Key players targeting India’s e-commerce market
Access to cheap Wi-Fi data, choice, convenience and discounted online products are driving India’s online retail market at a pace unforeseen even three years ago
When US-based retail giant Walmart takes a 77% stake in Flipkart, an online retailer in India, for US$16 billion when the latter has reported losses of nearly 87.7 billion rupees, or about $1.37 billion, it’s time to sit up and analyze the underlying drivers.
Anand Tandon of Gryphon Advisors analyzes Walmart’s strategy succinctly: “It’s the motivation of the key players that plays the most important role.” The motivation is access to one of the fastest-growing online and offline markets in the world – India.
Access to cheap Wi-Fi data, choice, convenience and discounted online products are driving India’s online retail market at a pace unforeseen even three years ago. Abheek Singhi of the Boston Consulting Group (BCG) argues in a report that it’s an online opportunity worth $5 billion to $6 billion in fast-moving consumer goods alone, with 40% of FMCG consumption in India digitally influenced. BCG expects 650 million people online by 2020, more than the expected population of the Group of Seven countries put together.
India’s retail e-commerce sales are forecast to climb 31% this year to reach $32.7 billion, according to eMarketer, surpassing every country in the Asia-Pacific region except China and Indonesia. Expanding Internet penetration will drive the e-commerce sector to $71.94 billion by 2022, eMarketer predicts.
The India Brand Equity Foundation forecasts that India’s Internet users will grow in number from 481 million in December 2017 to 829 million by 2021, nearly 60% of the forecast population of the country.
The Telecom Regulatory Authority of India (TRAI) estimates that the country had 652.66 million mobile telephony subscribers in urban areas and 505.34 million in rural areas by the end of May. The Indian government’s ambitious draft National Digital Communications Policy aims not just to provide universal broadband coverage at 50 megabits per second to every citizen but provide rural connectivity of 1 gigabit per second by 2020 and 10Gbps by 2022, with broadband access to 50% of the country’s households.
TRAI estimates that Vodafone had a subscriber market share of 38.61% in May, while Bharti Airtel had about 30.46% and Reliance Jio about 18.17%.
So what has driven the growth? As Tandon points out, “The falling price of Wi-Fi data is the driver. Reliance Jio drew data pricing downwards since they entered in 2016 and I don’t see them rising for a year or two.”
New price warriors in telecom such as Reliance Jio, a subsidiary of India’s largest corporation, Ambani-led Reliance Industries, are making both mobile telephony and Wi-Fi affordable across all of India’s markets
New price warriors in telecom such as Reliance Jio, a subsidiary of India’s largest corporation, Ambani-led Reliance Industries, are making both mobile telephony and Wi-Fi affordable across all of India’s markets. Reliance Jio’s chairman, Mukesh Ambani, recently reported to shareholders that India’s newest entrant into telecom, and an unabashed price warrior, had gained 215 million customers within 22 months and data usage had grown from 1.25 billion gigabytes per month to more than 2.4 billion.
Vivek Pathak of Redseer Management Consulting points out: “We are seeing a lot of online content consumption post the Jio launch. [This] new set of consumers who have come online [will] slowly start with online banking, peer-to-peer money transfer using UPI/wallets, and then start buying online.”
Further penetration of online retail into rural markets now looks certain. A BCG study last year forecast that nearly 50% of the Internet user growth would be in rural India in the next three to four years. BCG estimates that most users by 2020 will also be in the age group of 25-plus, with significant numbers being driven by women.
BCG further buttresses the data-price-point argument in India by stating: “Mobile is already the go-to device for online access. The importance of the mobile is only set to increase with the ubiquity of affordable smartphones and access to cheap data. Coupled with the rise in disposable income, this is fueling an explosive growth in digital penetration.”
Highlighting how much Indians are taking to online retail, an Amazon India official stated: “Customers buy everything ranging from diapers, to sofas, from LCD TVs and fridges to bulbs, vegetable choppers and shampoos, debunking the myth that consumers only look for high-price-point items.”
As Professor Erik Gordon of the Ross School of Business at the University of Michigan points out, “The primary driver is choice, and for rural shoppers, convenience and access to goods not previously available.”
IMRB Kantar, a market research firm, estimates that Flipkart, together with its subsidiaries, has a market share of about 40% in India while Amazon has about 31%. Such market-share numbers are disputed, though.
Online retail and e-commerce are not just urban. They’re now penetrating India’s mid-size and small towns, even rural markets, with players like Flipkart and Snapdeal reporting rising sales numbers, as the IBEF study points out.
A major Flipkart retailer, Padam Raj of Credo Brands, which markets a large Indian brand of jeans, has said: “We’re now clearly seeing the growth in rural India. With the help of [the] postal department of [the] government of India and the emerging of logistics companies and their presence in rural India, penetration into rural markets and the ability of retailers to change rural buying habits have become easier.
“For example, our customers [in the far-off] districts of Udhampur in Jammu and Kashmir and Pauri Garhwal [in] Uttarakhand place online orders and we use India Post as a tool to dispatch the geans. We don’t need any other courier partner.”
Yet logistics and supply chains, given India’s creaking infrastructure, will remain a challenge, as Tandon points out. “Last-mile delivery is crucial. The quality of service therein and logistics is the key,” he said.
Yet for Walmart it’s clear. As Professor M S Krishnan of the Ross School of Business points out, “Flipkart has built phenomenal scale as an online business, working logistics and last-mile delivery in this market. This is a play by Walmart to get ready access to these capabilities so that they can effectively compete with Amazon in this market.”
India’s e-commerce market is headed for exciting times.