Online Grocery Shopping Is Big Business For BigBasket caught up with Vipul Parekh, co-founder and head of finance and marketing at Bangalore-based online grocer BigBasket, which, nourished by mobile, has quadrupled its customer base in the past year.

Online Grocery Shopping Is Big Business For BigBasket

Grocery store shoppers circle the parking area competitively, only to get inside and bump trolleys in overcrowded aisles. They queue for an eternity at the checkout before struggling with overflowing bags as they journey home.

Bangalore-based online grocer saw an opportunity in 2011 and is now India’s largest online grocery store. caught up with Vipul Parekh, co-founder and head of finance and marketing at BigBasket, to talk about how he and his team have cracked the online grocery shopping code. What prompted you to get into the online grocery business?

Parekh: BigBasket was started in 2011. Before that we had experience in retail with our venture Fabmart, which was later rebranded as offline grocery store Fabmall. We had launched online as part of Fabmart back in 1999. People used to love the service then, and it was the largest business in the category. This was in the dial-up days, but people were still buying online. We had experience in online as a channel as Fabmart was one of the first e-commerce stores in India. So we knew about the sector both from online and the grocery perspective.

With the rise in Internet penetration by 2010-11, we realised a lot of people were buying online, and the medium was becoming mainstream. That’s when we decided it was probably a good time to go back to online grocery. We knew there was a market, but the silver lining is that now there is a market to grow. That was really the premise that got us started with BigBasket. Why did you think consumers were ready for BigBasket in 2011?

Parekh: BigBasket has grown much faster than we thought it would, primarily driven by the fact that people are used to buying online. The entire chain has been fuelled by the access of smartphones. People bought phones because they wanted to use WhatsApp and Facebook, not because they wanted [online department stores] Flipkart or Amazon. The moment you had easy access to the Internet, and WhatsApp and Facebook became popular, everything rode on their popularity. That’s where the journey starts.

Once you’re comfortable buying online, you find you get better pricing or save time. In the case of groceries, you substitute your chore for something else and probably get more leisure time. Traditionally in India, grocery buying has not been a great experience except when shopping at a few city stores, and these you can count on your fingers. Most of them are very functional and very drab. On a weekend, the shopping experience is a nightmare because of crowds. What is your customer base?

Parekh: Today we have about half a million active customers. From last year to this year we have grown four times over. We are still seeing that there is a lot of growth potential in the market. Grocery accounts for 50% to 60% of the total retail market in India, which makes it the largest category. We aren’t looking at rural or other population segments as they are not online today. Considering Internet penetration, the total number of people who will ever buy online will be about 30 million. That’s the base, but it’s growing rapidly. What trends are leading consumers to buy online?

Parekh: People today look at grocery shopping as a chore and not a family activity. Considering that people are pressed for time, online shopping has been slowly becoming a part of their lives. It’s not a sudden thing–it has happened over the last seven to eight years–but we are seeing the manifestations of it in the last few years.

Offline, too, is not doing badly. There is enough demand today, but it’s just that their cost structure doesn’t work. Rents are the biggest problem. For a grocery store, the catchment area is small, and there is a finite number of people. If the store has to increase sales, there is no place to go to. Assuming everybody is purchasing offline, you have a scenario where within one kilometre there might be 10,000 families with a wallet share of 5000 Indian rupees [US$75]. That has to be shared with six to seven stores. In this scenario, if you open a new store, you have to pick from the same pie, which becomes a major restricting factor. Are you saying that the corner stores, modern retail, and e-commerce are all here to stay?

Parekh: Definitely. All three will survive for the next 20 to 30 years. If you look at the metros, about 20% to 25% is modern retail or organised retail, and the balance is still the corner stores. Modern retail will pick up share, but that is because it has better margins, a better experience, and a much larger assortment. Their proposition is stronger, and that’s what drives customers to modern retail.

The theory that organised retail will eat away corner stores did not happen and will never happen. The cost structure of a corner store versus modern retail is completely different versus an e-commerce structure. Twenty years down the line, I think the breakdown may look like 50% local store, 30% to-35% organised retail and 15% online. Is there a difference in buying patterns within the big and smaller cities?

Parekh: In the large cities, customers are used to buying a much larger assortment: Organic food, imported food, and gourmet bakery form a significant part of their baskets. Not many of these products are available in tier-two cities. We find that it takes time for customers to adopt online shopping, and they usually buy smaller baskets. The range that a Bangalore customer is exposed to is different from that of a tier-two-city customer. Share of staples and fresh food remains the same. You would find a lot more discretionary stuff in a Bangalore basket that you would not find in a tier-two-city basket. Overall values are smaller, but the frequency of buying is similar. What is the proportion of transactions generated through your app?

Parekh: Between 60% and 65% of all our transactions happen on the app. We believe that it will stabilise at 70% to 75%. The insight is that you always have a smartphone with you, and you keep building on the shopping list as and when you run out of something or remember to purchase. You keep adding to the cart and check out later. In many cases, homemakers who are purchasing online don’t have a laptop or tab in front of them all the time, but they do have their phones, and that’s where the app becomes popular. How do you use data to offer a better customer experience?

Parekh: We use data in two ways. One is obviously to understand what customers are buying–their baskets, frequency, scale and behaviour change when we offer discounts and also when a brand advertises. We have a significant amount of data on what customers are looking for, and we also know what they are looking at and not buying, searched items that they did not find, and number of searches for a particular product.

The biggest idea of an online store is to be convenient. We are trying to cut the time spent online in searching products with our “smart basket” feature. If you take the same amount of time shopping online as you do at an offline store, then the shopper is not getting much value. We look at cutting down the time from two hours to two minutes. We use intelligence derived from the data we gather to ensure customers can be in and out within two minutes. Are more women buying on BigBasket?

Parekh: We have around 60% women who shop, and the men buying online is in some ways instigated by the women. What was the thinking behind getting Bollywood actor Shah Rukh Khan to endorse BigBasket in your advertising?

Parekh: The strategy to bring him on board aligned with our expansion plans. While people may know of BigBasket as a brand in metros, greater brand awareness as we expand to different cities becomes much simpler with a celebrity such as Shah Rukh Khan. We have seen that brand awareness has gone up since we started our campaign with him. As you expand, will quality become an issue? How will you find a balance?

Parekh: As you scale, you need to control your supply chain. We don’t buy from mandi [farmers’ markets] or aggregators, but we are setting up our own collection centre manned by qualified agronomists. We tell the farmers our preferences, things like we don’t want pesticides and what grades we want. So it starts from seed to the crop–getting more and more control of the supply chain. And that’s how we can scale and maintain quality. How do you see the category evolving from here?

Parekh: We knew BigBasket was an attractive business to be in, but we didn’t anticipate it to grow so fast. That was surprising. It will be a large category in three to four years, around US$8 billion to $10 billion of business. That’s the potential.

This article was produced for by Paul Writer, India’s premier community marketing firm.

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