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Unlocking the Indian eB2B retail opportunity

Published in Jul, 2020

Executive Summary

Part I: Unlocking the Indian eB2B retail opportunity

Understanding the age old plight…

Being the owner of one of the four kirana stores within a radius of a kilometre has done no favours to 53 years old Umesh Chand. He owns a 250 square feet store in Kaithal, Haryana. When he started 25 years back, he was the only store in the neighbourhood. Business was good and margins were high. Cut to 2017, things took a drastic turn. The other stores run by a younger, more tech savvy lot gave tough competition to Chand.

While one of the new stores was getting his supplies from cash and carry, the other two relied on eB2B portals to get the best prices which helped them give better discounts.

Chand on the other hand preferred his old suppliers in the nearby wholesale market and made a fortnightly trip to buy goods in bulk, a decision for which he paid dearly a long time.

Things finally changed when his nephew heard his plight. He did a thorough market survey and spoke to two a few cash and carry companies as well as eB2B players.

Finally, they zeroed in on one eB2B player, who provided them with a one-stop modernization & digitization solution to improve margins, profitability, sourcing channels and compete with the modern retail landscape

They helped remodel his traditional closed format kirana store into an open format one to make it more modern and competitive. From getting the right set of inventory management tools, credit line, delivery and logistics help to a robust point-of-sale (POS) system Chand business was made future proof. Further, his business also benefited from the consumer pull that the eB2B player enabled by providing more product choices and localized consumer promotions.

Just like Chand, India has north of 13 MN kirana store owners who are waiting to turn digital with the right ally. The country by all means is set to be the biggest eB2B market and the market size by 2025 could be over $60 BN. The opportunity is driven by the growing need to have a ‘kosher’ supply chain which is not marred by middlemen who create barriers which cause stress on the retail journey of a kirana store owner and end user- the customer.

Why is the Indian B2B Retail Industry ‘the opportunity’ to tap?

Driven by consistent expected increase in private consumption, the Indian retail market is expected to grow at ~10% CAGR to reach ~$ 1.6 TN by FY 25.

Despite the current economic slowdown and our expected normalized real GDP forecast of 6 to 7%, we expect  the private consumption expenditure to continue driving ~60% of the nominal GDP. This is predominantly going to be driven by consumer retail consumption of goods, which is expected to continue driving ~50% of the private consumption. Driven by the same, the consumer retail market will grow at 10% YoY from nearly $900 BN today to reach $1.6 TN by FY 25.

Multiple intermediaries exist between the brand and end consumers

This huge retail market is facilitated through a long B2B retail supply chain between the brand / manufacturers, and the end consumer through multiple intermediaries. All these complexities bring in their own set of implications.

Mostly, there are as many as four to five layers of intermediaries starting from a forwarding agent, distributor, a sub distributor, a wholesaler to finally a retailer a brand / manufacturer needs to go through to get to the end user.

This traditional system of supply chain causes multiple bottlenecks that lead to longer timelines, losses in efficiency, issues with quality and most importantly, reduction in retailer margins.

Despite varying personas for various intermediaries in the traditional retail value chain, they face challenges.

It is fascinating to see that the people involved in the retail value chain, while they are all working towards the same goal, face several issues in their day to day operations. These issues could be similar or diverse, based on the role they play in the entire process.

In this retail value chain, the 13 MN traditional mom & pop retailers are the big rollers for driving the retail consumption due to their deep penetration, especially in Bharat (Tier III cities and beyond). A Mom & Pop store owner is mostly a first generation college graduate who earns less than $40,000 a month in store sales. For them getting a credit line as well as reliable contacts for sourcing products is a major issue.

These intermediaries engage with each other through multiple models, with unorganized B2B driving bulk of the market (>70% by value).

This consumer retail market in India is largely un-organized, which drives 72% of the retail goods flow by value. The key stakeholders in this value chain are ~13 Mn class B/C/D retailers (turnover of less than USD 40K per month), who are largely under-served by brands and distributors. These retailers get on an average ~65-70% fill rates, even from brand distributors. Estimated 70% products reach retailers through wholesalers without formal credit, no service and limited selection. This high number of retail stores plus a plethora of smaller wholesalers / stockists operating in the supply chain, create a challenge for demand consolidation for the brands / manufacturers.

A broken retail chain causes nothing but pain to buyers and sellers

Various supply chain issues bog down everyone starting from brands / manufactures, distributors, wholesalers,    to retailers. Limited resources and non-availability of tech tools are just a few of the problems they have to deal with on a daily basis.

Issues are plenty for buyers (Retailers and smaller wholesalers / stockists), mostly ranging from finding easily available quality products, right pricing, getting reliable vendors on-board, credit availability, minimum order quantity requirements to getting consistently good pricing on products.

During our research, we also discovered several pain points that sellers face. Sellers in this supply chain include brands / manufacturers, C&FAs, Distributors, Wholesalers and Stockists. For them, the major challenges range from understanding end consumer trends and behaviour, availability of reliable logistics partners and a large geographic presence.

Un-organized channels leave a long line of dissatisfied buyers and sellers

Over the years, dealing with unorganized channels has given heart-burn to a host of buyers and sellers. During our research, we have found out that a buyer’s experience through the whole process is mostly less than satisfactory or just bearable.

In most parameters starting from product selection, pricing, trade schemes availability, credit options and interest rates, ‘Buyers’ are mostly left wanting for more. Cost of logistics is high and the delivery footprint or the pin-codes covered is quite low. This creates major gaps in the supply chain for these players. On a scale of 0 to 10, most of the scores given by buyers on the said parameters is between a low 3 and 6.5.

‘Sellers’ too face massive issues around lack of good logistics options. Their satisfaction levels are even lower compared to buyers. Most of them face issues around predicting demand, discovering potential customer base and lack of credit to funding their working capital requirements. On a scale of 0 to 10, sellers mostly just gave between 3 to 5 points.

Seizing the $1.3 TN B2B retail opportunity – channels such as eB2B and Cash & Carry, are expected to take increasing share from the ‘Un-organized’ pie

This $714 BN Indian retail B2B market would grow at the same CAGR of 10% of the B2C retail market growth as highlighted earlier, to reach $1.3 TN by FY 25.

The largest chunk of this $714 BN B2B retail market in FY19 currently is driven by the un-organised B2B retail, where numerous smaller sellers such as wholesalers, stockists and sub-stockists operate, and supply branded as well as un-branded goods to the retailers.

According to our research, around 72.2% of all B2B retail is still un-organized.

 Driven by the challenges faced by the buyers and the sellers from the un-organized play as elaborated earlier, we expect that the share of the un-organized play will be challenged, and new models such as eB2B as well as Cash & Carry will grow faster by capturing more share from the un-organized pie driven by several merits.

eB2B specifically is expected to grow the fastest, at a CAGR of >80%, driven by its capability to connect everyone in the whole retail supply chain. It helps in connecting all the dots for a traditional retailer. A traditional retailer is able to jump over a lot of barriers as eB2B does the tough task for them of connecting to the right set of people to fulfil the requirements of a retailer.

Starting from handling delivery logistics, warehousing needs, getting the right inventory from the right set of distributors to taking orders online and getting them fulfilled by the retailer, eB2B has the capability to fill in the blanks. Driven by the same, eB2B will outpace all channels in terms of growth.

Huge margin potential in the retail supply chain is available for new models such as eB2B to tap

At present in tier-I cities, on an average while C&FA has a maximum of 3% margin, organized cash and carry potentially have a margin between 7 – 9%. For direct distributors the margin ranges from 5 – 7%, and wholesalers who buy from them get a margin of around 3% when they sell to retailers.

In the retailer supply chain in the tier-II and Bharat cities, there are additional intermediaries which affect the retailer as well as the end consumer. In Bharat cities, stockists, sub-stockists,distributors and wholesalers – most of them come into play and consume margins.

Currently eB2B has margins of between 0 – 4%. But the potential to increase that almost two-fold is immense majorly due to direct procurement from brands, providing value added services such as tech. solutions and credit among other things. Going further, it can have a strong play in tier-II and beyond cities as it addresses the problems of fragmented supplies and inefficiencies in the traditional retail supply chain. We believe that eB2B certainly has the potential to make 7-9%, with room to make additional 3 to 5% through additional profit streams like marketing and new product launch services (for which brands have a separate trade marketing budget).

Part II: eB2B retail – Cruise control Post COVID

Indian retail economy is on a strong growth path to reach $1.3 Tn in the next 5 years; 13 Mn Kiranas form the backbone of this Retail in India. Kiranas have specially proved their resilience in the recent times of Covid on merits such as accessibility/reach, home delivery, localized experience, selling on credit, support from the govt. etc.

These Kiranas have various business as well as financial needs such as inventory management to reduce cost of operations, transparency in pricing and newer revenue streams, effective support on Credit, Credit Management, GST support, Digital Payments and so on.

To address these issues various business models have come up. While multiple eB2B models have come up on the fintech and retail side already who are trying to act as one stop shop for all Kirana needs, the interesting bit is the sector convergence happening with certain other B2C sectors.

Driven by the above, Digital models will drive the ‘Phygital’ kiranas and enhance the potential of the channel to further bolster its role in the strong Indian $1Tn Indian Retail economy.

This report covers both, sector-level insights on eb2b retail business model as well as individual player-level insights such as or related to Udaan business model, NinjaCart Business Model, Udaan revenue, ShopX business model and Ninjacart revenue.

  • See: Inside the Report

    Part I: Unlocking the Indian eB2B retail opportunity

    1. Why is the Indian B2B Retail Industry "the opportunity" to tap?
    1.1. India retail market size and growth forecasts
    1.2. B2B Retail value chain
    1.3. B2B intermediaries personas
    1.4. Types of B2B models
    1.5. Buyer satisfaction and pain points
    1.6. Seller satisfaction and pain points
    1.7. B2B margins by product category and B2B model
    1.8. B2B retail market size
    1.9. Market size segmentation

    2. Indian eB2B market opportunity - “The Juggernaut”!
    2.1. eB2B overview: product flow and value proposition
    2.2. User satisfaction with eB2B
    2.3. Comparison on user satisfaction with other B2B models
    2.4. Awareness and willingness to use for eB2B
    2.5. Key triggers for eB2B adoption
    2.6. NPS metrics
    2.7. Government regulations overview
    2.8. Comparison with eB2C
    2.9. eB2B market opportunity
    2.10. Growth drivers

    3. Current Indian eB2B business models - “What it takes to win”!
    3.1. eB2B business models classification
    3.2. eB2B models classification
    3.3. Case study - Udaan
    3.4. Case study - Shopx
    3.5. Case study - JumboTail
    3.6. Case study - BigBasket Business
    3.7. Case study - Ninjacart
    3.8. Player comparisons
    3.9. Unaddressed opportunities

    4. “The Path to Profitability”!
    4.1. Deep dive: 4 key levers
    4.2. Case study - Alibaba

    5. COVID impact on eB2B
    5.1. COVID impact on business operations
    5.2. Kiranas opportunity
    5.3. Expected growth and category evolution post COVID
    5.4. Changes in user behavior and preferences

     

    Part II: eB2B retail – Cruise control Post COVID

    1. The Big Picture – How COVID-19 impacted India eB2B retail?
    1.1. India eB2B retail value proposition
    1.2. Indian B2B retail market opportunity
    1.3. COVID Impact
    1.4. Revised market, category growth estimates
    1.5. Pain points from traditional retail supply chain
    1.6. eB2B Value Proposition
    1.7. COVID GMV impact post lockdown

    2. Retailer sentiments and their implications
    2.1. eB2B Recovery Curve post COVID
    2.2. eB2B retail awareness and willingness post COVID
    2.3. eB2B retail Share of Wallet post COVID
    2.4. eB2B retail usage criteria - pre COVID vs post COVID
    2.5. Purchase shift post COVID – eB2B retail vs Others
    2.5.1. cuts by city tier
    2.5.2. cuts by retailer turnover
    2.6. NPS metrics
    2.7. VAS adoption among eB2B retail users
    2.8. Willingness to try and pay for VAS - non eB2B retail users

    3. eB2B retail - Post COVID growth journey
    3.1. eB2B retail recovery curve
    3.2. eB2B retail - retailer penetration and growth
    3.3. The Path Ahead
    3.4. Case study - Jio Mart
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