Author: Chandramouli Ghoshal, IV Year BBA.,LL.B(Hons) from Amity Law School, Amity University Kolkata.
Co-author-1: Saptashwa Sarkar, II Year of BBA.,LL.B(Hons) from Amity Law School, Amity University Kolkata.
Co-author-2: Priyanka Bhattacharyya, IV Year BBA.,LL.B(Hons) from Amity Law School, Amity University Kolkata.
The Tata Group is a major player in the Indian economy and is constantly at the forefront of Indian firms' globalisation efforts. The role of Tata Sons and Tata Industries in coordinating financial and managerial activities and managing the Tata brand, as well as the heavy emphasis on corporate social responsibility, mostly but not exclusively through the Tata trusts, are some of Tata's distinguishing characteristics.
This paper first assembles available evidence on the Group’s focus to expand its business to the newly thriving digital market business through acquisitions and integration of its inhouse brands. It then analyses how the plan looks on paper and what could be the major issues faced by the salt to software conglomerate in achieving growth in an industry overlooked by the traditional companies for quite some time now. In the conclusion, the paper explores the implications of such expansions and portraits how the digital marketplace may look few years from now.
Super-app, Technology, Digital, Bigbasket, 1Mg, Acquisition.
“It is not the strongest or the most intelligent who will survive but those who can best manage change”- Leon C. Megginson, author of ‘Small Business Management: An Entrepreneur's Guidebook’.
Adaptation to change is the key to sustain in any sphere of life, including the business world. The Tatas, even in the past through various leaderships has made it eminent that the Group believes in the same principle. Be it through their globalisation model, growth and welfare model or through their entry into new unexplored markets.
“The ideal way to discover an unknown destination, is to ask someone who knows the directions” and that lays the foundation for Tata’s various acquisitions across industries. An acquisition occurs when one corporation buys another and establishes itself as the new owner. The target company ceases to exist from a legal standpoint, the buyer absorbs the company, and the buyer's stock continues to trade while the target company's stock ceases to trade.
The Tata Group now want to explore the digital business space of the country, which has reached great numbers, even more after the emergence of the COVID-19 pandemic and has doubled its profit in the past year. Although, with such great numbers and several start up brands already competing neck to neck, the digital market has been greatly neglected by the cash rich traditional companies till date and they have only played minimal roles as financers for these small start-ups, but now with the likes of the Tata’s and the Reliance Industries it is for us to see, how these conglomerate operate alongside the innovative and risk-taking start-up culture, who took India by storm soon after its success in the US.
ABOUT THE TATA GROUP
Jamsetji Nusserwanji Tata, an entrepreneur and philanthropist, started the Tata Group as a private trading enterprise in 1868. The Indian Hotels Company was formed in 1902 to commission the Taj Mahal Palace & Tower, India's first luxury hotel, which opened the following year. After Jamsetji Tata's death in 1904, his son Sir Dorab Tata became the Tata Group's chairman. Under Dorab's direction, the company quickly expanded into a wide range of new industries, including steel (1907), electricity (1910), education (1911), consumer products (1917), and aviation (1932).
The position was taken by Jehangir Ratanji Dadabhoy Tata (J.R.D.), about six years later. He continued expansion of the company into new sectors—such as chemicals (1939), technology (1945), cosmetics (1952), marketing, engineering, and manufacturing (1954), tea (1962), and software services (1968)—earned Tata Group international recognition. After him, his nephew, and Indian business mogul Ratan Tata, took over as chairman of the Tata Group in 1991. Ratan aggressively pushed to develop the conglomerate after assuming leadership, and he progressively emphasized on globalising its operations. Since then, the group has always been known for aggressive acquisitions and venturing into new industries.
ABOUT TATA DIGITAL AND THEIR SUPER APP AMBITION
Tata Digital was founded in 2019 to support to the ambitious vision of the Tata group in building up its super app. Tata Sons chairman N Chandrasekaran had once said that the Tata Digital platform would be the most revolutionary venture ever launched by the group, although during that time, he had not given any clarity about what would be the roadmap for the same, but now following the several acquisitions in the past few months, the Tata Digital picture is becoming clearer.
The cutting - edge acquisitions orchestrated by N. Chandrasekaran, the current Tata Sons chairman, feed into the era's greatest business story: the rise of the digital economy. These businesses will serve as the foundation for one of Chandrasekaran's greatest bets: the Super App.
Super apps are applications which basically provide several products and services using one single mega app. They include several services from shopping to cab hailing to ordering food, medicines, booking tickets, buying insurances, and several other services in one app. There are a handful of successful Super Apps in our neighbouring countries which have risen up to its purpose. Some great revenue earning super apps can be considered as Alipay and WeChat in China; Grab, across Southeast Asia (Vietnam, Indonesia, Malaysia, Thailand, the Philippines, etc.); and Gojek which came out of Indonesia.
Even in India, start-ups such as Paytm and Justdial share a similar visionary and are slowly and steadily bringing together their resources in building up something similar, but a lot is to be done. In fact, after Flipkart’s acquisition by Walmart, the company has built up a similar interface by adding various mini apps in their basket through collaboration, acquisition and association. Now the question is, will Tata be able to overcome all the shortfalls that these companies have failed in? Will one of India’s oldest business group be able to build their success story even in the Gen-X platform?
Super apps have been recently loved by investors and consumers in various countries. So the motives of the Group looks perfectly on track and if they can build a Super App, they can potentially create something of tremendous value, a sequel of their greatly successful TCS story, and take home a disproportionate part of a potential digital harvest. Even Silicon Valley, which has traditionally stayed away from Super Apps, betting on singular apps instead that do one job very well, is tempted by the idea and Dan Schulman, the CEO of PayPal, was recently quoted as claiming that he was considering making PayPal into a Super App.
Towards end May, the Tatas picked up a majority stake in BigBasket, an online grocer. Further, it announced two back-to-back acquisitions in June, the first with CureFit (an online fitness company) and the second with 1mg (an online pharmaceutical company). Even as we write this, rumours are circulating that the Tatas are interested in purchasing Dunzo, an online delivery service.
Along with BigBasket, Tata Consumer Products is projected to lead the e-grocery and FMCG industry. Experts predict that the company will leverage in-house resources from Tata Capital, Tata AIA, Tata AIG, Vistara, and Taj Hotels to provide financial products and travel and hospitality services to the app.
Tata Group intends to combine the assets of its fashion retail businesses Trent and Infinity Retail. Tata Electronics, the group's electronics division, has also joined the market. In Chennai, the newly founded company intends to manufacture high-end technology products. The super app business will be supported by the electronics sector, as well as Titan and Voltas.
No wonder then those large conglomerates are eyeing the 'super app' play to keep the customers within their digital premises, to cross-sell products across categories and get the maximum share of their wallets.
While Reliance Jio and Amazon have been aggressively developing this for the past few years, some may believe that the Tata Group, one of the country's oldest corporate houses, is late to the party. But, late or not, the Tata Group is now outlining its ambitious plans for Tata Digital, its newest venture, which is centred on the 'super app' idea.
RECENT ACQUISITIONS BY TATA DIGITAL
As Tata Group aims to ramp up its 'super app' plan across various categories such as electronics, groceries, fashion and lifestyle, beauty, travel, health and fitness, education, and entertainment. Tata has its several own brands in these categories, but that wouldn’t be sufficient looking at the vision and the goals of the Group with this app. Thus, it has become imperative for the $106 billion group to look for more acquisitions besides leveraging the resources in the group companies to power the e-commerce play.
In the past two years, the Tatas have been in a shopping spree and are looking across industries to bring home successful brands and start-ups to leverage their goals. This has led to them acquiring several start-ups recently and are in talks with many others.
To facilitate their grocery division, they have announced last month that Tata Digital has acquired a majority stake in Supermarket Grocery Supplies Private Limited, the B2B arm of popular e-grocery platform BigBasket. BigBasket's B2C arm will also be included in the purchase. As per sources, Tata Group shelled out over a billion dollars to acquire a 64.3 percent stake in BigBasket, valuing the Bengaluru-based start-up at $1.8 billion.
Some may find such a hefty check from a traditional business unusual, but the future of e-grocery in India is only going to get brighter. BigBasket, India’s largest e-grocery player, now has a presence in 30 cities in India and records 15 million customer orders per month. BigBasket has also earned $1 billion in annual sales by 2020. BigBasket perfectly fits with Tata’s vision of creating a large consumer digital ecosystem. Everyone will agree that the Tatas have managed to bag the biggest e-grocery platform in the country, and that clearly showcases their determination to create one of the best super app platforms.
Looking at a conglomerate with such a large network through logistics, finance, payments systems, etc., coming together to become a super app, is definitely a big step and we have seen similar success stories in countries like USA and China. It is a win-win for the start-up ecosystem that the Tata Group is now out shopping for digital platforms.
1MG: During the pandemic, the e-pharmacy model, which had earlier struggled to take off, was vindicated, with order volumes for medicines exploding and these platforms adding more customers than ever. 1MG will be a great add-on to Tata’s digital basket and will further aim at achieving their goals.
This industry has gained such recognition that last year, even Reliance Retail acquired a majority equity stake in Vitalic Health and its subsidiaries Netmeds for a cash consideration of approximately Rs 620 crore. Another big player on the block is 1MG, making it ripe for an acquisition, and the company is reported to have found a permanent address at Tata Digital.
1MG's addition will add a lot of traction to Tata Digital given the spike in volume on the platform in recent months. Beyond the pandemic, the e-pharmacy industry expects traction to continue as individuals get more comfortable obtaining medicines online. Even Amazon has begun testing similar services in India to add to the competition by entering the e-pharmacy space.
CUREFIT: Curefit was one of Ratan Tata first investments in the digital space and he had invested $3 million in Curefit through his UC RNT Fund (Tata formed the fund in cooperation with the University of California Investments when the company was barely one-year old in 2017) was launched. Curefit, which raised $418 million, was last valued at around $800 million. Temasek, Accel and Kalaari Capital are among the company's investors.
Few months back, Tata Digital announced that it has entered a memorandum of understanding for investing up to $75 million in CureFit Healthcare, which runs the fitness platform Cult.fit.
The Tata Group also hired a seasoned tech leader to lead the company in addition to the deal. CureFit founder and CEO Mukesh Bansal is set to join Tata Digital in an executive role as president of the company, while also continuing in his leadership role at CureFit.
While CureFit was severely damaged by the pandemic last year, and was forced to close gyms in smaller areas, the company quickly shifted its focus to the digital platform and is optimistic about the country's overall fitness industry, claiming that "the Indian fitness and wellness industry is growing at a rapid pace."
The Tata Group's market is estimated to reach $12 billion by 2025, rising at a rate of 20% per year. N Chandrasekaran of Tata Sons said, "The CureFit partnership with its industry-leading platform in fitness and wellness aligns very well with our overall healthcare proposition where fitness is increasingly becoming an integral part of a consumers’ life. We are delighted to have Mukesh Bansal as a part of the key leadership team of Tata Digital. With his deep consumer experience and an entrepreneurial mindset of having incubated and grown two very successful businesses, his expertise will bring immense value to us."
INFLUENCE OF THESE ACQUISITIONS
Aiming at an entry into the digital space, the Groups acquisition of Bigbasket means that now both of them can enter into any other segment and can cross-sell their products on each other’s platforms. This acquisition will help them to upsell, cross-sell and grasp the database of each other’s customer. Tata’s expansion in the retail sector on an industry level can lead to faster combinations for other brands also.
On one hand, Tatas have been trying to increase their presence in the retail sector; and on the other hand, Bigbasket, which has already reached a peak in its growth graph, needs a partner with a strong presence in the offline segment. This acquisition is a win-win for both the parties. Tata gets Bigbasket’s expertise and resources to help them venture into the digital marketplace, where it has minimal presence, and Bigbasket gets an entry to the retail markets which it has aimed at since long.
According to Arvind Singhal, Chairman of Technopak Advisors, “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.”
Bigbasket’s business model consists of investments in warehouses and the obtainment of products directly. According to Gogia, this gives Bigbasket the grasp over competitors like Grofers because it can control the quality and also eliminate the middlemen. However, for the production to scale up, Bigbasket has to expand and also manufacture more private labels.
Llyod Mathias, business strategist and angel investor, said that the “Tatas will get a remarkable presence in the key online groceries segment. Furthermore, this is a good fit for a larger consumer game, 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.”
According to Mathias, for Bigbasket, the Tata acquisition could help it get new and fresh investments and also help deflect the pressure against the restrictions from Chinese investment as Alipay is a significant shareholder.
Looking at their acquisition in the e-pharmacy start-up 1MG, the investment strengthens Tata’s ability to provide high class customer experience and also high-quality health care products and services in the e-pharmacy and e-diagnostics space through a technology-led platform. Tata’s have been in the healthcare sector with its chain of hospitals, and this deal with further help them to expand to the e-pharmacy sector, giving them an opportunity to take on their old competitors such as the Apollo Group and Max Healthcare, who have already marked their entry into this sector. Mr. Pratik Pal, CEO of Tata Digital stated that these e-pharmacy, e-diagnostics and teleconsultations are important segments and will form a key element of the digital ecosystem which the company is building.
The third and the most diverse acquisition is the deal with health and fitness start-up Cultfit (formerly Curefit) in which the Tata got successful. It will help Tata in two ways. First, the business mingling will be one step near to fulfil its dream of launching the super app. Tata intends to provide all main enterprises to its clients through this app. Second, Curefit co-founder Mukesh Bansal is one of the most popular names in the digital market. He will join the Tata team as its President after the addition. This will help Tata to get a sharp mind and progress in its Tata Digital initiative.
CHALLENGES OF THESE ACQUISITIONS AND IN BUILDING THE SUPER APP
Building a Super App is not easy. Think of the journey of user for millions and millions of users, hundreds of mini programs being managed within the larger app, customer acquisition at scale, and so on. But, in our book, the biggest challenge that the Group will face is to unite and yet not unite the start-ups he has acquired. Everything hooks on managing this paradox.
The key question lies, that within the larger Tata universe, can N. Chandrasekaran and his team recreate the environment in which these start-ups originally thrived?
With a near single minded belief in their ability to triumph, the start-up founders tend to be a stock of their own. They hate being advised what they have to do. (What complicates the matter further is that the grasp of founders Tatas are dealing with- CureFit’s Mukesh Bansal, BigBasket’s Hari Menon and 1MG’s Prashant Tandon are stars who have built successful businesses from scratch.) The founders mindset is about being in all and also being ready for binary outcomes- either they succeed, or they fail. Half measures are not believed by them.
Corporations are about understanding, weighing the advantages and disadvantages, managing multiple opinions, and so on. Indeed, majority of larger companies work in ways that instigates risk taking.
Also, Tatas even after bringing successful companies from outside the group in their super app will still face stiff competition from other giant players in the market like Amazon, Walmart-owned Flipkart and JioMart, who already have an established consumer base.
NOTABLE ACQUISITIONS BY THE GROUP IN THE PAST
Such acquisitions and entering into new lines of business is nothing new for the Tatas. Even in the past era, nearly two decades ago, the then Chairman of the Tata group, Mr. Ratan Tata had shaken things up and set a strategic course of action through a series of high-profile buyouts. Those buyouts went by the name of Tetley, NatSteel, Corus, and Jaguar Land Rover, which helped the Group in venturing into markets they had never explored before and giving the world some most well-structured and successful M&A deals.
To look back in the past, the group through its automotive manufacturing company, Tata Motors had acquired South Korea's Daewoo Commercial Vehicle Co in March 2004 for $102 million which helped them gain a market share of 30 percent in the respective market where it had no prior presence. They also acquired Jaguar and Land Rover from Ford for $2.3 billion, which ended up becoming one of their major acquisition successes and made their entry in the Luxury Car Brands list. Through Tata Steel, they acquired Corus for $12 billion deal, which made them the world's fifth largest producer of the commodity.
Through Tata Tea, they acquired Tetley and Eight O’ Clock Coffee in 2000 which made their entry as the largest tea company in UK and the fifth largest coffee company in the US. All of these acquisitions have ended us as success stories and these deals definitely justify their objectives for this super app which while take control of another such industry, unexplored by such traditional businesses.
Tata has been subjected to worldwide competition since the Indian economy opened in 1991, making it vital for the company to become competitive in India versus the newcomers and to gain scale, reduce their exposure to the cyclicality of India’s economy survive and achieve a sustainable competitive position in industries that are globalizing, most Tata companies then looked overseas. There are several acquisition deals made by Tata and the chief objectives at the back of any accusation transaction is made for Improving Profitability, Rapid growth in scale and for the Acquirement of new technology. Even today the objective remains the same.
The major goal right now is to develop a war chest in order to expand the conglomerate's digital operations across sectors, combining capital infusions from Tata Sons as well as raising funds from external investors. Fund infusion from global investors is likely to happen in a staggered manner.
After acquiring online grocery seller BigBasket and online pharmacy start-up 1mg, the Tata group definitely is giving its final touches to its super app placing it with the ongoing amalgamation with some of the group’s existing digital businesses such as Tata Cliq and several educational apps.
Chandrasekaran wants this massive project to be operational by the end of his first five-year term as chairman of Tata Sons. Following the footsteps of Ambani, who raised around $20 billion in 2020 for his digital enterprises from internet giants like Facebook, Alphabet, PE firms Silver Lake Partners, and others, the Tata group is now exploring raising capital from overseas investors.
The proposed move to develop the super app assumes significance as it will put the 152-year-old Tata Group in direct competition with billionaire Mukesh-Ambani-controlled Reliance JioMart, Amazon India and Walmart-owned Flipkart. Furthermore, the digital mode has gained acceptance in Tier 2 and Tier 3 cities after the COVID-19 pandemic.
The Group should focus on operating Tata Digital, a bit differently than its other business, keeping in mind their locus of control. There is definitely a lot, Curefit cofounder Mukesh Bansal, BigBasket’s Hari Menon and 1MG’s Prashant Tandon can bring to the table, but to give them a platform to develop and continue doing the work that they have done since inception is in the hands of the Group, overcoming which will write itself as the biggest accomplishment in Tata’s Super App success story, in years to come.