BigBasket Business Model and How it Works
BigBasket Business Model and How it Works
Grocery Shopping is not for the faint-hearted. The frequent drudgery of riding in traffic, searching for parking, seeking for the right products in endless aisles, queuing up for payment, and carrying heavy bags home is not how people, especially the upwardly mobile young generation wants to spend their time.
On-demand food delivery start-up BigBasket was launched as the modern-age solution to this problem in 2011. Today, it is India’s largest online supermarket. The Company operates in 30 cities across the country, reaching more than 100 million customers and processing more than one lakh orders every day. The Company delivers more than 18,000 products every day and has more than 1000 brands in its catalog from cooking essentials such as oil, basmati rice to everyday laundry detergent.
Bengaluru based BigBasket was founded by V S Sudhakar, Hari Menon, Vipul Parekh, Abhinay Choudhari, and V S Ramesh. The founders had their first brush with e-commerce back in 1999 when they launched an online store, Fabmart.com, to sell books, toys, and groceries online. However, the Company failed as it was way ahead of the time. The infrastructure required for an online delivery start-up was non-existent. Internet was connected via dial-up connections, which took around 50 seconds for a page to download, no payment gateways, and a nascent internet user base was.
The founders pivoted to a brick and mortar store under the aegis of Fabmall. The Company merged with a brick & mortar grocery chain before getting acquired by Aditya Birla Group.
In 2011, the founders regrouped to start an online grocery delivery company. Many people were skeptical and suggested they stay away from perishable products, given the country’s obsession with fresh food and vegetables to the extent that buyers break okra tips and sink their fingernails into cucumbers. The founders pressed on all the same.
But the timing was favorable, India was growing as one of the fastest mobile subscribers, the internet was becoming widespread and affordable, payment infrastructure was developing rapidly, and an upwardly mobile young generation was increasing. However, venture firms were still not convinced given bad stories of earlier start-ups in the same domain. The founders persisted and modified their pitch to make it more viable.
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Private equity investor Ascent Capital invested $10 million in the firm. The initial success of BigBasket opened the flood gates for other online delivery start-ups to mushroom, including Sequoia funded PepperTap, SoftBank backed Grofers, and LocalBanya, (Only Grofers is still operating).
To stay ahead, BigBasket needed to invest heavily from GPS-enabled delivery vans, inventory-optimizing algorithms. In 2014, BigBasket raised $35 million from Helion Venture Partners and Zodius Capital Advisors, while $15 million was from Bessemer Venture Partners, $150 million in a round led by Dubai-based Abraaj Group.
When BigBasket was launched, there was no concept of apps. Hence geotagging of addresses where the delivery person can easily find the addresses was not possible. BigBasket has kept on-time delivery as its ethos since it started. When the customer used to order, the client service representative would call and note their exact location through the Lat-Long technique. Once the location was flagged, entry was made in the database, and the delivery person can easily reach the customer address using Google Maps. The location data of residential complexes were highly accurate, and even Google Maps purchased this data from BigBasket.
Delivering fresh food is challenging, even more so in India. The country lacks the infrastructure to preserve foods for a long time. This hurdle prevented BigBasket from purchasing perishable goods directly from farmers. In the initial days of the start-up, the founders will wake up in the very early and visited wholesale fruits and vegetable markets at 3:30 am to buy fresh products. Eventually, BigBasket built its cooling infrastructure —walk-in freezers, chill rooms, refrigerated warehouses, and a fleet of trucks, enabling the Company to purchase fresh products at competitive rates.
India is a diverse market, with food habits and weather conditions vary widely from city to city. Hence to succeed in Pan-India, companies have to adapt to local circumstances. BigBasket shares samples of localized consumables, from leafy greens in Mumbai to Sona Masoori (a variety of rice) in Bengaluru.
Indian customers have an ingrained habit of touch and feel fruits and vegetables before purchasing. To counter this, BigBasket introduced a no-questions-asked return policy and allowed customers to do partial return if they were not satisfied with the quality of particular items from the order. This move helped the Company to garner customer trust. The Company also offered to return approximately 50% of the item value if any item was missing from their order. BigBasket has stated that 65% of its orders contain fruits and vegetables and is one of the biggest retailers in India concerning fruit and vegetable sales.
BigBasket Business Model: How BigBasket Makes Money?
There are two aspects of BigBasket’s operations: Purchasing farm produces personal care products, and second, managing the stock in its warehouses in the cities where it is operational.
For managing the supply of fresh and perishable goods such as meat, vegetables, and fruits, the Company ties up directly with the respective suppliers, grocery stores, dark stores (only cater to online delivery services) to maintain inventory.
When BigBasket was launched in December 2011, the stocks we kept were not as much as today. With the growth in business, the Company moved to an inventory model for most of its products in 2013. Inventory model means the Company purchases products from suppliers like P&G, HUL, farmers, mills. Its procurement centers are spread across the country, based on its operations.
Since the Company purchases in bulk, it gets a higher discount on the cost price and passes a small amount to the customers. However, most of its profits are generated from its private labels, Fresho, Royal Organic, Happy Chef Gourmet, where the company purchases unbranded products or where there is less competition and adds its own labels and sells on its platform.
For perishable goods, the Company works on a “just -in -time model.”
BigBasket maintains ten days’ worth of inventory, as compared to the industry average of a month. A lower amount of stock allows the Company to save money and contain losses from perishable items. BigBasket wastes around 5% of perishables, which is a global benchmark. The Company attributes these two elements to help bring down the cost by about 3%, which is critical in the hyper-competitive but low margin business like groceries.
BigBasket credits three things in the success of its customer proposition: same-day delivery, high fill rate, and on-time delivery.
After shifting to the inventory model, the Company introduced a same-day delivery option. While the Company used to charge 30 rupees per delivery, the move was hugely successful, and helped the Company achieve higher fill rates and almost doubled to reach 18%.
BigBasket has tied up with more than 1800 neighborhood grocery stores across India to deliver goods within an hour, including perishables. This resulted in a substantial decrease in wastage and aiding in decreasing inventory prices.
In Tier 1 cities, apart from the standard delivery-slot options, BigBasket used to offer 90-minute delivery. Later, the Company merged these two delivery options to fulfill the delivery in a total of four hours to counter the rising competition.
To achieve the four-hour delivery target, BigBasket has revamped its warehousing operations. The Company has invested in a large warehouse, supposedly three times larger than the earlier ones, to provide customers with more product choices, which was not possible in the previous 90-minute delivery option.
Exceptional Customer Service
BigBasket offers lucrative discounts, bundling techniques, on-time delivery, and convenience that helps them retain customers and maximize sales.
The Company employs a large number of service staff to handle consumer complaints, with a target of answering 95% of calls within the third ring. The Company promptly resolves queries ranging from missing items in order to delivery boys’ hygiene.
Technology & Artificial Intelligence
While private labels are essential for BigBasket to deliver strong customer proposition and achieve higher price flexibility, the Company’s technology stack is a critical differentiator that powers its end-to-end operations, from procurement, distribution, supply, delivery, payments, and returns.
BigBasket credits its proprietary guidance software that has helped the Company to achieve near-perfect on-time rate. The Company takes this very seriously, late deliveries earn customers a 10% discount, while missing items are refunded, along with 50% of that particular product’s cost.
The Company deploys a highly proficient artificial intelligence (AI) and machine learning models that accurately forecast the demands of consumers within the city, even though the Company’s sales as overall sales have quadrupled over the last year or so. The predictive models built by a team of 150 engineers spread across two offices in Bengaluru can identify any anomaly in a customer’s buying pattern and help make deliveries at the right address irrespective of the location been placed.
BigBasket’s automated systems flag anything out of place in the locations it services. In one example, the model identified and alerted the team that no new customers signed up from a particular area for a month. Upon analysis, the Company found that one set of addresses from the locality wrongly identified as from another region and fixed it immediately.
Location is one of the most critical aspects of retail. Marking the place and gaining insights about every delivery have been priorities. The firm seeks optimum route mapping so that its trucks travel the least possible distance to make as many deliveries as possible. Clustering orders for deliveries makes a lot of difference to profitability.
Once a delivery is made to a particular address, BigBasket uses data to ensure it never has to call the customer to confirm these details. The Company also created a personalized shopping basket, called Smart Basket for customers at regular intervals based on AI. The Company noted that around 90% of the customer’s final order already became a part of the Smart Basket, thereby enabling these to customers to spend lesser time on the items they order regularly. This also helps the Company, as customers spend more time discovering newer products, which in turn helps increase the overall orders’ value.
The Right Technology Stack
To seamlessly deliver more than 10000 orders every day, the right technology stack is critical. BigBasket’s web servers are hosted by Nginx (pronounced as “engine X”). The Company’s hosting is provided by AWS, while in the initial days, it was hosted on Linode.
When the website was launched back in 2011, it was built on Python, the technology, while slower as compared to other server technologies such as Java, is highly customizable. The Company used NodeJS and AngularJS, while Solr powered search functionality. For caching, BigBasket worked with Memcached and eventually moved to AeroSpike. The Company used RabbitMQ as their queueing server initially, and ultimately to Kafka.
In the initial two years, BigBasket focused heavily on the backend, which might not sound fancy from a technology perspective, but is essential from a process perspective (picker efficiency, order tracking, inventory management, etc.). The Company believes from merchandising person to sourcing (integrating collection center into backend), everything needs to be functionally efficient.
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