If grapevines are to be believed then India’s two biggest grocery startups – BigBasket and Grofers – are in the initial stage of a possible merger talks. The merger talks have been pushed by their respective investors – Alibaba Group Holding (investor in BigBasket) and SoftBank Group Corp (investor in Grofers).
Logically, merger between BigBasket and Grofers will prove win-win situation for both companies in the wake of costly marketshare battle with Flipkart and Amazon. However, sources claim that BigBasket will have more executive powers in the new merged entity, since it is the bigger and more profitable player.
Sources also claim that the new merged entity could raise $250 million from Alibaba Group Holding, while SoftBank and other investors could pour more capital through separate rounds.
BigBasket and Grofers have so far declined to comment on the news report.
Analysts claim that Flipkart and Amazon’s expectedly huge investment in their grocery operations leaves little room for level playing field in the online grocery industry. BigBasket and Grofers would be better off as a merged entity in the wake of such intense competition, analysts add.
Genesis of these merger talks were sowed last year
In the beginning of 2017, the Bengaluru headquartered BigBasket had proposed to acquire Grofers. Since the latter was struggling to raise funds due to poor performance, the Gurugram based company had become a major target for acquisition.
However, Grofers managed to fend of this possible acquisition by carrying out a severe cost cutting exercise. This exercise resulted in much needed funding boost, with existing investors SoftBank and Tiger Global pumping $65 Mn earlier this year. But Grofers had to take huge mark down in its market valuation for this funding.
The markdown in valuation was clear indication that Gurugram based company will have to endure tough times in the coming months. Sources within the company claim that the startup currently has funds only to sustain for a year or so.
The funding crunch situation has reportedly propelled the company to pursue for fresh funding round. If this new funding does come through then Grofers may gave second thought to possible merger with BigBasket.
Separately, BigBasket is pursuing fundraising talks to raise between $300 -$500 Mn from existing investors including Alibaba.
Is India’s online grocery industry heading for a big shake-up?
With Amazon and Flipkart gearing up for online grocery business, the incumbent players in the online grocery players are possibly left with only two options: either they will have to merger together to compete with bigger rivals or will have to keep raising funds.
Conventionally, the latter option may prove to be difficult one for incumbent players like Grofers and BigBasket, since any amount of funds raised by them will prove insufficient to compete with deep pocketed rivals like Amazon and Flipkart.
Industry experts also argue that wafer-thin margin prevailing in the online grocery industry is another huge impediment to survival for smaller players.