BigBasket Case

Supply Chain Management

Ananthu Ravi (014) | Ayushi Mona (024) | Raunak Haldipur (033) | Harshit
Sharma (034) | Priyanshi Poddar (056) | Tarun Shrivastava (082)
BigBasket (Case Overview)
● Founded in 2011 and by 2013 had a user
base of 1 Lakh, increasing by 20% y-o-y
through WOM
● Broke even in Bangalore in 2014
● Target Group
○ Tech Savvy Men
○ Working Women
○ Women involved in weekly/party
purchases
● Market Potential was $1 Bn in 2013 and
expected to be $17 Bn in 2017
Issues faced by Online Grocery Businesses
● Capital Intensive
● Since perishables were supplied, a same
day or next day delivery was required
● City-specific model had to be followed
● More investments were required in:
○ Warehouses & Distribution Centres
○ Logistics for Home Delivery Services
○ Managing Technology
Growth Drivers: E-commerce and Online Grocery Retail

Advancements in technology adoption: the increasing proliferation of devices such as smartphones

and tablets, and access to the internet through broadband, 3G/4G

Growing use of credit/debit cards for cashless transactions

Growth in purchasing power in cities beyond metros

Growth of mobile e-commerce

Growing investment in logistics and e-commerce; To invest nearly $2 billion in logistics and
warehouses estimated by 2020
Growth Drivers: E-commerce and Online Grocery Retail

Convenience factors- speed, easy transactions, variety and attractive pricing

Availability of much wider product range (including long tail and Direct Imports) compared to what is
available at brick and mortar retailers

Competitive prices compared to brick and mortar retail driven by disintermediation and reduced
inventory and real estate costs

Increased usage of online classified sites, with more consumers buying and selling second-hand
goods
Business Model of Big Basket

Mixed Business Model: Inventory + Hyperlocal

● BigBasket started with an inventory based business model wherein the company has it's own inventory
and manages it based on everyday demand.

● Recently, BigBasket has entered into the marketplace business, providing the delivery of orders
placed with hyperlocal speciality stores such as bakeries and meat shops in less than an hour

● For this business, BigBasket will handle logistics only for stores within a 6-km radius. The company will
launch this service in Bengaluru with about 400 stores and expand to other cities overtime.

● The team, to ensure customer stickiness, has 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.
Supply Chain Strategy

● Minimising the Risk of Perishability: Fruits and Vegetables are procured only on order, except for
those with a longer shelf life like onions and potatoes. This reduced their loss of stock by 3-4 %.
● In-house logistics: Bigbasket has its own fleet and warehouses, giving them better control and
better margins
● Focussed on weekly purchasers rather than impulse buyers to combat wafer-thin margins so that
the minimum order size exceeded a particular level.
● Apart from regular groceries, Big-Basket offered high-margin products to buyers, such as pet
food; Focussed on private-label brands such as Fresho for vegetables, meat and Royal & Popular
for staples, thereby earning higher profit-margins. The company has built a thriving business-to-
business vertical with its private brands, selling to restaurants, hotels and caterers. The vertical is
expected to account for about one-fourth of BigBasket’s annual revenue.
Supply Chain Strategy

● Use of technology for front-end customers and back-end operations: Uses a real-time analytics
software that makes sourcing almost automatic; tracking of delivery vans using GPS; giving
customers an option to pay by credit card.
● Gradual elimination of intermediaries: Use of a special sourcing route for perishables; obtaining
vegetables and fruits just a few hours before the delivery was to be made directly from the farms
called the “farm-to-home” philosophy.
● Hub and spoke model for efficient and fast delivery with warehouses in each city of operation; Has
recently introduced a 60 minute express delivery targeting weekly purchase that typically revolves
around items with a short shelf life such as milk, fruits and vegetables
Big Basket’s Supply Chain Model for each City

Hub 1

Suppliers Warehouse Hub 2 Customers

Hub 3
Online Grocery Chains - General Business
Models

There are mainly 3 kinds of business models when it comes to online grocery:

1. Inventory based model: The company has it's own inventory and manages it based on everyday
demand. Big basket started with this model.

1. Hyperlocal: In this model, the hyperlocal receives the order and buys items from store based
retailers, collects them in one place and delivers it to the consumer. Companies like Grofers,
ZopNow use this model.

1. Mixed Model: Companies use a bit of both of the above mentioned models. However, in order to
maintain the costs, the inventory is generally relatively smaller in size as compared to companies
that have adopted the inventory based model.
 Pros and Cons of the online grocery models
Model Pros
Inventory Based Model ● Consumers know which products are
available
● More suitable for monthly orders
● Requires least manpower
Hyperlocal ● Similar to marketplace model, hence no
extra cost of inventory management.
● No wastage of unsold inventory as
purchase of products is purely demand
driven
● The retailer can provide any brand or
product as long as they can source it from
another store-based retailer
Mixed Model ● The retailer can provide any brand or
product as long as they can source it from
another store-based retailer
● Lower inventory management costs as size
of inventory is small
Cons
● Capital Intensive Model. Cold storage is required
● Since the model is inventory based, unavailability
of a certain product may lead to loss of customer
● Not suitable for big orders as running around and
curating all the items, packaging and delivering is
a cumbersome task
● The retailer cannot confirm at the time of order
placement if they can provide a certain product or
not since they have to go and check post taking
the order
● Procurement management is more costly as the
retailer needs to invest in both, good inventory
management and delivery staff who can buy and
curate products based on demand
Big Basket v/s Others (Performance
Comparison)
Parameters (2013) BigBasket Zopnow LocalBanya

User Base 1,00,000 25,000 17,000

Avg. Order Size $21.65 $21.20 $21.20

Business Model Inventory based Hyperlocal Mixed

Delivery Type Same/ Next Day 3 Hours Same/ Next Day

SKUs >10,000 >8,500 >7,000

Estimated $4 Million $2 Million (Closed now)

Revenues
Competitive Scenario

● Ola and Paytm shut their grocery delivery

businesses in March and June 2015,
respectively. Flipkart followed suit in February
this year. Amazon launched its own service in
Bangalore in February through a separate app
called Amazon Now. It hasn’t yet taken the
industry by storm. Local Banya, one of the
direct competitors, also discontinued
operations.

● Grofers, arguably the closest rival to

BigBasket, had to heavily scale back
operations, while PepperTap shut down.
BigBasket’s USP

● A culture where employees think like grocers who have gone online and not just techies who

happen to sell grocery

● The company considers technology as a key enabler but supply chain as the major area of focus in

the online grocery business

● Single-minded focus on quality of fruits and vegetables helped BigBasket to earn a reputation.

● Despite funding, Bigbasket is capping its expansion to 25 cities to focus on backend execution and

improve unit economics