers based on the early morning reports from the man-
dis 21 BigBasket employees reported on the prices of various products from these mandis and if on certain
days the warehouse ran out of supplies, products were purchased directly from the mandis.

BigBasket claimed that it provided its customers a “Farm to Home” experience. In this model, BigBasket re-
ceived supplies from the farms and then the refrigerated branded vans delivered the goods. Perishable goods
were warehoused for a maximum of 24 hours from farm to warehouse. 22 Once the inventory was procured
and stored, based on the registered customer’s requirement, the delivery was done. 23 BigBasket charged
INR 20 for delivery if the order was below INR 1000 in value. 24

In order to keep track of the delivery time, BigBasket had acquired support from AssetTrackr which was a
fleet and asset management solution provider. BigBasket integrated with the ERP system of AssetTrackr to
get the information about the movement of trucks and delivery vehicles. Having tracked the movement of de-
livery vehicles, a tentative delivery time was provided to customers. The various locations where goods were
to be delivered were geo-coded and stored in the database. When a customer placed an order, based on the
location, AssetTrackr created a Geo-Zone around the delivery location and recorded precisely the delivery
time. BigBasket bought Delyver which was a Bangalore based company, to quickly deliver the products and
meet the delivery commitment effectively. 25 These steps gradually helped BigBasket to achieve its goal to
supply fresh items as per the committed delivery time (see Exhibit 4).

Apart from warehouses for storage, BigBasket also planned to launch “Dark Stores” where 1000–1500 stock
keeping units could be stored. 26 Typical Dark Stores looked like conventional stores but were generally not
open to the public. Their size varied from approximately around 5000 square feet (in larger cities) to around
10000 square feet (in smaller towns where the warehouses were larger). 27 Dark Stores were expected to
shorten the delivery time as the company could directly fulfil the orders from these stores to its customers.

In following the inventory based model, BigBasket faced a high working capital requirement for setting up the
warehouses, acquiring refrigerated trucks/vans and designing the IT infrastructure. The warehousing of per-
ishable items was a risky affair because if these perishable items were not consumed within a specified time,
the losses could be significant. The inventory management also had to be handled strategically because any
stock-out situation would have hampered the BigBasket brand severely.
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As the online grocery business depended upon the technology used, it designed user friendly websites for
customers to browse products, place orders and make their payment. BigBasket expected that innovation in
technology, creativity in website design and hassle-free order placements would help attract the target group
and help build a strong customer base. Accordingly, it launched Android and iOS mobile apps, which allowed
customers to place an order through their smart phones. A feature called “Smart Basket” predicted which
items the customer needed more of, which further helped to reduce the order time and saved the customer’s
time. 28

BigBasket allotted nearly INR 800 to INR 1000 million for marketing campaigns to reach out to the masses.
29 It pumped in money in print, electronic, radio and social media for communicating to prospective and ex-
isting customers. BigBasket roped in celebrity Shah Rukh Khan, a leading actor of Hindi movies, who the
company believed had a widespread appeal that cut across age, gender and geography and was likely to
attract an equally broad range of the target audience as a brand ambassador. Realizing that customer testi-
monials played a major role in increasing awareness and trust, and led prospects to buying groceries online,
BigBasket displayed city wise videos of satisfied customers giving feedback on their website. In order to woo
customers who were not comfortable sharing their credit card details during online shopping, especially for
large value orders, BigBasket start offering ‘Cash on Delivery’ and ‘Card on Delivery’ whereby delivery staff
carried credit card machines while delivering the order.

It was a tough task for industry players in the Indian online grocery market to raise funds. Though a number
of players plunged into the online grocery business in 2012, only three companies out of 40 had managed to
get funding from investors, while 30 had to close down. 30 Lately, investors had turned cautious about back-
ing start-ups in the online grocery business. In 2015, there were fifteen funding rounds that generated more
than USD 100 million, whereas in the first quarter of 2016, there had been just three rounds of funding. 31
Therefore, fundraising was one of the major challenges not only for new start-ups but also for existing players.
BigBasket, despite the adverse sentiments towards funding online grocery retailing, was able to raise USD
150 million from the Abraaj Group in March 2016. 32

After two years of its inception in 2011, BigBasket had a customer base of over 100,000 in 2013. 33 It had
a customer base of more than 450,000 in March 2015 34 and an overall penetration into more than 23 cities
by March 2016 35 . Ensuring customer satisfaction and retention and winning new customers were indeed
daunting tasks in the online grocery business environment which offered lower margins.

Prominent Companies in the Indian Online Grocery Market

India which was the world’s sixth largest grocery market as per research firm IGD, was projected to overtake
Japan and secure third position in the world by 2016. 36 The 2014 United States Department of Agriculture
(USDA) attributed the growth in online grocery industry to the rise in total internet users, a fall in mobile hand-
set price and a rise in smart phone penetration. 37 Indian online grocery market was flourishing particularly
in cities like Delhi, Mumbai, Kolkata, Bangalore and Pune which had a large number of easy lifestyle seek-
ing urban class. As per the consultancy organization Technopak, the online grocery market was estimated to
grow at a rate of 25–30% year-on-year basis in the major cities of India. 38 Apart from BigBasket, a number
of other players, described below, were trying to find a foothold in online grocery market. The major oppo-
nents of BigBasket were ZopNow, Nature’s Basket, One Kirana, AaramShop and Grofers. Also, a few other
companies in online grocery market such as MY247MKT by Tata Group, Mukesh Ambani’s Reliance Fresh
Direct, My Grahak, BazaarCart and Pinkcitykirana were trying to make inroads in this market. My Grahak had
partnered with WeAreOpen for delivery in Delhi National Capital Region (NCR) region and was providing free
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delivery to its customers in this region. There were players like LocalBanya and Greencart which had tem-
porarily suspended their operations. Initial euphoria about online grocery business seemed to be dying as
other e-business players like Ola, Paytm and Flipkart had also shut down their online grocery retailing verti-
cals as they found online grocery industry a tough nut to crack.

ZopNow
Incorporated in 2011, ZopNow was a Bangalore based online grocer, which was valued at around USD 50
million in 2015. 39 It offered services at Bangalore, Mumbai, Navi Mumbai, Thane, Pune, Hyderabad, Delhi,
Gurgaon, Mysore, Faridabad, Noida and Gaziabad. 40 ZopNow operated on hyper local based model and
delivered the goods in three hours and offered free shipping on all orders. ZopNow had raised USD 10 mil-
lion worth funding led by San Francisco based Dragoneer Investment Group, with investors Accel Partners,
Qual-Comm Ventures and Times Internet in April 2015. 41

Nature’s Basket
Founded in 2005, Nature’s Basket was a prominent grocery e-commerce company owned by the Godrej
group with its head office located in Mumbai. It started as a single fresh food store and currently offered its
online grocery services in five major cities – Mumbai, Pune, Delhi NCR, Bangalore and Hyderabad. 42 Na-
ture’s Basket worked on hyper local based model and promised to deliver the goods within three hours from
the time of placing the order in these five major cities. It charged INR 30 for delivery if the order was below
INR 1000 in value. 43 In 2015, Nature’s Basket acquired online grocer ekstop.com 44 and tied up with e-com-
merce giants Amazon and Snapdeal to sell its products online. 45

One Kirana
Founded in 2011, One Kirana was a leading North Indian online grocery shopping destination, offering ser-
vices in New Delhi and Delhi NCR with a network of 5,000 local stores and a warehouse. 46 One Kirana
operated on a unique business model where they owned a warehouse in Delhi and they had also tied up with
many local stores in and around Delhi. It also promised to deliver goods in less than three hours after order
confirmation and there were no delivery charges. 47 Amira Pure Foods Pvt. Ltd., a major international pro-
ducer of packaged foods, had tied-up with One Kirana in December 2014. 48

AaramShop
Started in 2011, AaramShop was a Delhi based online grocer that operated through 3,500 local shops. As per
AaramShop’s unconventional business model, shopping list was created by customers and then the company
used a merchant app to direct the order the retailer in customer’s vicinity. AaramShop operated on ‘freemium’
model, 49 where it did not make revenue on margins made by vendors but offered premium services like ad-
vertising options and marketing. 50 Due to this type of business model, they did not require high manpower,
and consequently staffing cost and overheads were reduced considerably. Delivery terms and charges was a
matter between customers and local vendor of AaramShop. 51 In 2014, AaramShop tied up with Red Bucks

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Grocery to launch its services in Pakistan. It intended to enter in East African (Kenya), South East Asia (Viet-
nam, Indonesia) and Middle East (UAE) through franchising model. 52 It was planning to raise USD 12 million
from a VC fund, as part of Series A funding, to expand its operations across new markets like Sri Lanka and
Dubai. 53

Amazon India (KiranaNow)

In the first quarter of 2016, prominent e-commerce player Amazon, partnered with local stores and super-
market chains like Big Bazaar, Reliance Fresh, and Nature’s Basket to launch its grocery arm KiranaNow. It
delivered products in Bangalore through an app called Amazon Now and claimed to deliver the products in
two hours. It planned to expand its presence in 10 cities every year. 54 Amazon India intended to enter the
market with a hybrid model that was inventory led as well as direct pick-ups led. 55

Naturally Yours

Founded in 2010 in Mumbai, it was a platform to buy organic and ayurvedic 56 products online. It kicked off as
a brick and mortar set up and catered to a niche segment. Naturally Yours tied-up with farmers, bought prod-
ucts from them and sold under the brand of Naturally Yours. They delivered their products across 23 states
and union territories in India. 57 Mostly products were delivered in a day or two if delivery was within Mumbai
whereas outside Mumbai, it took eight to ten working days for delivery. For a bill value above INR 499, the
delivery was free and below this amount, delivery charges were INR 40. 58 In the year 2015, Naturally Yours
raised fund from angel investor Sanjay Mehta. 59

Grofers
Incorporated in 2014 as OneNumber, initially Grofers followed Business-to-Business (BtoB) model but later
shifted to Business-to-Customer (BtoC) model. It was valued a little below USD 400 million in 2015. 60 The
customers had to select stores and buy goods through mobile app to get the items delivered. It was oper-
ating in Agra, Ahmedabad, Bengaluru, Chennai, Chandigarh, Hyderabad, Indore, Jaipur, Kanpur, Kolkata,
Lucknow, Mumbai, Delhi NCR, Nagpur, Pune, Surat and Vadodara. 61 In January 2016, Grofers stopped its
operations in nine cities across India namely Bhopal, Bhubaneswar, Coimbatore, Kochi, Ludhiana, Mysore,
Nashik, Rajkot and Visakhapatnam. 62 Grofers delivered goods in 90 minutes and it charged INR 49 for or-
ders below INR 350. 56 In November 2015, Grofers raised USD 120 million funds from SoftBank with Russian
entrepreneur Yuri Milner and existing investors Tiger Global and Sequoia. 63

Big Bazaar (Direct)

Launched in 2014 by Future Retail Ltd., Big Bazaar Direct was a BtoC portal, through which it aimed to sell
directly to customers through franchisees. The unique business model followed by Big Bazaar Direct, allowed
interested parties to become their franchisee, who needed to spread awareness about Big Basket Direct,
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make customers and take orders online for Big Bazaar Direct. Post receiving the order, delivery was done by
Big Bazaar Direct to the customer. Through its online presence, Big Bazaar, which also had brick and mortar
structure, was operating as hybrid model. 64

Other than the above prominent players, there were other players in online grocery market like MY247MKT
by Tata Group, Mukesh Ambani’s Reliance Fresh Direct, My Grahak, BazaarCart and Pinkcitykirana which
were surviving in this market. My Grahak had partnered with WeAreOpen for delivery in Delhi NCR region and
was providing free delivery to its customers in this region. There were players like LocalBanya and Greencart
which had temporarily suspended their operations. Initial euphoria about online grocery business seemed to
be dying as other e-business players like Ola, Paytm and Flipkart had also shut down their online grocery
retailing verticals as they found online grocery industry a tough nut to crack.

Challenges and Opportunities

The New Climate Economy Report by The Global Commission on the Economy and Climate for 2014, backed
by the United Nations, stated that India was on the “brink of an urban revolution” and its population in towns
and cities would reach 600 million by 2031. 65 By 2020, the Indian middle class would be the third largest in
the world, and by 2030, it would be the largest in the world. In another development, the number of Indian
internet users had increased from 350 million in 2015 to 460 million in 2016. 66 This number was project-
ed to be 500 million by 2020 as per the report by the Internet and Mobile Association of India. 67 In 2015,
60% of internet users were accessing the internet through their mobile phones. 68 According to a Couterpoint
Research report, India would overtake the US as the second largest smart phone market in terms of active
unique smart phone users, crossing a user base of 220 million. 69 Online grocery players had sensed this
huge opportunity and were in a race to emerge as front runners. The working class in metro cities found it very
difficult to buy their groceries amidst their hectic work schedules; increasing disposable incomes also led to a
desire for a comfortable lifestyle. A survey conducted by Nielsen stated that consumers in the Asia Pacific re-
gion were most willing to buy groceries online. 70 Another factor was the traffic problems in most cities; 43%
of the country’s roads were not suitable for vehicles. 71 Finding suitable parking space was a time-consuming
effort. These factors propelled the demand for online grocery as it offered ease in buying items of daily use.

Margins in online grocery retailing varied between 5–10 percent 72 without factoring in the delivery costs. If
these costs were included, companies would likely make a loss. As the margins earned were generally low in
the online grocery business, the processes adopted by the market players in different business models had
a vital role in determining the margins. 73 The cost of sourcing, storing, maintaining and delivery were the
major factors leading to the drop in the margins, if the online grocery business was being run on an inventory
based model. The process of maintaining the inventory efficiently or improving the inventory turnover ratio
or reducing spoilage and shrinkage was crucial to any model if a company wanted to improve its margins.
For instance, if the online grocery business followed the hyper local based model, inventory expenses were
reduced drastically but one had to pay a premium to rope in local vendors for managing inventory.

For implementing the hyper local based business model, the local vendors from where goods would be sup-
plied had to be identified and the delivery boys would then pick up goods to supply these to the customer. In
this model, a typical problem that used to surface was that the goods stocked with vendors were limited, which
again cost heavily in terms of losing customer base and leading to a poor reputation. The industry players
were well aware that for efficient supply chain management, heavy investment in technology was necessary
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and vendors were expected to be techno-savvy. The Indian market observations were different as only a few
vendors were open to using technology and most were technophobic and cynical about the online grocery
retailing business. For the hyper local business model to succeed, it was critical to strengthen the distribution
network, so that the vendors were open to changing the traditional way of operating the business and were
willing to work with technology and innovative practices.

The very nature of the online grocery market in India did not allow players to cover the whole market, even
in a city. Therefore, any typical city saw multiple players existing in one market, competing with each other
fiercely in terms of the various schemes they offered to the customers and growing their customer base. In
such markets, the range of choices for the customers was quite wide and the benefits they received were nu-
merous. For instance, a customer based in Bangalore would have wider choices with multiple online grocery
players competing in the limited space available, like BigBasket, ZopNow and Nature’s Basket. Likewise, in
this limited space, another way to monitor the competition as well as to give tough competition to the rival
players was to differentiate the offerings. The customer preferences and tastes also differed as per the ge-
ography, which was one more reason for maintaining product differentiation. In the online grocery business,
one way to achieve this was by selling specialized products like international or organic foods, which though
profitable, added to the cost exorbitantly. Another challenge was that even if these products were sourced,
the maintenance of the perishable items and adhering to the best quality was a difficult task.

Online retailing of grocery demanded skilled employees who could understand business models and inven-
tory management in this business. Employees needed to understand market trends and consumer behavior
to ensure better service for the end consumer. It was extremely important to have a competent team that un-
derstood the business and could perform in the complex business environment. The communication between
supplier, company and on-field staff needed to be seamless if the business was to succeed. In the rural ar-
eas, lack of education and infrastructure and the tendency of consumers to buy their daily necessities from
local mandis/bazaars posed a challenge to expanding the online grocery business beyond major cities. Indi-
ans were traditionally accustomed to buying from local kirana stores and understanding consumer behavior
vis-a-vis online grocery retailing was crucial for survival.

The Next Steps

The heavy investments in the inventory based model invited strong criticism from industry experts and a ma-
jority of the competitors followed the hyper-local based business model which was not very capital-intensive.
For instance, Webvan, an American giant in the online grocery industry which after raising USD 800 million
went bankrupt, was a miserable failure due to its huge investment in infrastructure. 74 Having signed a USD 1
billion contract with Bechtel, Webvan invested heavily in building its own warehouses. 75 It created advanced
technology oriented centers with automated robots that could help in increasing the pace of production and
shipment. The colossal expenditure eventually led to the downfall of Webvan. Consequently, Webvan was
an eye opener for all those players who were building huge warehouses for stocking goods. From the online
business perspective, it was questionable whether BigBasket’s inventory-based model could sustain itself in
the long run and stay ahead of the competition.

The industry was flooded with many competitors; despite this, the opportunities to grow were certainly not lim-
ited. Apart from urban markets which were significant in size, there was always scope for players to penetrate
further and realize the last mile connectivity. How difficult would it be to penetrate into other virgin territories?
Would BigBasket continue to focus on urban India or would it be feasible for any of industry players to explore
rural India? Online grocery players were expected to keep fine-tuning their business models to deal with the
mammoth challenges and at the same time grab emerging opportunities to win over customers. To sustain in
the long run, a marketer had to understand trends to forecast future growth for the company. What innovative
business models could possibly emerge for BigBasket as alternatives to existing business models?
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While BigBasket was planning to utilize the USD 150 million funding for its expansion, it received the news
about recent guidelines by the Department of Industrial Policy and Promotion whereby FDI was not permitted
in the inventory based model of e-commerce. 76 Regulations by government put many e-commerce compa-
nies in limbo including BigBasket due to its inventory based business model. In this scenario, companies had
very few choices left – they could switch over to other acceptable business models or restructure their already
complex models, which meant starting from scratch.

After the new guidelines were placed in the public domain, Future Group CEO Kishore Biyani, owner of India’s
largest offline grocery retail stores, attacked BigBasket and termed its operations as illegal. 77 While Vipul
Parekh, co-founder of BigBasket, had a contrary opinion on the regulation, this regulation was the biggest
hurdle for BigBasket in continuing with its existing business model. For BigBasket, which had invested heav-
ily in the inventory based model in the absence of a policy for online retail, government regulation could turn
out to be a nightmare. The employment of significant funds and the complex management of inventory with
supply chain activities presented a challenge to BigBasket in terms of redefining its existing business mod-
el. Additionally, intensifying back end operations, cut throat competition, influential brick-and-mortar grocery
stores and distribution mechanisms through Dark Stores were a few of the areas which necessitated focused
attention. Therefore, industry players were making every effort to create various permutations and combina-
tions, in order to refine a business model that was more profitable. The business model adopted by BigBasket
had several challenges which required thorough examination.

Notes
1. Bhattacharjee, N. (2016, May 9). BigBasket’s secret to handling 35,000 orders a day, where even Amazon
fumbles. Techinasia. Retrieved from https://www.techinasia.com/behind-the-scenes-at-BigBasket

2. Series D funding is the fifth round of investment by private investors in a startup where the seed-stage
funding is first round of investment.

3. 1 USD = 65 INR as on March 31, 2016.

4. The Abraaj Group. (2016, March 21). The Abraaj Group is lead investor in US$ 150 million funding round for
India’s BigBasket. Retrieved from The Abraaj Group website www.abraaj.com/news-and-insight/news/press-
release-the-abraaj-group-is-lead-investor-in-us-150-mn-funding-round/

5. BS Reporter. (2015, March 6). BigBasket.Com expects to break-even in 36 months. Business Standard.
Retrieved from www.business-standard.com/article/companies/BigBasket-com-expects-to-break-even-
in-36-months-115030500691_1.html

6. Ministry of Commerce & Industry. (2016, March). Guidelines for FDI on E-Commerce. Department of
Industrial Policy & Promotion. Ministry of Commerce & Industry. Government of India. Retrieved from
http://dipp.nic.in/English/acts_rules/Press_Notes/pn3_2016.pdf

7. Entrepreneur India. (2015). Online grocery business model is yet to be cracked. Entrepreneur India. Re-
trieved from https://www.entrepreneur.com/article/248541

8. Dhawan, S. (2015, November 24). Grocery eCommerce Scenario in India: Overcoming Challenges, Com-
petition and Threats. iamwire. Retrieved from www.iamwire.com/2015/11/grocery-startups-ecosystem-india-
challenges-threats-competition/126209

9. Saxena, S. (2015, November 3). Business models in online grocery business. Exploring Startups. Re-
trieved from www.exploringstartups.com/business-models-in-online-grocery-business/
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10. Delhi School of Internet Marketing. (2016, March 23). How BigBasket has changed the online grocery
marketplace? Delhi Retrieved from Delhi School of Internet Marketing http://dsim.in/blog/2016/03/23/case-
study-how-big-basket-has-changed-the-online-grocery-marketplace/

11. Bhattacharya, S. (2015, July 28). Big Basket to unleash 2-wheeler deliveries as hyper local model catches
grocers’ fancy. First Post. Retrieved from www.firstpost.com/business/big-basket-unleash-2-wheeler-deliver-
ies-hyper-local-model-catches-grocers-fancy-2366916.html

12. Chatterjee, P. (2015, January 26). AaramShop to launch services in East Africa, South-East Asia. Busi-
ness Line. Retrieved from www.thehindubusinessline.com/companies/aaramshop-to-launch-services-in-east-
africa-southeast-asia/article6824054.ece

13. In India, kirana store is a family owned shop selling groceries and other sundries used on daily basis in
household. Generally, kirana stores are spread over an area ranging from 400–1000 square feet.

14. Inc42. (2015). Hyperlocal delivery startups gain momentum, after ZopNow & Grofers, PepperTap raises
$10 Mn. Inc42. Retrieved from https://inc42.com/buzz/hyperlocal-delivery-startups-gains-momentum-after-
zopnow-grofers-peppertap-gets-funded/

15. Phangal, R. (2016, January 27). Grofers Business Model [PowerPoint slides]. SlideShare. Retrieved from
http://www.slideshare.net/RakeshPanghal/grofers-by-rakesh-panghal-57549040

16. BigBazaar. (n.d.). BigBazaar direct franchisee model. BigBazaar online. Retrieved from http://big-
bazaar.co.in/big-bazaar-direct-franchisee-model/

17. Mitter, S. & Bhat, S. (2014, September 23). Online grocery stores mushroom across India. Forbes India.
Retrieved from http://forbesindia.com/article/real-issue/online-grocery-stores-mushroom-across-india/38677/
2

18. Shrivastava, A. (2016, March 23). Abraaj, others put $150 million in the BigBasket. The Economic Times.
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Basket-vs-sudhakar-hari-menon

19. Tofler. (2016, February 5). BigBasket revenue at INR 178 crores in FY 14–15; Losses at INR 61 crores
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20. Gore, D. (2014, June 14). Everything you wanted to know about India’s largest online supermarket – Big-
Basket.com! Techstory. Retrieved from http://techstory.in/bigbaske/

21. Mandi or Bazaar is a market consisting of rows of shops or stalls selling miscellaneous goods. Here
mandis referred to specialized markets, located in rural area, which dealt with agricultural produce. Farmers
brought their agriculture produce to mandis and sold to buyers who further sold them to sellers in urban mar-
kets.

22. Minda, V. (2013, July 22). BigBasket uses AssetTrackr’s vehicle tracking solution to optimize on-time de-
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23. Choudhury, S. D. (2015, September 5). What’s behind the basket? livemint. Retrieved from
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24. BigBasket – FAQ. (n.d.). FAQ. Retrieved from www.BigBasket.com/faq/

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25. Delyver. (n.d.). BigBasket acquires Delyver. Retrieved from www.delyver.com/acquisition

26. Bhattacharya, S. (2015, July 28). Big Basket to unleash 2-wheeler deliveries as hyper local model catches
grocers’ fancy. First Post. Retrieved from www.firstpost.com/business/big-basket-unleash-2-wheeler-deliver-
ies-hyper-local-model-catches-grocers-fancy-2366916.html

27. Karerat, R. (2015, June 15). Online grocery outlet BigBasket to build 10 warehouses to expedite shipping.
The American Bazzar. Retrieved from www.americanbazaaronline.com/2015/06/15/online-grocery-outlet-Big-
Basket-to-build-10-warehouses-to-expedite-shipping/

28. BigBasket. (n.d.). Smart Basket. Retrieved from www.BigBasket.com/newuifeatures/ on May 05, 2016.

29. Gupta, D. (2015, September 28). Big Basket earmarks Rs 100 crore for marketing in 2015-16. Advertising
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30. Arora, G. (2015, May 21). How grocery ecommerce is giving tough time to offline players and going to be
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31. Dailyhunt. (n.d.). BigBasket raises $150 million in fresh funds. Retrieved from http://m.dailyhunt.in/news/
india/english/live+mint-epaper-livemint/BigBasket+raises+150+million+in+fresh+funds-newsid-51183419 on
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32. Siddiqui, D. (2016, March 22). BigBasket raises $150 million in funding led by Abraaj Group. Reuters.
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34. BS Reporter. (2015, March 6). BigBasket.com expects to break-even in 36 months. Business Standard.
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in-36-months-115030500691_1.html

35. Bhattacharjee, N. (2016, May 9). BigBasket’s secret to handling 35,000 orders a day, where even Amazon
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40. ZopNow. (n.d.). Delivery. Retrieved from www.zopnow.com/pages/delivery#list

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