Online grocery retailer bigbasket on Tuesday said that it has acquired Bengaluru-based DailyNinja, an online milk-delivery startup for an undisclosed amount.

The acquisition is expected to help bigbasket boost its subscription-based delivery business in Bangalore. DailyNinja currently caters to around 1,10,000 customers daily. At present, bbdaily, an essentials-focussed delivery service from bigbasket, clocks in about 1,60,000 deliveries a day, including fresh fruit and vegetables, bread, dairy, eggs, breakfast cereals, personal care, and baby care products. bbdaily will now have access to DailyNinja’s network of 2,000 milkman partners spread across India.

In 2018, Alibaba-backed bigbasket forayed into the milk-delivery space. To ramp up its micro-delivery operations, it acquired two subscription-based e-grocery startups—Pune-based RainCan and Bengaluru-based Morning Cart—for an undisclosed amount.

“Business with small traders is a key and growing part of bigbasket’s business. DailyNinja currently has a large network of milkman partners, which will enable us to expand our offerings under bbdaily. Our relationship with the key national brands as well as the supply chain built over the years will help us deliver strong value proposition to them,” said Hari Menon, co-founder and CEO, bigbasket, adding, “We also aim to improve delivery productivity and achieve break-even much sooner than planned.”

DailyNinja does not have a delivery fleet for last-mile delivery. Instead, the startup has partnered with milkmen on an incentive structure based on the number of orders delivered. Sagar Yarnalkar along with Anurag Gupta started the company in 2015.

“This is a great outcome for all of our team members, shareholders, and founders. When we started DailyNinja five years ago, bigbasket was the company we were hoping to emulate,” said Sagar Yarnalkar, CEO and co-founder, DailyNinja.

bigbasket points out that it has been focussing on growing its subscription business to serve the recurring consumption needs of its customers at low delivery costs. The acquisition will enable the brand to grow its bbdaily business by about 150-200% in the next 12 months, the company said in a statement.

According to RedSeer Consulting, online milk delivery has an addressable market worth of $1.2 billion. A 2018 RedSeer report pegged the overall Indian dairy market at about $95 billion; of which $15 billion comes from the top six metros. The report added a large portion of target customers buying online dairy products in the top metros falls in the more than ₹10 lakh per annum income bracket.

Industry experts point out that milk sales have the highest frequency and lowest margins in the daily essentials segment. The margin is just 2.5-3%. Typically, groceries are a low-margin category as the business is immensely competitive. On a gross margin basis, groceries and milk together offer 8-10% for both delivery startups and offline retailers such as Reliance Fresh and Big Bazaar. Despite low margins, online milk delivery startups rely on the high frequency of buying milk to draw consumers and then push for other high-margin daily essentials to increase revenue growth.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.