The $1.2-billion acquisition of the online grocer will catapult Tata Sons to the pole position in the e-grocery segment of India’s $600-billion retail market and give it the wherewithal to take on Amazon and Reliance in the battle to dominate the Indian e-commerce sector.
The much anticipated entry of the Tata Group into the big league of the Indian retail sector is getting off the ground with a bang. Tata Sons, the holding company of the $113-billion salt-to-steel-to-automobiles-to-software group has reached an agreement to buy a 68 per cent stake in Big Basket, India’s largest e-grocer, for $1.2-1.3 billion.
The two sides are now awaiting a green signal from India’s competition watchdog, the Competition Commission of India (CCI) before going public with the deal. Since neither company is listed on the stock exchanges, they have no legal obligation to make the transaction public at this stage.
The Tatas will buy Chinese investor Alibaba’s 29.1% and the stakes of other shareholders in a deal that values Big Basket at $1.8 billion, 50% increase over its valuation a year ago.
The Tatas will buy out early stage Chinese investor Alibaba’s 29.1 per cent and US-based Abraham Group’s 16.3 per cent shareholdings in the online grocer. The deal values Big Basket at $1.8 billion, a 50 per cent premium over its valuation about a year ago.
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The exit of the former also removes a possible constraint in the way of the company’s future fund raising plans as Chinese investors have been facing severe restrictions in India following military clashes along the disputed borders between the two Asian giants.
Once the acquisition goes through, Tata Sons will become the country’s largest online grocer and give it the necessary heft to take on the two entrenched behemoths in India’s e-commerce sector – US tech giant Amazon and its homegrown rival Reliance Retail. The latter is India’s largest retailer across all segments.
Jeff Bezos’s Amazon and Mukesh Ambani’s Reliance Retail have been locked in a bitter battle for dominance over India’s retail market. A Goldman Sachs report from late last year had projected the online retail market in India to expand 1,500 per cent to $300 billion. The country’s overall retail market is currently valued at $600 billion.
So, there is clearly massive headroom for growth both in absolute and in percentage terms for all three players.
The deal will provide the Tatas with the platform to roll out an all-India delivery network that is necessary for it to realise its retail ambitions and to be able to compete with Reliance and Amazon.
The Tata Group, which last year signalled its retail ambitions with the announcement that it would soon launch a super app to make all its consumer facing products from its 100-plus companies – passenger vehicles, consumer appliances, white goods, watches & jewellery, eyewear, fashion, tea, coffee, financial services, packaged foods and healthcare, among many other items – available on one platform, already has a small presence in the online grocery segment via verticals like StarQuik and Tata Nutrikorner. Then, it also has a brick and mortar presence in retail through Tata Trent and Croma.
With this roll of the dice, the Tatas have made their intentions clear and sent a warning shot across the bows of Ambani and Bezos, who are locked in a take-no-prisoners kind of battle.
The acquisition of Big Basket will the Tatas readymade last mile connectivity across most of the major cities in India, including Mumbai, Delhi-Noida-Gurgaon, Bengaluru, Hyderabad, Chennai, Kolkata, Ahmedabad-Gandhinagar, Lucknow and Chandigarh, among others.
This will provide the group with the platform to roll out an all-India delivery network that is necessary for it to realise its retail ambitions and to be able to compete with Reliance Retail and Amazon.
The Tatas will retain Big Basket’s existing leadership team led by CEO Hari Menon. This will ensure continuity and prevent disruptions that can occur when one company is acquired by another and help it maintain a lead in its market segment.
Speaking to the Financial Times last year, N Chandrasekaran, Chairman of Tata Sons, had said: “The Tata Group, depending upon how you count, touches several hundred million consumers in India, if you take consumers who are walking in everyday into a Tata facility... How do we give a simple online experience connecting all of this, and at the same time a beautiful omnichannel experience? That is the vision,” he told the London-based Financial Times, while discussing the retail super app referred to above.
“It will be a super app, a lot of apps in apps and so on. We have a very big opportunity,” he had told the media on another occasion.
With this roll of the dice, the Tatas have made their intentions clear and sent a warning shot across the bows of Ambani and Bezos, who are locked in a take-no-prisoners kind of battle.
Interestingly, the Tata acquisition of Big Basket is coming at a time when another M&A bid – Reliance Retail’s pending acquisition of some assets of Future Retail, India’s second-largest brick-and-mortar retail chain – has been caught up in international and local litigation initiated by Amazon. The latter, obviously, is throwing the kitchen sink at Reliance to stop it from forging ahead in the world’s only billion-plus-consumer market that is open for business.
The fight for consumers’ rupees was already raging afire for the last couple of year. Now, the Ambani-Bezos all-out war has expanded with the entry into the ring of a third deep-pocketed industrial titan.
The battle for the Indian retail market has now been well and truly joined.