Year in Review: Indian Consumer Internet Industry in 2016
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Transcript of Year in Review: Indian Consumer Internet Industry in 2016
New Delhi I Bangalore I Mumbai I New-York I Dubai
Year in Review: Indian Consumer Internet Industry in 2016
| 2
Consumer Internet Industry Review
Sector Wise Report Card
Agenda
The Indian Consumer Internet Market is expected to grow to USD 65 BN by 2017 with OTAs
stocking up ~30% of the market share
Source- RedSeer Analysis Notes - F-Forecasted
21
35
45
65
2014 2015 2016 2017 (F)
Indian Consumer Internet Market(in USD BN)
66%
29%
44%
• The Indian Consumer Internet sector saw a moderate annual growth of ~29% in
2016 compared to ~66% in 2015
• It is forecasted to keep up its growth momentum and become a USD 65 BN
industry by 2017, growing at a rate of ~44% YoY
30%
70%
Consumer Internet Market Share (by GMV)
Online Travel Agents Rest
• Online Travel Agents (OTAs) account for ~30% of the market share in the Indian
Consumer Internet Market
• While the remaining 70% is distributed among 20 sub-verticals including
Horizontal e-tailing, Fashion, Furniture, 3PL, Grocery, Hotel, Food Tech, Cab
Aggregators, Ed Tech, Alternative Lending and so on
While Consumer Internet sector saw a moderate growth of ~29% in CY’16, the investments in this
industry saw a significant decline as compared to CY’15
0.3
0.71
0.31
0.3
2.5
3.5
1.5
12
Funding (in USD BN CY’16)
0.1
0.1
0.1
0.1
0.2
0.2
0.2
0.3
0.3
0.9
Furniture
3 PL
Hotel
Food Tech
Grocery
Ed Tech
AlternativeLending
Fashion
Cab Aggregators
E-tailing(Horizontals)
-40%
-67%
+10%
+400%
+100%
-33%
-50%
-50%
-67%
-50%
Sector Performance (in USD BN CY’16)
N.A.
N.A.
+20%
+200%
+17%
+19%
+127%
+35%
+21%
+47%
Future Outlook (w.r.t overall CI sector)
Notes: 1-Annualized on the number of units per day
Source- RedSeer AnalysisRepresents performance in
comparison with CY’15Moderately PositiveHigh Growth Positivexx%
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Consumer Internet Industry Review
Sector Wise Report Card
Agenda
Horizontal E-tailing
Horizontal e-tailing took a dip in 2016 compared to the growth shown by this sector in 2015. There were multiple challenges faced by players, from reeling under change of government regulations to less circular trading and disinterest from investors. The slow-growth sector also influenced other sub-verticals of CI, and impacted the overall Indian Consumer Internet Industry. It is still expected to regain its growth momentum and show much positive growth than the CI base rate in 2017
Tipping Points
Horizontal E-tailing has shown slower growth than expected
last year. Key reasons being:
• Heavy focus on bottom line
• Tightening of leash on circular trading
• DIPP regulations
• Demonetization
• Limited Funding
Future Outlook
Sector is expected to grow at a higher than CI base rate, due
to:
• The power of online only
• Private Labels
• Focus on new markets
• Focus on improving customer experience
• E-tailing converting retail-only shoppers (sic Oct Sales)
• Grocery Focus
• Adoption of premium membership (like Amazon Prime)
0.9 $ bn. 12 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Cab Aggregators
Along with the horizontal e-tailing, cab aggregator is the largest disruptor of the online
consumer internet market. This is also the industry which has seen the fastest impact
on the way consumers choose between online and offline options.
In the large cities, 30% of the cab market has already moved online.
Discounting the last quarter of the year, this industry has shown 10-11% growth rate
month on month
Tipping Points
The sector has shown massive growth due to increase in
customer base and following reasons –
• Share/Pool cabs
• Go and Micro
• Regulatory tussles
Future Outlook
The competitors would be able to innovate on delivery
models, brining the average fare close to the bus fare, the
sector is expected to see another year of explosive growth.
Some of the expected trends –
• On-boarding smaller cities
• Adoption of share/pool for faster and cheaper options
• Fares for shuttle and bike taxis equivalent to bus
0.3 $ bn. 1.5 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Fashion
Fashion accounts for ~20-25% of the Indian e-tailing business, which is the second
largest behind only Mobile and Large goods. But as per revenue share, it is the biggest
contributor. Globally, fashion is the leading contributor in GMV as well. In India, the
industry saw a lot of interesting events
Tipping Points
Fashion had a moderate growth in 2016, following moves re-
shaped the sector –
• Players Consolidation (Flipkart acquires Jabong)
• Rise of niche verticals
• Private labels
• The Amazon Push
• Omni-channels
Future Outlook
We expect this to be one of the fastest growing online
sectors in 2017. This will be backed by following key levers:
• Improved customized selection & category specific focus
• Better delivery performance across smaller towns
• Customer analytics
• The second wave effect – Customers buying electronics
online will be comfortable purchasing fashion
0.3 $ bn. 3.5 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Alternative Lending
Alternative lending is trying to disrupt the way India borrows, and the very ability of
many to borrow. With as high as 75% of the SME loan not being fulfilled, alternative
lending on the back of sharp analytics and quick disbursal, is expected to disrupt the
lending industry. These are the initial days for the industry but the early signs are
promising
Tipping Points
Alternative Lending saw good traction in 2016 –
• License distribution to a bigger player groups
• Investor support
• Customer Analytics
Future Outlook
This sector is expected to experience high growth as –
• E-tailing and other emerging markets will drive adoption
• Expansion to the new geographies
• Products being market fit, addressing challenges of
traditional lending
0.2 $ bn. N.A.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Ed Tech
Disruptive online Education models arrived a bit late for the consumer internet party,
but this year has been a significant year for the ed-tech sector, also reflected in the
quantum of funding received by the industry. The Education industry faces the
challenge of finding paying customers and hence the conversion rate is low. But those
already investing in this sector online are able to provide a significant high life time
value and stickiness as customer
Tipping Points
• Immergence of the targeted business models
• Expansion of customer base and increase in paying
customers
• Hardware-content play
Future Outlook
• Market is expected to grow on the back of low base effect
• Rise in custom and targeted content
• Customers willing to spend larger sum
0.2 $ bn. 2.5 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Online Grocery
While accounting for a smaller share of the overall CI industry, the grocery is the
biggest spend in the offline category. And the growth journey of overall e-tailing market
banks heavily on the uptake of this category (along with Fashion). Grocery has shown
very promising start, with a high AoV and higher repeat customer base, the life time
value of customers in Grocery market is one of the highest. The effect of Private labels
also ensures that grocery companies have one of the best unit economics in the
market
Tipping Points
• Rise of the leaders – Big Basket leads the way
• Private labels
• 2 hours’ delivery
Future Outlook
This would be one of the top-performing categories in 2017 –
• Focus on Horizontal players’ entry
• Expansion to newer cities
• More value choice due to increased private labels
• Impact of demonetization and digital wallet push
• The second wave effect – Customers purchasing
electronics will be comfortable in buying grocery online
0.2 $ bn. 0.3 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Food Tech
Few internet verticals saw the roller coaster ride as seen by the food tech industry last
year. The whole value chain got disrupted, challenges by unit economics, scalability
and finally the dust is settling. With restaurants realizing that Food-tech can be a strong
channel for acquiring and retaining customers, they are more forthcoming on adding to
the revenue stack of such companies. This coupled with customers paying
convenience charges, see the sector moving towards viability. Also, the increase in
adaptability of the internet kitchen, which has a high margin on food ensures good
volumes. The other debate which needs to settle is on the owned vs. 3rd party delivery,
as the customer experience is heavily tied with the delivery performance
Tipping Points
• High Mortality of Food tech startups
• Juggling Delivery models
• In major cities, participating restaurants get 20% orders
online
Future Outlook
Will be ahead of the overall CI industry growth rate –
• Better unit economics
• High repeat orders
• Restaurant and customer adding to revenue share
0.1 $ bn. 0.3 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Hotel Aggregators
In the Indian context, finding a reliable hotel at non-5 star rates has been a big
challenge for business and leisure travelers. This is due to highly unorganized sector
and patchy regulations on defining the status of hotels. Domestic travel in India is also
growing very fast, something which is here to stay. With this background the Hotel
Aggregators have been able to fill the gap existing in the market. Companies are
looking to standardize the customer experience across different value chains, which
bodes well for the sector when compared with the offline hotels
Tipping Points
• Fast growing Homestay market comes online
• Closure of some (Zo rooms), better for others (Oyo rooms
grew faster than expected)
• Emergence of leaders – Treebo and Fabhotels
Future Outlook
Riding on the increased number of properties and better
NPS than offline players, this market has a lot of headroom
for growth –
• Fast growing properties
• Much higher NPS
• Easy discoverability with clear differentiation from offline
hotels
• Growth in Domestic travel
0.1 $ bn. N.A.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Third Party Logistics
This year has not been the best of the years for the 3PL players. This is largely due to
sluggish growth of the overall e-tailing market and, captive share of deliveries
increasing significantly. At 60-65% of the orders being shipped through the captive
arms, there was a limited head way for the sector
Tipping Points
• Limited growth in the e-tailing market
• Focus on Captive arms
• Faltering giants (Go-Javas goes down)
• Hyper-local players making the reverse pick-up market
competitive
Future Outlook
This will be the hyper growth sector in 2017, levers which will
drive the growth –
• E-tailing expected to grow fast leading to more shipments
• Low AoV categories to grow faster, further increasing the
shipments
• Smaller cities to account for the significant portion of
growth. Markets where captives are not strong, hence
higher wallet share
• Captive Share to stabilize.
0.1 $ bn. 0.7 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
Furniture
This is one of the most underperforming categories in the internet space. The sector
faces many challenges like customers preferring in-person experience before buying
any furniture, which takes away the strong value proposition of the e-tailing market.
And when the e-tailers move to omni-channel the cost of the real estate, logistics start
resembling more of an offline player. The other challenge faced by the industry is
around the mix of products being pushed by e-tailers vs. the products bought. While
the furniture story has been sailing on very high AOVs, customers end up buying more
of side tables and smaller items, further impacting the business model
Tipping Points
• Faltering Giants (Fabfurnish collapses)
• High burn, due to slower than expected growth and low
AoV
Future Outlook
• Furniture vertical market might not see much aggressive
growth; will trail the CI industry growth rate
• Horizontals would be playing more crucial role
• Lower AoV, standard products would sell more
0.1 $ bn. 0.3 $ bn.
Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16
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