Company Trend Analysis - Alibaba Bets On India's Online Grocery Segment - MAR 2018

BMI View: India's online grocery segment will see strong growth to 2021 as food and non-alcoholic drinks spending increases and consumer s further embrace e-Commerce their shopping habits. Alibaba is the latest company entering India's booming e-commerce grocery market through its investment in India's largest online grocer, Big Basket.

Chinese e-commerce giant, Alibaba, is further extending its sphere of influence in Asia by investing USD300mn in Big Basket, India's largest online grocer. The deal, which has been approved by the Competition Commission of India, will give Alibaba and Alibaba-backed Paytm Mall a 35-40% stake in Big Basket. Prior to the deal, Amazon was also in talks to invest in Big Basket.

Alibaba's investment in India's online grocery market comes on the back of BMI's strong forecast growth in consumer spending on food and non-alcoholic drinks which is projected to grow by an average 10.3% over the medium term (2017-2021), with the segment predicted by BMI to be worth INR44.2trn in 2021, up from INR30.3trn in 2017. Indian households spend over 30% of their disposable income on food and non-alcoholic drinks.

Strong Growth Outlook For Grocery
India Food and Non-Alcoholic Drinks Spending, INRbn
e/f= BMI estimate/ forecast. Source: BMI/National Statistics

We believe India's online grocery segment will witness strong growth, as consumers become more comfortable with purchasing their daily necessities like bread and milk online. Furthermore, as incomes rise, Indian households will be able spend more on convenience services like home delivery for groceries. We forecast the middle-income segment (with a disposable income of USD10,000-25,000) in India will grow by 30.9mn households over 2017 and 2021, with the total number households falling into this disposable income bracket reaching 51.5mn households in 2021.

We have previously highlighted that technology will continue to disrupt the food and drinks sector globally with consumer's demand for convenience driving this trend. This is also one of our key themes for Food and Drink in 2018 (see 'Key Themes For Food and Drink In 2018', December 8, 2017) as home delivery and online grocery retail become more popular. We expect this trend, that has so far dominated Developed States e-Commerce outlooks, will increasingly play out in Emerging Markets. BMI forecasts India's e-commerce market to grow by an average of 18.6% per annum over 2017-2021. The segment is forecast worth USD82.7bn in 2021, up from USD47.7bn in 2017.

India To Be A Fast Growing e-commerce Market
e-commerce Sales, USDmn
e/f= BMI estimate/ forecast. Source: BMI

Big Basket already has operations in 25 cities in India including Bengaluru, Hyderabad, Pune, Mumbai, Chennai, Delhi, Ahmedabad and Punjab. However, it will face stiff competition from various competitors that are entering the online grocery segment. Amazon is already operating in this segment through Amazon Now and Amazon Pantry. Having secured government approval, Amazon is also preparing to retail fresh produce through its new launch- Amazon Retail. The TATA Group bought out GrocerMax, as TATA sought to enter the online grocery segment, in June 2017. More recently in December 2017, a joint venture between the TATA group and British grocery retailer, Tesco launched ' StarQuik', an online grocery platform, which soft launched in Mumbai. Furthermore, popular e-commerce company Flipkart, has also launched an online grocery in Bengaluru under the ' Supermart' name in November 2017.