Deep Dive: India Rising - Coresight Research is the second report in our India Rising series, which...
Transcript of Deep Dive: India Rising - Coresight Research is the second report in our India Rising series, which...
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March24,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ThisisthesecondreportinourIndiaRisingseriesfocusingontheIndianstartupecosystem.WeidentifythefollowingfourretailersasthemaindisruptorsinIndiane-commerce:Flipkart,Snapdeal,QuikrandBigbasket.TherearefiveprimaryfactorsthathaveshapedtheIndiane-commercesector:
1) Apaucityofmodernretailstoreshasboosteddemandforproductsandbrandssoldonline.
2) Stronglyprice-competitivee-commercemarketplacesarewellpositionedtoattractshopperswithlimitedincomes,whoconstitutealargepartofIndia’sconsumerpopulation.
3) Offeringcashondelivery(COD)asapaymentoptionallowsmoreIndianconsumerstobuyonline.
4) Indiahasoneoftheworld’slargestInternetuserbases,andIndianconsumers’disposableincomesareincreasing.
5) GovernmentrestrictionsonforeigninvestmentinIndia’sretailsectorandAmazon’sandAlibaba’srelativelylateentriesinthecountryhavehelpeddomesticstartupsgainastrongfoothold.
Deep Dive: India Rising
Part 2— E-Commerce
Disruptors in India
Deborah Weinswig
Managing Director
Fung Global Retail & Technology
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
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March24,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
TableofContents
ExecutiveSummary.........................................................................................................................................3
AnIntroductiontoRetailandE-CommerceinIndia.........................................................................................4
RetailandE-CommerceinIndia.......................................................................................................................5
FactorsthatHaveShapedE-CommerceinIndia...............................................................................................51. LackofModernInfrastructure............................................................................................................................52. Less-AffluentConsumersLookforLowPrices.....................................................................................................63. TheOptionofUsingCODasaPaymentMethodinCash-CentricIndia..............................................................74. TheScaleandYouthoftheInternetUserBaseBoostsE-Commerce..................................................................85. FDIRestrictionsandtheRelativelyLateEntryofAmazoninIndia......................................................................9
NotableDisruptorsinIndianE-Commerce......................................................................................................10Flipkart....................................................................................................................................................................10
WhatMadeFlipkartSuccessful?.......................................................................................................................10ChallengesFlipkartFaced..................................................................................................................................11RecentDevelopments.......................................................................................................................................11
Snapdeal.................................................................................................................................................................11WhatMadeSnapdealSuccesful?......................................................................................................................12ChallengesSnapdealFaced...............................................................................................................................12RecentDevelopments.......................................................................................................................................13
Quikr.......................................................................................................................................................................13WhatMadeQuikrSuccesful?............................................................................................................................14ChallengesQuikrFaced.....................................................................................................................................14RecentDevelopments.......................................................................................................................................14
Bigbasket................................................................................................................................................................14WhatMadeBigbasketSuccessful?....................................................................................................................14ChallengesBigbasketFaced..............................................................................................................................15RecentDevelopments.......................................................................................................................................15
TheIndianE-CommerceBubbleandtheRisingThreatfromAmazonandAlibaba..........................................16
WhatWeThink..............................................................................................................................................18
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ExecutiveSummaryThisisthesecondreportinourIndiaRisingseries,whichlooksatthestartupecosysteminIndia.Inthisreport,weexaminefourcompaniesthataresignificantdisruptorsinIndiane-commerce—Flipkart,Snapdeal,QuikrandBigbasket—andidentifyfivefactorsthathaveshapede-commerceinthecountry:
1. Apaucityofmodernretailstoreshasboosteddemandforproductsandbrandssoldonline.TotalsalesmadethroughmodernretailchannelsareverylowinIndia,andthecountryrankslowestintermsofmodernizationoftheretailindustryandinternationaltradeamongmajordevelopednationsandtheotherBRICcountries,accordingtoKnightFrankGlobalResearch.
2. DespitethefactthatIndia’seconomyisgrowing,manyconsumersinthecountryhavelimitedincomes.Stronglyprice-competitivee-commercemarketplacesarewellpositionedtoattractIndianshoppers.
3. ManyIndiane-commercesitesofferacash-on-delivery(COD)paymentoption,enablingmoreshopperstobuyonlineinacountrywheremorethantwo-thirdsoftransactionsaremadeincash.
4. IndiahasoneofthelargestInternetuserbasesintheworld;some462.1millionpeopleaccessedtheInternetinthecountryinJanuary2017.AgrowingpopulationofyoungInternetuserswithincreasingdisposableincomeshascontributedtothegrowthofthefourcompaniesweprofileinthisreport.
5. Governmentrestrictionsonforeigndirectinvestment(FDI)inIndia’sretailsectorandAmazon’srelativelylateentryinthecountryhelpeddomesticstartupsgainastrongfoothold.
Amazonisamajornewthreattodomestice-commerceoperatorsinIndia.TheUSgianthasbeenexpandingitsofferingintonewcategoriesandisnowtryingtomuscleinonthegrocerymarket.WithnearlyathirdofconsumerspendinginIndiadedicatedtofood,Amazonislookingataverylucrativegrocerymarketinthecountry.Recently,AlibabaalsoclearlyindicatedthatitisreadytocompeteformarketshareintheIndianonlineretailsector.
Unlesshomegrownrivalsprovidetrulyinnovativeofferingsratherthanjustattemptingtograbmarketsharewithpromotionaldealsduringfestiveperiods,therewillbelittlestoppingAmazonfromstealingsharefromlocalplayers.
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AnIntroductiontoRetailandE-CommerceinIndiaOfflineretailismuchlessdevelopedinIndiathanitisinWesterncountries.Yetthereisnoshortageoftech-drivendisruptorsbringingmorechoice,greaterconvenienceandlowerpricestoIndianconsumersthroughe-commerce.Infact,ratherlikeChina,Indiaseemstobealmostleapfroggingtheintermediarystagesofretailande-commercedevelopmentandmovingdirectlytowardmobile-centered,marketplace-focusedretailing.
ThecountryappearstobeskippingovertheretailstagesseenintheUSandEurope,whereleadingnationalchainsemergedbyestablishingasmuchphysicalretailspaceaspossibleandwheree-commercewassubsequentlyestablishedthroughdesktopshoppingatretailers’websites.ThetablebelowillustratesourviewofhowIndiaisshortcuttingthetraditionalmodelofretailevolution.
Figure1.WesternRetailDevelopmentvs.IndianRetailDevelopment
WesternRetail IndianRetail
Predigitalraceforphysicalspacebynationalbrick-and-mortarchains
Adoptionofe-commercealongsidetheexpansionofmodernchains
E-commercefocusedondirectretailing(retailerholdsinventory)
E-commerceledbymarketplacecompanies(websiteisanintermediary)
E-commerceestablishedasadesktopactivity
Mobile-firste-commerceadoption
Source:FungGlobalRetail&Technology
Inthisreport,thesecondinourIndiaRisingseries,whichlooksatthestartupecosysteminIndia,weexaminefourcompaniesthataremajordisruptersinIndiane-commerce—Flipkart,Snapdeal,QuikrandBigbasket.Weconsiderthefactorsthatshapede-commerceinIndiaandwelookatwhythesecompanieshavebeenparticularlysuccessful.
E-commerceisthesubjectofournextreportinthisseries,too.Theemergenceandexponentialgrowthofe-commerceinIndiahasledtothedevelopmentofancillaryfirms,suchasITsolutionsprovidersandcourierdeliverybusinesses,thatsupportthevariousfunctionsofonlineretail.These“e-commerceenablers”arethesubjectofthethirdreportinthisseries,whichwewillpublishshortly.
ThefirstreportinthisserieslookedatthefactorsthatmakeIndiaaburgeoningstartupdestination,thetopstartupsbyfunding,themainaccelerators,themajorinvestorsandtheroleofthegovernment.Readerscanfindthatreportonourwebsite.
Here,wefirstlookatthesizeofIndia’sretailande-commercesectorsandsomeofthekeyfactorsthatshapede-commerceinthecountryandpavedthewayforthedisruptorsweoutlinelater.
Inthisreport,welookatfourcompaniesthataremajordisruptorsinIndiane-commerce—Flipkart,Snapdeal,QuikrandBigbasket.
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RetailandE-CommerceinIndiaIndiaistheworld’ssecond-largestcountrybypopulationandithasthefourth-fastest-growingeconomy.Itsretailmarketwasworthsome$600billionin2015,accordingtotheIndiaBrandEquityFoundation(IBEF),anditisexpectedtotouch$1trillionby2020.E-commerceaccountedfor5%ofIndianretailin2015,equivalentto$30billion.Thatshareisexpectedtogrowto12%,orabout$120billion,in2020,accordingtotheIBEF.
Figure2.India:EstimatedOnlineandOfflineRetailSales(USDBil.)
Source:IBEF
FactorsthatHaveShapedE-CommerceinIndiaSeveralfactorsuniquetoIndiahavehelpedshapee-commerceinthecountry:
1. LackofModernInfrastructureApaucityofmodernretailstoresinIndiahasboosteddemandforproductsandbrandssoldonline.TheIndianretailindustryisoverwhelminglyunorganized(i.e.,traditional)andhighlyfragmented,withthemajorityoftheIndianpopulationbuyingfrominformalretailchannelssuchastinykiranastores.Thismeansthataverylargeportionofthecountry’sretailsectorremainstobecapturedbymodernretailers.
DespitethesizeandeconomicgrowthofIndia,mallandmodernstorepenetrationisstilllow.Variousestimatessuggestthatorganizedretail(moderntrade)constitutesonly6%–8%oftotalretailinIndia.Salespercapitathataremadethroughmodernretailformatstotaledjust$793in2015,whilethosesamesalesineachoftheothermajoremergingmarkets—Brazil,RussiaandChina(whichtogetherwithIndiaconstitutetheBRICnations)—totaledatleastafewthousanddollars.Amongthecountrieslistedinthetablebelow,whichincludestheBRICnationsandmajordevelopedmarkets,Indiaalsoranksthelowestintermsofmodernizationoftheretailindustry(asrepresentedbye-commerce),shopunitsandshoppingmalls(comparedwithbazaarsandmarketsintraditionaltrade),andininternationaltrade.
Variousestimatessuggestthatorganizedretail,ormoderntrade,constitutesmerely6%–8%oftotalretailinIndia.
$30 $120
$570
$880
2015 2020EE-Commerce OfflineRetail
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Figure3.SelectedCountries:RetailSectorIndicators,2015
Country TotalRetailSalesperCapita(USD) TraditionalTrade ModernTrade Domestic International
India $793 89% 11% 98% 2%
China $2,238 78% 22% 97% 3%
Brazil $2,388 46% 54% 87% 13%
Russia $3,252 52% 48% 93% 7%
Germany $7,167 3% 97% 85% 15%
Japan $7,398 16% 84% 96% 4%
UK $8,014 3% 97% 78% 22%
France $8,056 7% 93% 86% 14%
Australia $8,560 8% 92% 89% 11%
US $11,687 6% 94% 96% 4%
Source:KnightFrankGlobalResearch
ThepaucityofmodernphysicalretailformatsinIndiameantthatconsumerswereareadymarketfore-commerceplayers:shoppersflockedtositessuchasFlipkartandSnapdealtobuyproductsandbrandsthatwerenoteasilyaccessibleinphysicalstores.Peoplefromeventheremotestareasarenowabletoshopformodernproductsandinternationalbrandsattheclickofabutton,andincreasedmobileandInternetpenetrationhashelpedbooste-commerceretailersinthecountryfurther.
2. Less-AffluentConsumersLookforLowPricesEvenwiththeeconomygrowing,manyIndianconsumersstillhaveonlylimitedincomes,whichspursdemandforlow-pricemarketplaces.Itisageneralrulethatconsumersinlesseconomicallydevelopedcountriesdirectagreatershareoftheirspendingtobasicretailcategoriesthandoconsumersinmoreeconomicallydevelopedcountries.And,asweshowinthetablebelow,foodandbeveragesaccountedfor33%ofIndians’totalconsumerspendingonvariousmajorcategoriesin2014(latest).Bycomparison,foodandbeveragesaccountedforjust7%ofAmericans’consumerspendingonmajorcategoriesin2016.
TheaverageIndianhaslittleleftovertospendondiscretionaryitemseachyear:leisuregoodsandservices(listedas“recreationandculture”inthetablebelow)captureonlyatinyshareofIndians’totalconsumerspending.
E-commercemarketplacesthatofferbothlowpricesandtheabilitytocomparepricesresonatewithless-affluentshoppers.Formany,itisanecessitytoshopforthelowestpricesondiscretionarygoods.Reflectingthis,theelectronicscategoryhasastrongpresenceonline:attheendof2014,mobilephonesandrelatedaccessoriescontributedfully41%ofallonlinesalesinIndia,accordingtotheInternetandMobileAssociationofIndia(IAMAI).Theorganizationalsonotedthatothermajorelectronicsitemsandapparelaccountedformostoftheremainderofonlinespending.Thiskindofdemandbooststrafficandsalesonvalue-drivenmarketplacessuchFlipkartandSnapdealandonclassifiedswebsiteQuikr.
E-commercemarketplacesthatofferlowprices,widerchoiceandtheabilitytocomparepricesresonatewithless-affluentshoppers.
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Figure4.India:ConsumptionExpenditure,byCategory,2011–2014
ConsumptionExpenditureCategory 2011–2012 2012–2013 2013–2014
Foodandnonalcoholicbeverages 29% 29% 30%
Alcoholicbeverages,tobaccoandnarcotics 3% 3% 3%
Clothingandfootwear 7% 7% 7%
Housing,water,electricity,gasandotherfuels 15% 15% 15%
Furnishings,householdequipmentandroutinehouseholdmaintenance 4% 4% 4%
Health 4% 4% 4%
Transport 15% 14% 14%
Communication 2% 2% 2%
Recreationandculture 1% 1% 1%
Education 3% 3% 3%
Restaurantsandhotels 2% 2% 2%
Miscellaneousgoodsandservices 16% 16% 16%
Source:MinistryofStatisticsandProgrammeImplementation
3. TheOptionofUsingCODasaPaymentMethodinCash-CentricIndiaIndiaisacash-centriceconomywheresome68%oftransactionsaremadewithcash,accordingtobrokeragefirmCLSA.WorldBankdataindicatethatbankaccountpenetrationinIndiawasonly53%in2014.CODpaymentallowsmoreshopperstobuyonlineandisafundamentalfeatureofe-commerceretailinIndia.A2015surveybyA.T.Kearney,GoogleandGfKfoundthat57%ofonlineshoppersinIndiacitedCODastheirpreferredpaymentoption.Thatpercentageisforecasttodeclineto45%by2020,when15%ofshoppersareexpectedtoprefertomakepaymentsthroughmobilewallets,anoptionpreferredbyonly8%ofthosesurveyedin2015.
Figure5.India:PreferredPaymentMethodsinOnlineRetail
Base=3,000onlineshoppersSource:A.T.Kearney/Google/GfK
57%
15%11% 9% 8%
45%
17%13%
10%15%
COD DebitCard CreditCard OnlineBanking MobileWallet
2015 2020E
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4. TheScaleandYouthoftheInternetUserBaseBoostsE-CommerceThesheersizeandyouthfulnessoftheIndianInternetuserandshopperbasehasalsopoweredgrowthate-commercestartups.IndiahasoneofthelargestInternetuserbasesintheworld:accordingtobrandagencyWeAreSocial,some462.1millionIndiansaccessedtheInternetinJanuary2017.ButintermsofInternetpenetration,thecountryrankslow,asthisbaseconstitutesonlyabout25%ofIndia’s2016population.
Lowincomelevelshavealsomadehigh-tech,expensivegadgetsthatprovideaccesstotheInternetunaffordableinIndia.ThishasledtothemajorityoftheuserbaseaccessingtheInternetthroughsmartphones.MobileInternetusersrepresentfully96%oftotalInternetusersinthecountry.
FlipkartandSnapdealhavesoughttocatertotheseconsumerswithfaster-loadingmobileversionsoftheirwebsitesandwithmobileapps.Lately,moreretailershavebeeninvestinginenhancingtheirmobilecapabilitiesinordertoattractshopperswhorelyonsmartphones.
Figure6.India:InternetUsers,January2017(Mil.)
Source:WeAreSocial/Worldometers/UnitedNations/IAMAI/Facebook/Cisco
TheAssociatedChambersofCommerceandIndustryofIndia,knownasASSOCHAM,reportsthatIndiahadoneoftheyoungestInternetuserbasesamongtheBRICnationsin2015,withabout52%ofthoseonlinebeingbetweentheagesof26and35.
Agrowingyoungandtech-savvypopulationwithincreasingdisposableincomeswelcomedthechoiceandconveniencethate-commercesitessuchasFlipkart,Snapdeal,QuikrandBigbasketprovided.Thefourfirmsalsomadestrategicmovesthatappealedtoyoungconsumers,andthesewerekeytothefirms’growth.OneexampleisFlipkart’sacquisitionofonlinefashionretailerMyntra,whichoffersfast-fashionWesternclothingbrandsthatarehardtocomebyatlocalapparelstoresinIndia.AnotherexampleisQuikr’sadvertising,whichhaseffectivelyconveyedtheconveniencethesiteofferstothosewhowanttobuyorsellusedgoods,therebycapturingtheattentionofyoung,urbanIndians.
462.1 442.7
191167
AcpveInternetUsers
AcpveMobileInternetUsers
AcpveSocialMediaUsers
AcpveMobileSocialMediaUsers
IndiahasoneofthelargestInternetuserbasesintheworld:some462.1millionIndiansaccessedtheInternetinJanuary2017.
In2015,IndiahadoneoftheyoungestInternetuserbasesamongtheBRICnations,withabout52%ofthoseonlinebeingbetweentheagesof26and35.
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Figure7.India:RegularInternetShoppers,byAge,2015
Source:ASSOCHAM
5. FDIRestrictionsandtheRelativelyLateEntryofAmazoninIndiaDomesticdisruptorshavebenefitedfromgovernmentpoliciesthatrestrictedFDIinIndianretail.ThegovernmentofIndiaoperatedasomewhatclosedeconomyuntilthelastdecadeorso.In2006,itundertookoneofitsfirstmovestoopenuptheeconomyandimplementedapolicythatallowedFDIofupto51%insingle-brandretail,subjecttogovernmentapproval.ThismeantthatretailerssuchasGapandZara,whichsoldonlytheirown-brandproducts,wereallowedtoopenshopsinpartnershipwithalocalcompanyinIndia,withamaximumownershipstakeof51%.
In2012,thegovernmentremovedthiscapandincreasedthepermissibleinvestmentbyaforeignentityinsingle-brandretailto100%.Inaddition,itallowedFDIofupto51%inmultibrandretail(whichincludesdepartmentstoresandsupermarketsthatstockandsellproductsofvariousbrands),subjecttogovernmentapproval.MarketplacesiteswereeffectivelyexemptedbecauseFDIwaspermittedinbusiness-to-businesse-commerce,andmarketplacesaretechnicallytechnologyplatformsthatfacilitatetradebetweenbuyersandsellers.Thishelpedexistinge-commercemarketplacesinIndiaraiselargeramountsofforeignfunding,thusmakingthemarketplacethepredominantbusinessmodelforonlineretailandpavingthewayforAmazontooperateamarketplaceusingdomesticsellersinIndiabeginningin2013.
In2016,thegovernmentindicatedthatitwillallow100%FDIinfood-onlyretailaslongasthefoodisproducedandpackagedinIndia.However,retailersstillneedclarificationfromthegovernmentonthis,asmostgrocerstendtosellnonfoodproductsaswellasfood.
Inthenextsection,weprofilethenotabledisruptorsinIndiane-commerceandexaminesomeofthereasonsfortheirsuccess.
3%
52%
8%
2%
18–25 26–35 36–45 45–60
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NotableDisruptorsinIndianE-CommerceWefocusouranalysisonthefoure-commercecompaniesthathavereceivedthegreatestfunding:Flipkart,Snapdeal,QuikrandBigbasket.E-commercemarketplacesFlipkartandSnapdealhaveprovedhugelypopular;Amazonandthesetwofirmscomprisethethreemost-visitedshoppingwebsitesinIndia,accordingtoa2015surveybyMasterCard.
Flipkart
Figure8.FlipkartSummary
Category E-commercemarketplace
DisclosedFundingThrough2016 $3.2billion
NotableInvestors Naspers,TigerGlobalandAccelPartners
KeyCompetitors Amazon,Snapdealandbrick-and-mortarretailers
RevenueforFYEndedMarch31,2016 INR131.8billionorabout$2.0billionSource:Crunchbase.com/BusinessStandard/TheEconomicTimes
PrivatelyheldFlipkartwasestablishedasanonlinebookretailerin2007byformerAmazonemployeesSachinBansalandBinnyBansal,withinitialstartupcapitalofapproximately$6,000.Nearlyadecadelater,ithasbecometheundisputedhomegrownleaderinIndiane-commerce.MorganStanleyvaluedthecompanyatasizable$5.6billionasofNovember29,2016,althoughthatfigurewasdownfromapeakvaluationof$15.2billionin2015.Thecompanyattained“unicorn”statusin2012,whenitraisedsome$150millionthroughafundingroundledbySouthAfricanInternetcompanyNaspers.
Source:Flipkart.com
WhatMadeFlipkartSuccessful?Knownforflashsales,heavydiscountsandattractivedealsduringfestiveseasons,FlipkarthasmadestrategicacquisitionsofspecialistInternetretailerssuchasMyntrainordertobolsteritsmarketpositionand,indoingso,hasprovedaworthycompetitortoglobalonlineretailgiantAmazon.
E-commercemarketplacefirmsFlipkart,SnapdealandAmazonarethethreemost-visitedshoppingwebsitesinIndia.
AsofNovember29,2016,Flipkartwasvaluedat$5.6billion.
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However,whileAmazonandotherleadingpureplaysintheWeststartedwithtraditionaldirect-retailingmodels(meaningtheyownedthestocktheywereselling),Flipkartlaunchedwithaconsignmentformat.Itprocuredstockondemand,basedontheordersitreceived,andsoldthattoitscustomers.Flipkartlaterimplementedtheinventorymodel(i.e.,itbeganholdingthestockitsold)andnowoperatesasane-commercemarketplace.LikeglobalplayerssuchasAlibabaGroup,Flipkartdoesnotowntheinventorysoldviaitsplatform.
ChallengesFlipkartFacedInits10yearsofexistence,Flipkarthashadaturbulentfinancialjourney.LossesswelleduntilitsMarch31,2015,fiscalyear-end.Thecompanyfinallypostedarecoveryinitsmostrecentfinancialyear,withrevenuesofINR131.8billion,or$2.0billion(ayear-over-yearincreaseofnearly43%),andanetlossofINR5.4billion,or$79.8million(adecreaseofsome38%),accordingtoareportbyIndiannewspaperBusinessStandard.
Duetoitsmarketplaceformat,Flipkart’sreportedrevenuesarenotadirectindicatorofthevalueofgoodssoldonitssite—forthat,welookatgrossmerchandisevalue(GMV).InMarch2014,Flipkart’sGMVwasestimatedtobeapproximately$4billion,andthecompanynotedthatitaimedtoachieve$10–$12inbillioninGMVoverthenext12months.ButthecompanyannouncedinMay2016thatitwasgoingtostopdisclosingGMVandreplacethemetricwithitsnetpromoterscore,whichisusedtomeasurecustomerloyalty.
RecentDevelopmentsInJanuary2017,KalyanKrishnamurthy,aformerseniorexecutiveatFlipkartinvestorTigerGlobal,wasappointedCEOofFlipkart.Thiswasseenasunusual,asfoundersofIndianstartupsseldomconcedepowertoanoutsider.WeexpectFlipkarttomakemoresuchpragmaticdecisions,evenifitmeansbuckingthetrend,asitfightstoretainaleadingmarketposition.
FlipkartfacesnewthreatsfromAmazon,whichisgrowingmarketshare,andfromAlibaba’srecentadvancesintoIndiane-commerceviathenewlyspun-offPaytmMall,amarketplacethatwasformerlypartofIndia’slargestmobilewallet,Paytm.Tocounterthesechallenges,Flipkartisreportedlyseekingfundingof$1.5billionfrommarketplaceeBayandTencent,theownerofmessagingappWeChat.ThefundswouldprovideFlipkartamuch-neededstimulusthatwouldgiveitastrongfootinginthemarket.
Snapdeal
Figure9.SnapdealSummary
Category E-commercemarketplace
DisclosedFundingThrough2016 $1.7billion
NotableInvestors Alibaba,FoxconnTechnologyGroup,eBayandSoftBank
KeyCompetitors Amazon,Flipkartandbrick-and-mortarretailers
RevenueforFYEndedMarch31,2016 INR14.6billionorabout$216million
Source:Crunchbase.com/Livemint.com
InMarch2014,Flipkart’sGMVwasestimatedtobeapproximately$4billion.
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SnapdealisIndia’ssecond-biggeste-commerceplayer—and,tellingly,likeFlipkart,itisamarketplaceratherthanaretailer.Snapdealwasestablishedin2010andhasreceivedenormousamountsoffundingfrommanyprominentinvestors,includingAlibaba,SoftBankandeBay.
Source:Snapdeal.com
WhatMadeSnapdealSuccesful?SimilartoFlipkartandAmazon,Snapdealrunsflashsales,dealsofthedayandsalesduringholidayseasons.Snapdealhasmadeanumberofacquisitions,includinganonlinemarketplacefordesignerhandmadegoodscalledShopo(whichceasedoperationsonFebruary10,2017)anddigitalpaymentsappFreecharge.
Snapdealachievedearlysuccessbecauseitlaunchedasamarketplaceanddidnotexperimentwithotherbusinessmodels.AsoneofthefirstcompaniestopioneerabusinessmodelthatfewonlineretailersinIndiaused,SnapdealprovidedgreaterchoicetoconsumersthanFlipkartandothere-commercecompaniesdid,whichhelpeditgarnerasubstantialshareofthemarket.Italsousedthird-partyvendorstofulfillbusinessfunctions,suchaslogisticsanddelivery,insteadofsettingupallbusinessfunctionsin-house.Thishelpeditfocusthemajorityofitsresourcesonitsmarketplace.
ChallengesSnapdealFacedDespitebeingamarketleaderandgarneringtheattentionoflargeinternationalcompanies,Snapdeal’snetlossintheyearendedMarch31,2016,swelledby150%yearoveryear,toINR33.2billion,or$490.8million.Thelosswasmorethantwicetherevenueitgeneratedduringtheperiod,whichtotaledINR14.6billion,or$216million.
ThoughSnapdealdidnotdiscloseGMVfigures,peoplefamiliarwiththefirmtoldfinancialnewspaperLivemintthatSnapdeal’sGMVwouldhaveamountedtoabout$2billioninMarch2016.InApril2016,Snapdeal’sCEO,KunalBahl,announcedthatthefirmwouldnotgiveoutofficialestimatesforthemetric(SnapdealrivalFlipkartsoonthereaftermadethedecisiontonotannounceitsownGMV).
Snapdeal’sGMVinMarch2016wasestimatedtobe$2billion.
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InaFebruary2017interviewwiththeReutersnewsagency,BahlacknowledgedthattheIndianmarketisintenselycompetitiveandthatitisdominatedbyAmazonandFlipkart.HeaddedthatSnapdealcouldpotentiallymakeaprofitintwoyears,asitisresolutelyworkingtodrivedowncostsandincreaseefficiency.
RecentDevelopmentsJustdaysafterthatinterviewwithReuters,Snapdealannouncedthatitwouldlayoffhundredsofitsemployees.Thefirmhasalsoseenmanytop-levelexitsoverthelastsixmonths.Inaletteraddressedtoemployees,bothBahlandthecompany’scofounderadmittedtomaking“mistakes”andsaidthattheywouldeach“takea100%salarycut.”
Thefirmhopestoraisefreshfundingfrominvestorsasitstrugglestopaythemorethan$180,000itowesvendors.
• Forfurtherdiscussionofglobale-commercemarketplacesthataredisruptingretail,pleaseseeourearlierreportonthetopiconourwebsite.
Quikr
Figure10.QuikrSummary
Category Onlineclassifiedsandcommunitywebsite
DisclosedFundingThrough2016 $350millionNotableInvestors Kinnevik,TigerGlobal,WarburgPincus
andeBayKeyCompetitors OLXRevenueforFYEndedMarch31,2016 INR945millionorapproximately$14
millionSource:Crunchbase.com/VCCircle.com
QuikrwasoneofthefirstwebsitesinIndiatofunctionasanonlineclassifiedsplatformconnectinglocalbuyersandsellersacrossvariouscategories.Itwasestablishedin2008andhasattractedfundingfromKinnevikandTigerGlobal,whichareitslargestinvestors,aswellasfromWarburgPincusandeBay.
Source:Quikr.com
QuikrwasoneofthefirstwebsitesinIndiatofunctionasanonlineclassifiedsplatformconnectinglocalbuyersandsellersacrossvariouscategories.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
WhatMadeQuikrSuccesful?Tostrengthenitsposition,Quikrhasmadeseveralstrategicacquisitions,themainonesbeingStepni,whichconnectsvehicleownerswithserviceproviders;Grabhouse,ahomerentalfirm;andZapLukandSalosa,whicharebeautyandwellnessservicesproviders.
ChallengesQuikrFacedDespitepostingrevenuegrowthof44%inits2016fiscalyear,whenrevenuereachedINR945million,or$14.0million,Quikr’slossesgrewby20%,toINR5.3billion,or$78.4million,whichwasnearlyfivetimesitsrevenue.
Ina2015fundingroundledbyTigerGlobalandKinnevik,Quikrraisedover$150million,butithasstillnotmanagedtodissipateitslossesintheincreasinglycompetitiveIndianclassifiedsspaceduetotheemergenceofrivalssuchasOLXandCraigslist.
RecentDevelopmentsQuikrreportedthatitdoubleditsrevenueinitsfiscalthirdquarterendedDecember31,2016.InaninterviewwithForbesinFebruary2017,CEOPranayChuletsaidthatthecompany’sfocusistostrengthenitspositionanddrivefinancialgrowthacrosstheverticalsinwhichitoperates.
Bigbasket
Figure11.BigbasketSummary
Category Grocerye-commerceDisclosedFundingThrough2016 $247million
NotableInvestors AbraajGroup,HelionVenturePartnersandBessemerVenturePartners
KeyCompetitors Amazonandlocalonlineandbrick-and-mortargrocers
RevenueforFYEndedMarch31,2016 INR5.6billionoraround$83millionSource:Crunchbase.com/TheEconomicTimes
InternetgroceryretailerBigbasketlaunchedin2011asoneofthefirstonlinegrocerystoresinIndia.Itisnowthelargestonlinegroceryretailerinthecountry,andofferssome18,000productsandmorethan1,000brandsacrossnearly30ofIndia’slargestcities.
WhatMadeBigbasketSuccessful?Auniquefeatureofthewebsiteisthatshopperscanlookforfreshfoodandfoodproductsusingthoseproducts’localorethnicnames,suchasbhindiforokraanddalforlentils.Shopperscanalsobuyproductsfrominternationalbrandsonthewebsite.
Bigbasket,thelargestonlinegroceryretailerinIndia,offerssome18,000productsandmorethan1,000brandsacrossnearly30cities.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Source:Bigbasket.com
Bigbasket’soperatingmodelsetsitapartfromFlipkartandSnapdeal.Itisnotamarketplace,whichmeansitownsitsinventory,warehousesanddeliveryfleet.
TogetaroundtheFDIrestrictionsindirectonlineretailandtheinventory-lede-commercemodel,theowneroftheBigbasketbrand,SupermarketGrocerySupplies,sourcestheproductsandsellsthemtoInnovativeRetailConcepts,thecompanythatisresponsibleforthewebsite,logisticsanddelivery.So,ineffect,thebusiness-to-businessfirmSupermarketGrocerySupplies,ratherthanthebusiness-to-consumercompanyInnovativeRetailConcepts,receivesinvestmentfromforeignfirms.
AccordingtoTheEconomicTimes,BigbasketreportedrevenuesofINR5.6billion,or$82.8million,infiscalyear2016,almosttripleitsrevenuesfromtheyearbefore.However,thecompany’slossesquadrupledyearoveryear,toINR2.8billion,or$41.4million,whichCEOandCofounderHariMenonattributedtoincreasedoperatingcosts,investmentsinmobileappsandbuildingwarehousesinthecitiesinwhichthefirmoperates.CofounderVipulParekhtoldthepressthatthefirmhopestotripleitsrevenuestoINR20billion,or$296.0million,infiscal2017.
ChallengesBigbasketFacedInaninterviewwithLivemintinOctober2016,Menonsaidthatoneofthechallengesthecompanyfacesisemployeeretention,asitemploysmorethan12,000people,two-thirdsofwhichworkinblue-collarroles.MenonsaidthatBigbaskethasinstitutedatrustfundthatsupportstheworkers’familiesinordertoprovideanincentiveforworkerstoremainwiththecompany.
RecentDevelopmentsBigbasketrecentlyannouncedthatithasplanstoexpanditsprivate-labelmixtoincludenonfoodproducts.Itsprivate-labelportfoliocurrentlycontributes33%ofthecompany’stotalrevenue,accordingtostartupnewswebsiteVCCircle.com,andthefirmhopestopushthisupto45%bytheendofthecurrentfiscalyear.
Bigbasket’sprivate-labelportfoliocurrentlycontributes33%ofthecompany’stotalrevenue.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Followingthegovernment’sindicationlastyearthatitwillallow100%FDIinfoodretail,BigbasketisseekingapprovalforFDIindirect-to-consumerfoodretail,asareAmazonandIndiane-grocerGrofers.
Source:Shutterstock
Homegrownonlineretailershadasatisfactoryrununtillastyear,butitseemslikethee-commercesectorinIndiaissettoundergoaseachangeoverthenextfewmonths.Inthefollowingsection,weoutlinetheevolutionofIndia’sprotectionistregimeintoamoreopenretailmarketandexaminehowthishelpeddomesticretailers,andthendiscussthethreatimpliedbyAmazonandAlibabaasthemarketopenedup.
TheIndianE-CommerceBubbleandtheRisingThreatfromAmazonandAlibabaGovernmentrestrictionsonFDIinIndiancompaniesinselectedsectorsconstrainednon-Indianretailersfromsellingdirectlytoconsumers.Aswediscussedearlier,priorto2012,FDIwasforbiddeninmultibrandretail.After2012,foreignownershipwaslimitedtoamaximum51%ofsuchfirms.
HavingamarketplacemodelhelpedfirmssuchasFlipkartandSnapdealattractlargeamountsoffundingfromforeigninvestorsandallowedforeignretailerstosellthroughtheirplatforms.Non-Indianretailerswerenotpermittedtoselldirectlythroughe-commerce,eveniftheyhadinvestedinphysicalstoresinthecountrythroughtheFDIroute.However,marketplacesiteswereeffectivelyexemptedthroughaloopholethatallowedFDIinbusiness-to-businesse-commerce,andthiscontributedtotheirgrowth.UntiltheliberalizationofFDIrulesin2012,direct-retailwebsitesthatcompetedwithmarketplaceswouldnothavebeenabletoattractforeigninvestment.
WhenFlipkartwasestablishedin2007,itfacedfewdirectrivals—andmostofthosedidnotevolvewithconsumerneedsandeventuallycloseddown.Snapdealenteredthemarketin2010withahighlypromotionalsalesstrategythatincludedattractivedealsanddeepdiscountsacrossnumerouscategories,somethingthatmanyofitsonlineretailrivalsdidnotofferatthetime.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Similarly,Quikrdidnothaveanycompetitorsofthesamescalewhenitlaunched;itsmaincompetitorswerenewspapersthatranclassifiedadvertisements.Meanwhile,Bigbasketwasthefirstonlinegroceryretailerthatthrivedwhileothersfailed.ItwassuccessfultotheextentthatitexpandedtoservemanycitiesacrossIndiaatatimewhenmodern,large-formatsupermarketswerestillnewinthecountry.
Therelativeabsenceofcompetitionallowedthesefourcompaniestoestablishthemselvesasthedominantplayersintheirrespectivesectors.
Source:Amazon.in
Amazon’slateentryintoIndiaandthelimitationsitfacedduetogovernmentpolicyallowedhomegrowne-commerceretailersinthecountrytoestablishthemselves,butitappearsthattheyunderestimatedthethreatposedbytheglobalgiantintheirdomesticmarket.
AmazonworkedaroundFDIrestrictionsthroughcomplexjointventurestructureswithlocalplayers.OnesuchventurewithIndiantechnologyfirmInfosysformedanelectronicsandfashionvendorcalledCloudtailthatisthelargestselleronAmazon’sIndianplatform.Thus,AmazonmanagestobebothamarketplaceandasellerinIndia.Thecompanyhasundertakenmanysuchstrategicmoves,thelatestofwhichwasapplyingforgovernmentapprovaltosellfoodonlineinIndia.
GivenAmazon’sglobalscaleofoperations,itsexpertiseanditsstrongcapitalbase,itdidnothavetostriveforverylongbeforeovertakingdomesticrivalsandbecomingoneoftheleadingplayersinIndiane-commerce.
TheambitionsofglobalrivalAlibabawerelessclear,asitheldonlyminoritystakesinSnapdealandPaytmuntilrecently.InFebruary2017,itinvestedsome$177millioninPaytmMall,takingitsstakeinthefirmtoover60%andsignalingitsreadinesstocontendforaleadingshareinIndiane-commerce.
UnlesstheypossessthebreadthofoperationsthatAmazonandAlibabado,moste-commercemarketplacesthatcompetetoretaincustomersthrough
Amazon’sjointventurewithInfosysenabledtheformationofelectronicsandfashionvendorCloudtail,whichisthelargestvendoronAmazon’smarketplaceinIndia.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
deepdiscountsandattractivedealstendtostruggletosustainthestrategyinthelongrun.
WhatWeThinkInthisreport,wehavenotedthetailwindsthathavebenefitedmajordomesticonlineplayersinIndia.Thesuccessofthesefirmsandthegrowthofe-commerceingeneralhavealsobeenhelpedbytheexpansionoffirmsthatprovidesupplementaryservices.Thosecompaniesarethefocusofthenextreportinthisseries.
Forthebusiness-to-consumere-commercefirmswefocusedoninthisreport,aneasingofrestrictionsonFDIandAmazon’sandAlibaba’seffortstoclaimgreatershareoftheIndianmarketmeanthattherearenewthreatstoface.WhileAlibabahaspubliclyindicateditseagernesstogainshareonlyrecently,AmazonhasgraduallybeenexpandingitsofferingintonewcategoriesandisnowtryingtomuscleinontheIndiangrocerymarket.WithnearlyathirdofconsumerspendinginIndiadedicatedtofood,Amazonislookingataverylucrativegrocerymarketinthecountry.
Inordertoheadoffthethreatfromthemajorglobalplayers,domestice-commercecompanieshavemadeanumberofstrategicmoves,includingrunningaspateofdiscountsanddeals,makingacquisitions,andspinningoffunviabledivisions.Meanwhile,Amazonfaceschallengesintermsofbeingaforeigncompanythatisstillfindingitsfootinginculture-sensitiveIndia.
AmazonrecentlyfacedcontroversywhenitsCanadiansitefeaturedadoormatforsalethatresembledtheIndianflag.ManyIndianshopperstookoffense,andthegovernmenteventuallyintervened.Suchmisstepsmaytemporarilymartheretailer’sgrowthtrajectory.However,aslongasAmazondealswithIndianculturalissueswithsensitivityandswiftness,thereislittletostopitfromstealingsharefromlocalplayers.
Tomaintaintheirstanding,domesticrivalsmustprovidetrulyinnovativeofferingsorforgestrategicpartnershipsratherthanjustattemptingtooutpaceeachotherwithpromotionaldealsduringholidayperiods.
ThemajorIndiane-commercedisruptorshaveenjoyedtremendoussuccess—butitlookslikethedisruptorsareabouttobedisrupted.
FormanyIndiane-commercecompanies,includingthedisruptorsdiscussedinthisreport,thepresenceofAmazoninIndiaposesathreat.
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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comSwaroopraniMuralidharResearchAssistantHongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017
FungGlobalRetailTech.com