The Competition Commission of India (CCI) has greenlit Tata Sons’ proposal to acquire a majority stake in Alibaba-backed BigBasket, setting the stage for a battle of the giants in the country’s fast-growing online grocery segment.
Tata Digital, a wholly-owned subsidiary of Tata Sons, had sought CCI’s approval to acquire a 64.3% stake in Supermarket Grocery Supplies, the business-to-business arm of BigBasket, through a mix of primary and secondary share purchases.
Subsequently, through a separate transaction, Supermarket Grocery Supplies may acquire sole control over Innovative Retail Concepts which operates BigBasket’s online retail business, giving Tata control over both wholesale and retail business units.
ET had reported on February 16 that the Tata Group had finalised a $1.2 billion deal to acquire a majority stake in BigBasket, of which $200-250 million would be a primary cash infusion into the online grocery startup. At the time, both parties were awaiting approvals from the CCI.
Tata Digital is likely to buy out Alibaba, which holds 27.58% stake and Actis LLP, which acquired several portfolios of scandal-hit Abraaj Group, and owns 18.05% stake in BigBasket. Some other smaller investors in the online grocery startup are also expected to get an exit.
The deal could also include a plan to take BigBasket public by 2022-23, giving investors who remain an upside in the near future, ET had reported in January.
The transaction, which marks one of the largest M&A deals in India’s digital sector, will put Tata in direct competition with Reliance’s Jio Mart, Amazon and Walmart-owned Flipkart, apart from SoftBank Vision Fund-backed Grofers.
BigBasket is currently the leader in the online grocery segment and claims to have crossed the $1 billion annual revenue run rate. While Amazon and Flipkart are far larger in terms of reach in India, their online grocery businesses still make up a very small chunk of sales despite them making concerted efforts to grow in the segment for the last two years.
According to market researcher RedSeer Consulting, India’s grocery market was over $600 billion in 2019 and has the potential to grow to over $850 billion by 2025. However, majority of this market is still controlled by unorganised retailers, largely kiranas, presenting a huge room for growth for organised players.
Further, RedSeer said that the online grocery segment was “on an accelerated growth path post-Covid, and estimated that the segment would capture 3% of all grocery spends in India by 2025, making it a $24 billion opportunity.
Even during the second wave of Covid-19 that is forcing several states to reintroduce strict lockdown-like curbs, the online grocery segment is seeing a surge as consumers choose to shop from the safety of their homes. BigBasket has said that it is currently clocking 23-25% higher sales in April than the previous month.
Rival Grofers said it has had to hire 2,000 more on-ground workers to augment its supply chain to deal with the surge in orders and plans to hire 7,000 more people in the coming months.
