india rising no.2 e-commerce disruptors in india march … · e-commerce disruptors in india...

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1 March 24, 2017 Deborah Weinswig, Managing Director, Fung Global Retail & Technology [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2017 The Fung Group. All rights reserved. This is the second report in our India Rising series focusing on the Indian startup ecosystem. We identify the following four retailers as the main disruptors in Indian e-commerce: Flipkart, Snapdeal, Quikr and Bigbasket. There are five primary factors that have shaped the Indian e-commerce sector: 1) A paucity of modern retail stores has boosted demand for products and brands sold online. 2) Strongly price-competitive e-commerce marketplaces are well positioned to attract shoppers with limited incomes, who constitute a large part of India’s consumer population. 3) Offering cash on delivery (COD) as a payment option allows more Indian consumers to buy online. 4) India has one of the world’s largest Internet user bases, and Indian consumers’ disposable incomes are increasing. 5) Government restrictions on foreign investment in India’s retail sector and Amazon’s and Alibaba’s relatively late entries in the country have helped domestic startups gain a strong foothold. Deep Dive: India Rising— E-Commerce Disruptors in India Deborah Weinswig Managing Director Fung Global Retail & Technology [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016

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Page 1: India Rising No.2 E-Commerce Disruptors in India March … · E-Commerce Disruptors in India Deborah Weinswig Managing Director Fung Global Retail & Technology deborahweinswig@fung1937.com

1

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— E-Commerce

Disruptors in India

Deborah Weinswig

Managing Director

Fung Global Retail & Technology

[email protected]

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

Page 2: India Rising No.2 E-Commerce Disruptors in India March … · E-Commerce Disruptors in India Deborah Weinswig Managing Director Fung Global Retail & Technology deborahweinswig@fung1937.com

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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

Page 3: India Rising No.2 E-Commerce Disruptors in India March … · E-Commerce Disruptors in India Deborah Weinswig Managing Director Fung Global Retail & Technology deborahweinswig@fung1937.com

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March24,2017

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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March24,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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March24,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

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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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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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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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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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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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,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