BigBasket and Grofers on merger Path

In a major likely-to-be merger, online grocers BigBasket and Grofers have held merger talks. However, these discussions are at a very nascent level and are proceeding at a snail’s pace.

The merger talks are on slow fire as BigBasket is expecting a big ticket funding. The Bengaluru-based grocery e-tailer has mandated investment bank Morgan Stanley for a $150million fund-raise, which is expected to close by April.

If money flows in through the funding route, the merger moves may be abandoned, The Times of India reported quoting unnamed sources in the industry.

However, if the deal goes through, it will be one of the most significant moves made towards bringing about consolidation in a cash-guzzling consumer internet economy, which has been heavily reliant on investor capital to grow in the recent years.

The talks between the two parties started in November last year, will be brought up during BigBasket’s board meeting scheduled for end of January.

The report says that talks between the two parties started in November last year, will be brought up during BigBasket’s board meeting scheduled for end of January.

Separately, people familiar with the goings-on said Grofer’s heavyweight backers SoftBank and Tiger Global, ploughing fresh funds into the merged entity, could also be an important criterion for deciding the future course of talks. “If their fund-raise doesn’t go too well, the merger is very likely to happen keeping in mind the $60þmillion cash that’s in the bank for Grofers,” TOI quotes the source.

Hari Menon, co-founder, BigBasket, he said, “We do not respond to speculations like these. We are in a very comfortable position on capital availability.” Albinder Dhindsa, co-founder & CEO of Grofers, said, “We don’t comment on speculation. Our business has grown 50% over the last quarter and we continue to work on building a sustainable grocery business. Currently, we are not looking at any investments or strategic options,” he said.

Grofers, which emerged as one of the hottest on-demand delivery startups amassing $130 million, most of it in 2015, had a tough last year as interest around the express delivery sector has waned perceptibly . In order to conserve cash, Grofers spent the whole of last year pruning its business and cutting costs, which stagnated its growth dramatically.

Cost per delivery on the express model has been the big impediment for startups like Grofers, making the business unviable and in constant need for capital. Most players levy minimal charges, which do not cover full delivery cost for them, making their path to profitability a big challenge.

Over the past year, Grofers has been attempting to change its model from a pure-play express delivery outfit to one where it’s stocking inventory through distribution centres similar to BigBasket. It also went back to its merchants for facilitating deliveries to cut costs. BigBasket, which too launched a 90-minute express delivery service last year, saw its sales grow 231% to Rs 563 crore in the financial year ending March 2016.

But net losses zoomed to Rs 277 crore from Rs 61 crore, on the back of increased marketing spends like signing Bollywood actors Shahrukh Khan as a brand ambassador, spiralling cost per delivery , and expenditure incurred on setting up warehouses. Its investors include Abraaj Capital, Ascent Capital, Zodius Capital, World Bank’s IFC, Helion Venture Partners, Bessemer Venture Partners, among others.

While BigBasket claims to be clocking an average of 50,000 daily orders out of which 25% is on its express platform, Grofers does around 10,000 average orders per day . In June last year, the Gurgaon-based Grofers launched scheduled deliveries, which it claims now make up almost 90% of its business with on demand being the rest 10%.