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Why Alibaba Took Control of BigBasket

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Alibaba injected $146 million into BigBasket

When Alibaba (BABA) recently released its fiscal 3Q18 earnings results, in which its revenues grew 56% and its net profit increased 36% YoY (year-over-year), it steered clear of mentioning its relationship with BigBasket, a rising star in India’s online grocery industry.

But according to a Reuters report, Alibaba quietly gained a majority stake in BigBasket after participating in India’s recent online grocery $300-million funding round. Alibaba injected $146 million into BigBasket, making it the biggest shareholder in the online grocery company.

BigBasket, which counts over 6.0 million registered users and operates in 26 Indian cities, is expected to use its new capital to drive more growth by investing in infrastructure development and marketing as it looks to break even by 2020 or 2022.

The goal of $54.6 billion in online retail sales by 2021

Alibaba’s investment in BigBasket opens another avenue for it to participate in India’s growing e-commerce industry, which also has Amazon.com (AMZN), eBay (EBAY), Tencent (TCEHY), and Microsoft (MSFT) as contestants. The last three players helped raise $1.4 billion last year in Flipkart, an Amazon rival in India’s e-commerce industry.

According to eMarketer, online retail sales in India reached $22.4 billion in 2017, which represented just 2.2% of total retail sales in the country. By 2021, India’s retail sales have risen ~$54.6 billion, accounting for 3.2% of total retail sales.

The fact that only a tiny portion of India’s retail spending has shifted online indicates a strong growth potential in the country’s e-commerce industry.

Over $400 billion in grocery spending in India

India’s grocery market is one area of retail where the online growth potential is enormous. According to Technopak, India’s grocery market is worth about $400 billion, but online grocery sales are only about $300 million, indicating that the shift of grocery budgets to online is still in its early days.

With its BigBasket investment, Alibaba appears to hope it will be one of the early birds that will catch the most worms as Indian households shift to purchasing everyday items online.

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