e-Grocery to witness massive competition to win customer wallet share
In a year of business disruption caused by the coronavirus pandemic, BusinessLine caught up with Mrigank Gutgutia, Director at RedSeer Consulting, to evaluate the near-term and mid-term prospects for the e-commerce sector, consumer and investor sentiment, the need for innovative business models and partnerships to sustain growth, post lockdown. Here are some excerpts from the interview.
What are the prospects for e-commerce in 2020 given the business disruption caused by the coronavirus pandemic?
The $70-billion consumer internet economy including e-tailing, travel, mobility, food-tech, ed-tech, event ticketing, and content, among others, has taken a bad hit with a 90 per cent drop in GMV in April 2020 as a consequence of the economy coming to a grinding halt due to the Covid-19 lockdown. According to pre-Covid estimates, consumer spend in the consumer internet economy was expected to grow at 30 per cent to touch $160 billion by 2022. While fresh food, groceries and essentials have emerged as clear winners during the lockdown, the most challenged consumer internet sectors are travel and mobility, which will take a long time to recover.
However, e-tailing is expected to see muted recovery over the next four months with GMV below pre-COVID levels with a small rise in May as home products, home entertainment, electronics and mobiles will see an uptick in GMV. Challenges of interstate movement of goods and availability of delivery staff will continue over the next few months, further curbing demand. Expect a massive rise in the October festive season sales month, as consumer sentiment and e-tailing operations recover and many traditionally offline purchased categories during the festive season shift to online due to lingering social distancing norms. I would like to add that e-Grocery, which includes essentials, has risen during the crisis and is likely to see a GMV increase of 30-40 per cent in April, higher than in January 2020. It could have risen much higher but, was crippled by shortage of delivery executives, therefore fulfilling only 10 per cent of the actual demand.
How much of a spike in GMV do you estimate for the festive season period? Will it sustain through X’mas/New Year to Valentine’s Day in February?
We expect GMV of $6.6 billion (₹47,000 crore) in the October 2020 festive period, compared to $5 billion (₹35,500 crore) in the 2019 October festive period, indicating a massive explosion of pent up consumer demand. Both high-ticket items and fashion/home categories will do well. Growth will be driven by existing shoppers who will shift to online purchases across categories and also by new customers acquired during the lockdown period. While December and January will see continued growth in the fashion category, it is difficult to comment on demand beyond this time frame right now. E-tailing exited calendar year 2019 with overall GMV of $27 billion, growing at 27 per cent YoY. In our estimate, e-tailing will exit 2020 at $32 billion registering a conservative 20 per cent growth. We talked to 2,500 consumers pan India, over 100 key decision-makers and 200 industry experts to arrive at these estimates.
What kind of consumer spend do you expect to see post lockdown, in the near-term and mid-term?
A four-month recovery to original spending levels can be expected for most consumers till the festive season rolls in. In the interim, short-term pain is likely for discretionary categories like beauty, electronics, etc. This is because, the consumers we surveyed, indicated high levels of pessimism for their near-term online and offline consumption in these categories. Tier 2 plus consumers are extremely bullish about online shopping post-Covid, especially for groceries, indicating that the non-metro Bharat story could finally come to fruition for e-tailers. Online meat ordering has taken a hit from the future consumption standpoint. Therefore, meat e-tailers need to push for better communication of their safety measures and farm-to-fork traceability.
The lockdown has resulted in a 5X – 10X spike in customer acquisition rates for e-tailers of groceries and essentials. Do you see the number of online shoppers sharply increasing from 135 million in 2019 post the lockdown, or do you see the new customers reverting to shopping offline?
Around 160 million online shoppers are expected in 2020, up 20 per cent from 2019. Many who have tried e-commerce for essentials in 2020 may end up expanding their online wallet share this year. Strong growth is expected from non-metro shoppers in 2020.
Will the post Covid-19 world require e-commerce platforms to come up with new business models or ways of serving the consumer?
e-Grocery will see massive competition with deep innovation required across the value chain in order to win customer wallet share. For instance, quick delivery is a key need for consumers who are frustrated by slow delivery times during the lockdown. Platforms need to work on this to win customers. You will see a rise in hyperlocal/marketplace-based fulfilment and a drop in long-distance, inventory-based fulfilment. While Amazon and Flipkart will push for hyperlocal/marketplace-based fulfilment of customer orders, Jiomart will further drive the need for hyperlocal deliveries. The rise of social commerce will finally happen as consumers spend more on digital communications. So, Jiomart and Facebook have timed their partnership very well. There is a dire need for partnerships to tide through this tough year. For instance, partnerships in sourcing (Flipkart + Spencers), in logistics (Flipkart + Uber), in user engagement (Snapdeal + Hungama) and partnerships with NGOs too. Brands and e-tailers need to invest in consumer engagement via livestreams, taking a cue from Chinese models which have seen massive success.
Is investor sentiment positive, negative or cautious towards start-ups ?
Investors are bullish about committing monies to ed-tech, content and gaming start-ups, which have acquired hundreds of thousands of new customers during the lockdown. But they are adopting a wait and watch approach to see how many of these new customers, majority of who are free users, can be converted to paid customers by these start-ups, before they actually invest in them.