5 trends that will
change the Indian
e-commerce landscape
India's e-commerce
sector will attract more funds from investors and more aggressive
investment by key players, which will ensure that the industry’s loss figures
remain high for the next few years at least.
India’s key Internet firms — Flipkart, Paytm Mall, PhonePe, ShopClues, and Swiggy — posted combined losses of ₹6,445 crore ($970 million) for the 2017-2018 fiscal year.
We expect this to worsen in the coming years as companies scale up rapidly to capture market share. Forrester sees the following trends that will change the Indian e-commerce landscape:
Online retailers will suffer further losses:
Flipkart lost ₹3,200 crore ($480 million) in
the fiscal year ending in March 2018 — before its acquisition by Walmart and
revamped focus on maintaining a lead over Amazon in
categories like smartphones and fashion.
Flipkart is spending aggressively on the marketing, payments (PhonePe posted losses of ₹840 crore [$120 million] in 2017-2018), and grocery categories and expanding its logistics network to attract online buyers from rural India.
Amazon’s spending in the offline grocery category will ensure that Flipkart continues to invest in the space, lest it see the gap with Amazon widen.
Flipkart may struggle to retain its market share in metropolitan areas due to the increasing penetration of Amazon Prime, where customers may check the price of a smartphone before buying; consumers may also shift other orders to Amazon due to its customer experience.
Flipkart has retained control of the fashion category in both urban and rural areas and wants to maintain this by launching more “affordable” private labels and including Walmart products.
Online retailers will move beyond metros, mobile, and fashion:
Flipkart is spending aggressively on the marketing, payments (PhonePe posted losses of ₹840 crore [$120 million] in 2017-2018), and grocery categories and expanding its logistics network to attract online buyers from rural India.
Amazon’s spending in the offline grocery category will ensure that Flipkart continues to invest in the space, lest it see the gap with Amazon widen.
Flipkart may struggle to retain its market share in metropolitan areas due to the increasing penetration of Amazon Prime, where customers may check the price of a smartphone before buying; consumers may also shift other orders to Amazon due to its customer experience.
Flipkart has retained control of the fashion category in both urban and rural areas and wants to maintain this by launching more “affordable” private labels and including Walmart products.
Online retailers will move beyond metros, mobile, and fashion:
Online retailers will target new buyers
outside of metro areas and sell more categories to existing buyers to increase
wallet share.
In 2017, 65% of online retail came from consumer electronics, computers, and fashion; smartphones alone accounted for half of that. New customer acquisition and pushing for new products sales online will be expensive — putting retailers at additional risk for loss in 2019.
Small players without niche offerings will feel the heat:
In 2017, 65% of online retail came from consumer electronics, computers, and fashion; smartphones alone accounted for half of that. New customer acquisition and pushing for new products sales online will be expensive — putting retailers at additional risk for loss in 2019.
Small players without niche offerings will feel the heat:
Players like Snapdeal and ShopClues without
differentiated offerings will find it difficult to grow in 2019 as Amazon and
Flipkart outfight them in the low-price category.
Snapdeal will continue to face the problem of declining customer experience as it again tries to scale up — which has already led to its irrational losing battle with Flipkart to win in gross merchandise value.
Snapdeal will continue to face the problem of declining customer experience as it again tries to scale up — which has already led to its irrational losing battle with Flipkart to win in gross merchandise value.
Paytm Mall is waiting for Alibaba to deliver the goods:
Paytm Mall reported losses
of ₹1,800 crore ($270 million) in
2017-2018 against just ₹75
crore ($11 million) in revenue. Paytm Group faces challenges in online retail
as well as in its payments and Paytm Money businesses. In addition, Alibaba is
still playing the waiting game, focusing on winning Southeast Asia before
turning its full attention to India.
After Walmart’s acquisition of Flipkart, time is running out for Alibaba to decide what it wants to do with Paytm Mall. Customers are still unsure about Paytm Mall’s positioning; while cashback offers can bring customers to the platform, Paytm Mall can’t sustain this in the long run against Amazon and Flipkart.
Refueled food delivery companies are preparing to spend to drive growth:
After Walmart’s acquisition of Flipkart, time is running out for Alibaba to decide what it wants to do with Paytm Mall. Customers are still unsure about Paytm Mall’s positioning; while cashback offers can bring customers to the platform, Paytm Mall can’t sustain this in the long run against Amazon and Flipkart.
Refueled food delivery companies are preparing to spend to drive growth:
Food delivery companies like Zomato and
Swiggy are ready to fight it out aggressively to become the No. 1 player in
this category; other players, like Freshmenu and Faasos, are focusing on
building their brands to compete directly with traditional restaurants.
Foodpanda and Uber Eats are competing in this category just to prove to investors which one is better positioned to run their India operations. The ride-hailing business is also facing growth challenges due to changing economics for drivers and riders; those companies will focus on food delivery to ensure that they can demonstrate growth to investors.
We expect that, in 2019, food delivery companies will have to attract additional investment to pay for increasing delivery costs and discounting, increase order volumes, and retain market share. The delivery and volume management costs of running a digital food business put pressure on companies’ profitability.
To offset costs, companies are finding related streams of revenue to parallel their focus. For example, Swiggy monetizes its vehicle fleet to deliver other goods, and Zomato will look for growing the listing, advertising and subscription revenue.
It will be difficult for food delivery companies to execute the “cloud kitchen” and “virtual kitchen” models. We think Freshmenu and Faasos are better placed for expansion into this segment, but Zomato and Swiggy will also invest there to improve their profit margins.
Conclusion
India’s e-commerce sector now has decent scale in terms of buyers and orders, and key players are emerging in leading positions. According to Forrester’s Online Retail forecast, we expect India’s e-commerce sales to grow 29% annually over the next 5 years, but not all products will grow equally.
This will attract more funds from investors and more aggressive investment by key players, which will ensure that the industry’s loss figures remain high for the next few years at least. So if you thought that this year’s loss figures are shocking, wait until next year.
(Satish Meena is a senior forecast analyst at Forrester Research)
Foodpanda and Uber Eats are competing in this category just to prove to investors which one is better positioned to run their India operations. The ride-hailing business is also facing growth challenges due to changing economics for drivers and riders; those companies will focus on food delivery to ensure that they can demonstrate growth to investors.
We expect that, in 2019, food delivery companies will have to attract additional investment to pay for increasing delivery costs and discounting, increase order volumes, and retain market share. The delivery and volume management costs of running a digital food business put pressure on companies’ profitability.
To offset costs, companies are finding related streams of revenue to parallel their focus. For example, Swiggy monetizes its vehicle fleet to deliver other goods, and Zomato will look for growing the listing, advertising and subscription revenue.
It will be difficult for food delivery companies to execute the “cloud kitchen” and “virtual kitchen” models. We think Freshmenu and Faasos are better placed for expansion into this segment, but Zomato and Swiggy will also invest there to improve their profit margins.
Conclusion
India’s e-commerce sector now has decent scale in terms of buyers and orders, and key players are emerging in leading positions. According to Forrester’s Online Retail forecast, we expect India’s e-commerce sales to grow 29% annually over the next 5 years, but not all products will grow equally.
This will attract more funds from investors and more aggressive investment by key players, which will ensure that the industry’s loss figures remain high for the next few years at least. So if you thought that this year’s loss figures are shocking, wait until next year.
(Satish Meena is a senior forecast analyst at Forrester Research)
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