India: Hyperlocal startups BigBasket, Grofers begin merger talks

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Bigbasket. Photo: Aniruddha Chowdhury/Mint

Online grocer BigBasket, run by Supermarket Grocery Services Pvt. Ltd, and smaller rival Grofers India Pvt. Ltd have initiated talks for a merger that, if consummated, will also see SoftBank Group, an existing investor in the latter, participate in a $60-100 million funding round in the merged entity, said three people aware of the development.

BigBasket needs the money. By far the best-funded online grocery store, it has held talks with investors such as Wal-Mart Stores Inc, Amazon.com Inc, Tencent Holdings Ltd, and Fosun International Ltd for a fresh round of funds. The talks haven’t progressed far, the people cited above said.

Consequently BigBasket, which these people said incurs a cash burn of about $6 million per month, is keen on getting the deep-pocketed SoftBank on board as it rapidly runs out of cash. Grofers, meanwhile, is sitting pretty with about $50-60 million of cash in bank and a burn of about $2 million a month.

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BigBasket spokesperson did not respond to emails seeking comment. SoftBank declined to comment.

“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,” said Alibinder Dhindsa, founder and chief executive of Grofers.

BigBasket has so far raised at least $220 million in funds from investors including Abraaj Group, Bessemer Venture Partners, Sands Capital and International Finance Corp. It last raised $150 million from a clutch of investors in March 2016 at a valuation of about $450-500 million.

BigBasket is hoping for a valuation of at least $700-800 million, while Grofers could be valued at $150-200 million, one of the three persons cited above said. “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,” added this person.

The Times of India newspaper reported in January that Grofers and BigBasket were exploring a merger.

Grofers started out as a hyperlocal grocery delivery start-up in December 2013, picking up goods from neighbourhood grocers and delivering them to consumers, charging the merchants single-digit commission on the total order value as delivery fee.

Over the past eight months, Grofers has been gradually moving away from the hyperlocal model. As the cost of delivery far exceeded the commission earned, the firm started shifting to the inventory model and launched high-margin private brands. It started selling staples and snacks under its private brands Freshbury and Best Value.

Grofers has so far raised $165 million from Tiger Global Management and SoftBank, among others. During its last fundraise of $120 million in October 2015, Grofers was valued at $350-400 million. “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,” said the first person.

BigBasket owns brands such as Fresho, Royal, Tasties and HappyChef. BigBasket co-founder and chief executive Hari Menon said in an interview in December private labels would account for about 45% of the firm’s revenue by March. BigBasket aimed to clock revenue of Rs1,800-2,000 crore in 2016-17.

As per research firm Tofler, BigBasket posted a loss of Rs278 crore on revenue of Rs580 crore in the year ended 31 March 2016, while Grofers posted a loss of Rs225 crore on revenue of Rs14.3 crore the same year.

Anirudh Laskar in Mumbai contributed to the story.

This story was first published in livemint.com