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From India’s richest man to Amazon and 100s of startups: The great rush to win neighborhood stores
After spending more than a decade disrupting the neighborhood stores in the U.S. and several other markets, Amazon and Walmart are employing an unusual strategy in India to face off this competitor: Friending them.
Walmart and Amazon, both of which face restrictions from New Delhi on what all they could do in India, have partnered with tens of thousands of neighborhood stores in the world’s second-largest internet market this year to leverage the vast presence of these mom and pop stores.
In June this year, at the height of the pandemic, Amazon announced “Smart Stores.” Through this India-specific program, for instance, Amazon is providing physical stores with software to maintain a digital log of the inventory they have in the shop and supplying them with a QR code.
When consumers walk to the store and scan this QR code with the Amazon app, they see everything the shop has to offer, in addition to any discounts and past reviews from customers. They can select the items and pay for it using Amazon Pay. Amazon Pay in India supports a range of payments services, including the popular UPI, and debit and credit cards.
The world’s largest e-commerce giant also maintains partnerships that allow it to turn tens of thousands of neighborhood stores as its delivery point for customers — and sometimes even rely on them for inventory.
India has over 60 million small businesses that dot the thousands of cities, towns and villages across the country. These mom and pop stores offer all kinds of items, are family run, and pay low wages and little to no rent.
This has enabled them to operate at an economics that is better than most — if not all — of their digital counterparts, and their scale allows them to offer unmatched fast delivery.
Krishna Shah, a New Delhi-based doctor, on paper is one of the perfect customers of e-commerce services. She lives in an urban city, uses digital payments apps and her earnings put her in the top 5% income level in the country. Yet, when she needed to buy food for her cats and needed it as soon as possible, she realized the major giants would take hours, if not longer. She ended up placing a call to a neighborhood store, which delivered the item within 10 minutes.
That neighborhood store, which employs fewer than half a dozen people, was competing with over a dozen giants and heavily funded startups including Grofers and BigBasket — and it won.
At stake is India’s retail market, which is estimated to be worth $1.3 trillion by 2025, from about $700 billion last year, according to Boston Consulting Group and the Retailers’ Association India. E-commerce, by several estimates, accounts for just 3% of the retail market in the country.
If that figure wasn’t small enough already, consider this: Some of the biggest customers of Flipkart and Amazon are these small retail stores. An executive with direct knowledge of the matter told TechCrunch that during some sales, as high as 40% of all smartphone units are bought by physical stores. The idea is, the executive said, to buy the devices at a discounted price, sit on them for a few days and when Amazon and Flipkart are done with their sales, sell the same phones at their standard prices.
Sujeet Kumar, co-founder of Udaan, a Bangalore-based startup that works with merchants, said that even as smartphones and the internet have reached all corners of India, e-commerce hasn’t been able to disrupt the retail market.
“The problem is that it is very difficult for e-commerce companies to build a supply chain and distribution network that is more efficient than those established by neighborhood stores. These mom and pop stores operate on an insanely different kind of cost economics. E-commerce companies are not able to match it,” he said.
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Grocery startup BigBasket becomes India’s newest unicorn with new $150M investment
India has a new unicorn after BigBasket, a startup that delivers groceries and perishables across the country, raised $150 million for its fight against rivals Walmart’s Flipkart, Amazon and hyperlocal startups Swiggy and Dunzo.
The new financing round — a Series F — was led by Mirae Asset-Naver Asia Growth Fund, the U.K.’s CDC Group and Alibaba, BigBasket said on Monday. The closing of the round has officially helped the seven-year-old startup surpass $1 billion valuation, co-founder Vipul Parekh, who heads marketing and finances for the company, told TechCrunch in an interview. Chinese giant Alibaba, which also led the Series E round in BigBasket last year, is the largest investor in the company, with about 30% stake, a person familiar with the matter said.
The company, which offers more than 20,000 products from 1,000 brands in more than two dozen cities, will deploy the fresh capital into expanding its supply-chain network, adding more cold storage centers and distribution centers to serve customers faster, Parekh said. The company also plans to add about 3,000 vending machines that offer daily eatable items, such as vegetables, snacks and cold drinks in residential apartments and offices by next month, he added.
Infusion of $150 million for BigBasket, which raised $300 million last year, comes at a time when both Walmart’s Flipkart and Amazon are increasingly expanding their grocery businesses in India.
Amazon Retail India, which operates Amazon Pantry and Prime Now services and has a presence in mire than 100 cities, is reportedly planning to expand its business in India. Flipkart Group CEO Kalyan Krishnamurthy said in an interview with the Economic Times last month that the e-commerce giant may pilot a fresh foods business soon. Last week, Flipkart was said to be in talks to acquire grocery chain Namdhari’s Fresh.
Parekh largely brushed off the challenge his company faces from Flipkart and Amazon at this stage, saying that “it is a very large market, and it is unlikely to be dominated by one single company for the simple reason of its complex nature.” Flipkart and Amazon may eventually get serious about this space, but so far their play with groceries is mostly an additional differentiation checkpoint, he said.
“The success in this business requires having the ability to build and manage a very complex supply chain across multiple categories such as vegetables, meat and beauty products among others. Our focus has been on building the supply chain, and also ensuring that we are able to deliver a very large assortment of products to consumers,” he added. He said BigBasket today offers the largest catalog and fastest delivery among any of its rivals.
Besides, BigBasket, which is increasingly growing its subscription business to supply milk and other daily eatables, is also inching closer to becoming financially stronger. Parekh said BigBasket expects to become operationally profitable in six to eight months. “The idea is that business by itself does not consume cash. If we use cash, it will be for investment in new businesses or scaling of existing businesses,” he said.
India’s retail market, valued at mire than $900 billion, is increasingly attracting the attention of VC funds. Since 2014, online retailers alone have participated in more than 163 financing rounds, clocking over $1.38 billion, analytics firm Tracxn told TechCrunch. More than 882 players are operational in the market, the firm said.
The challenge for BigBasket remains fighting a growing army of rivals, including hyperlocal delivery startups including Grofers, which raised $60 million earlier this year, unicorn Swiggy and Google-backed Dunzo, which is increasingly becoming a verb in urban Indian cities.
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