Even as it completes $13.7 billion buyout of Whole Foods, Amazon sets sights on Bigbasket

When Amazon came shopping for Indian online grocer Bigbasket, no one realised that this interest was a precursor to the mega $13.7 billion takeover of Whole Foods Market, the American supermarket chain that is the USA's first certified organic grocer.

Now, with the Whole Foods deal done and dusted, it seems inevitable that Bigbasket will also be added to Amazon's shopping cart. Earlier, Jeff Bezos, CEO of Amazon, had vowed to spend $5 billion in the second-most populous country, India, in a bid to stay ahead of rivals Flipkart. Where that money would go though, was anyone's guess. But Amazon's recent activity has made things clearer.

Earlier this week, Amazon entered into preliminary talks with Indian grocery site Bigbasket. Just yesterday, on 16 June, news got out that Amazon had entered into a 60-day exclusivity agreement after the acquisition talks between the two. This exclusivity agreement means that Bigbasket can talk to no other company for the next 60 days. In this period, Amazon is the one and only strategic contender to buy Bigbasket, according to reports. (http://timesofindia.indiatimes.com/business/india-business/60-day-exclusive-talks-pact-amazon-wants-bigbasket-in-its-shopping-cart/articleshow/59168402.cms).

This comes at a time when Bigbasket is looking to shore up capital. Bigbasket isn't sure the transaction will go through after Amazon completes its due diligence. Back in April, Bigbasket had started preliminary discussions over its next round of fundraising. A Times of India report goes on to state that Bigbasket, whilst valued at $450 million during its last round of funding, wants a sale at a price of $700 million, and this mismatch in valuation is what is stalling the deal.

The online US retailer can afford this slight over-valuation in its bid to get a foothold in the grocery market in India. This is because of two reasons. One, it has vast cash reserves that are constantly piling up (just like Apple). Second, it bought Whole Foods for virtually nothing according to Bespoke Investment Group, "For starters, Amazon saw its market cap increase by 3%, which translates almost exactly to what it is paying for Whole Foods". Amazon has a market capitalisation value of $466 billion, so even a small swing in the green of around 3% is enough to add almost $14 billion to the company's market value.

While the S&P 500 has gained just 8.4% this year, Amazon's stock has gone up almost quadruple that. With a 33% rise in 2017, Amazon's stock closed above $1,000 for the first time ever

Earlier in the year, Amazon sought government approval to enter India's food retailing sector. According to Bloomberg, the company has "sought a license for food retail trading from the government’s Department of Industrial Policy and Promotion, which oversees foreign investments into the country". The tech giant said it will make investments totalling $515 million over a period of five years, and that it will be opening brick-and-mortar outlets, just like it has in the USA with its Amazon Go concept stores.

Bigbasket, as of June 2017, is India's largest online food and grocery store. A deal with Amazon could be beneficial to both companies, with Amazon wanting to get into the grocery business and Bigbasket wanting to move into retail stores.

Prior to interest from Amazon, Bigbasket was exploring a possibility of a merger with SoftBank-backed Grofers. Those talks fell through in January itself. Recently, Grofers had shut down operations in six cities, but as per a report from MediaNama on 29 May, the company restarted operations in five out of six cities.

It's safe to say that, besides Bigbasket, no one has had the money and expertise to be able to scale up their business at a brisk pace. Bigbasket said that its aim was to be profitable by March of 2018.

Benefits of Amazon acquiring Bigbasket

The benefit for Amazon acquiring Bigbasket is clear for everyone to see. Amazon will be able to ramp up its inventory portfolio in the grocery segment and expand its network across the country. Last year, the e-commerce giant launched a 2-hour grocery delivery service in Bengaluru, which has since spread across NCR, Mumbai and Hyderabad.

In these cities, the company has Amazon Now as a separate app and has tied up with local grocery stores. The app, as it is, doesn't have enough penetration when it comes to vendors and consumers. This will change drastically if bigBasket is acquired. Amazon Now is more akin to Grofers than Bigbasket.

One of the options for Amazon is to merge Bigbasket with Amazon and keep the name Amazon Now. The other option is to completely absorb BigBasket into Amazon and shut it down. Acquiring Bigbasket is also a dig at Flipkart. When Flipkart acquired Jabong and Myntra, it conquered the fashion space. With the grocery space set to explode, this is Amazon getting back at Bigbasket. Amazon wants to be a one-stop shop for everything and not just in the USA, its biggest market. So while it completes a takeover of Whole Foods, in India, an acquisition of Bigbasket might just be the bigger deal.

With the country’s food retail market expected to reach $915 billion, now is as good a time as ever for Amazon to strike.