The fast-expanding e-retail can create thousands of small brands which will nibble on market shares of big brands to thrive.
A report by Bain & Company in collaboration with Flipkart, which projects high growth and a vast untapped potential in the e-retail sector in India, should ring alarm bells for big FMCG comoanies though it seems to offer promising prospects to them. The big companies have, of course, factored in the future growth potebtial in e-retail, and they are busy tapping into this sector. What they may not have factored in is the huge convulsive shocks to the retail landscape that emerging consumer tech, enabled with artificial intelligence; falling logistics costs; and a rapidly shifting consumer behavior which can become highly unpredictable due to volatile social and cultural trends.
A mega consumer market in the making
E-retail in India is expected to surge past $160 billion (over Rs 13 lakh crore) mark by 2028, the recent Bain & Co report says. The E-retail market is expected to be around $57-$60 billion (Rs 4.75 lakh crore to Rs 5 lakh crore) in 2023, with an annual shopper base of around 240 million, representing an annual addition of $8-$12 billion since 2020.
1. GMV= Gross Merchandise Value; 2. Penetration represents e-retail as percentatge of total sales
“Long-term fundamentals of India’s e-retail industry, including affordable data, improved logistics and fintech infrastructure and strong digital consumer ecosystems remain intact,” Bain’s Innovation & Design Capability Area, Partner and Global Leader, Arpan Sheth said in a statement.
The e-retail market is poised to grow in the coming years, with online spending currently only 5-6 per cent of total retail spending in India compared to the US where it is 23-24 per cent and 35 per cent in China, indicating massive headroom for growth. According to the report, the majority of India’s retail spend (94-95 per cent) continues to be offline, with general trade accounting for 87 per cent of the overall retail spend. The report estimates that over 60 per cent internet users are not shopping online.
Why expanding market poses a threat to the biggies
FMCG giants are going big on e-commerce, trying hard to capitalise on its vast potential. With deep pockets, strong brand recall and huge investment in tehcnology, they will ride the swelling e-commrce wave. But what makes them highly vulnerable is the fast-emerging D2C brands which will keep them forever on their toes and will always be a looming threat.
Also Read: Wipro Consumer Care enters D2C space with Bio-essence, plans FMCG start-up investments
The growing e-retail also spawns a growing small sellers network. “The seller ecosystem is also exploding to cater to these consumers,” the report says. “Twice as many sellers were added in 2022 compared to 2021. Two-thirds came from Tier 2+ cities, and three-fourths operate in the lifestyle, home, and electronics categories. Insurgent online-first brands have emerged as a fast-growing seller cohort, with more than threefold revenue growth from 2020 to 2022. These brands resonate especially with Gen Z consumers.”
More than half of the current total seller base hails from seven cities, namely Delhi NCR, Surat, Jaipur, Mumbai, Bengaluru, Hyderabad, and Kolkata. But most of the new sellers emerging from small cities indicates that the big companies will face compitition from small but numerous brands which will be closer to the consumers since a bigger chunk of consumers too will be in small towns and cities. Direct-to-consumer (D2C) brands, which carry no burden of legacy, are known for positioning themsleves closer to the consumers.
“There is a large FMCG market and the per-capita consumption in many categories is low. But the job to increase penetration is for larger companies and when D2C targets their consumers offline, they will face a bigger challenge,” Soumya Mohanty of Kantar had said in a report early this year. .
In recent years, multiple D2C brands have showcased that large retail brands can be built through new-age digital channels and that it doesn’t necessarily require a conventional retail approach to build brands in the contemporary retail environment. These D2C brands have also been able to foster a deeper connection with customers. It illustrates a shifting consumer mindset, where consumers are comfortable with online transactions and value the shopping experiences along with great products.
Traditionally, marketplaces have been able to tap into the potential in the festive season by launching massive sales. D2C brands had shied away from launching sales during this time for fear of high return to origin (RTO) orders and customer acquisition costs. But GoKwik said last month that D2C brands on its network saw a massive surge in order volumes on its platforms during the peak marketplace sale period this year, reversing the trend seen last few years when they see a dip in their orders when marketplaces launch their festive season sales. During the week-long marketplace sales, the GMV for D2C brands on the GoKwik network grew 1.5 times in 2023 over the year before. Order volume and GMV surged by 43% and 52%, respectively, around the same time as marketplaces also grew their order volumes. A year ago, brands on the GoKwik network saw a 7% decrease in order volumes and a marginal jump of 6.5% in the GMV.
“This reversal in trend is a sign of natural progression of the eCommerce market. It means that the market is deepening. It shows that D2C is rapidly gaining popularity among shoppers, who are looking out for best offers and shopping experience,” said Chirag Taneja, co-founder and CEO, GoKwik, adding that the trend reversal did not imply that shoppers preferred D2C over marketplace or vice versa.
Another worrying factor for big FMCG players could be the preferences of the consumers which will take to online shopping in near future, the masses at the bottom. A Redseer survey early this year had pointed out that while ‘affluent’ consumers are preferring premium products across categories and are highly willing to explore newer categories, ‘strivers’ are focusing on essentials and sachetisation, ‘mass’ consumers are highly value conscious and focus on optimizing price versus quality. The survey indicated that nearly 60% of these consumers are willing to buy unbranded products, provided they get the right ‘value’. The share of respondents was even higher for categories like home & kitchen and fashion.
The big FMCG companies would need to be nimbler and more experimentative to tap the vast emerging opportunity and to fend off upstart D2C brands that may not scale up to become their competitors but can grow in number to erode their market shares with small bites.
