The Tata Group will be hoping to strengthen its farm-to-fork strategy in the food and retail segment with the proposed acquisition of online grocery firm bigbasket.

According to experts, the acquisition could help both the companies upsell, cross-sell and leverage each other’s customer database. On an industry level, Tata’s expansion in the retail sector would lead to faster consolidations for other brands too.

On the one hand, Tatas have been trying to expand presence in the retail segment; on the other, bigbasket, which has reached a plateau in its growth graph, needs a partner that has a strong presence in the offline segment, said Sanchit Vir Gogia, Chief Analyst & CEO, Greyhound Research.

Bain & Co said in a report in June said that the gross merchandise value of India’s e-retailing business is expected to swell to $100-120 billion in 2025 from about $30 billion now.

Arvind Singhal, Chairman, Technopak Advisors said, “The Tatas are a highly credible, value-adding (beyond just financial) potential partner to bigbasket. bigbasket has done well so far but the battle for dominance in the online grocery space is going to become much more intense in the future.”

Mutual benefit

bigbasket’s business model includes investments in warehouses and the procurement of products directly. This, according to Gogia, gives it leverage over competitors like Grofers because it can control the quality and eliminate the middlemen. However, for it to scale up, bigbasket needs to expand offline and manufacture more private labels.

This is where the Tatas fit well in the puzzle, Singhal explained. The group has the leverage of a strong offline presence in both retail as well as grocery, and FMCG segments like teas and coffees etc. “bigbasket will benefit the farm and the food processing sector since building a very robust food-focussed supply chain is going to be a critical success factor,” said Singhal.

Taking an example from Reliance Retail, Gogia explained that Reliance has an upper hand because it has a brilliant supply chain model from farm to fork, which is vertically integrated. “That means it is able to eliminate the cost of procurement of not only grains but produce the products at its facilities, check for quality control, package it under its brand and sell it. This process gives it a huge benefit of margins, and one must remember that the retail industry is a margin game,” Gogia explained.

The marriage of the two companies means that bigbasket can enter into other segments, and both the companies can cross-sell products on each others’ platforms. This also gives the two companies leverage over consumer data said Gogia.

Lloyd Mathias, business strategist and angel investor, said that the Tatas will get a significant presence in the key online groceries segment. Moreover, this fits in well into the larger consumer play, “as the Tatas have no direct presence in the online groceries space but are significant players in India’s food business with their strong market positions in beverages especially tea and coffee.”

Reports have suggested that the Tatas may buy up to 80 per cent stake in bigbasket while Alibaba may exit the company.

According to Mathias, for bigbasket, the Tata acquisition could help it get fresh investments and also help deflect the pressure against restrictions from Chinese investment as Alibaba is a significant shareholder.

From an industry perspective, according to experts, this will also intensify the process of consolidation in this space.

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