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100m customers served: India looks to address future of e-commerce

Post a commentBy RJ Whitehead , 10-Jan-2017
Last updated on 11-Jan-2017 at 05:11 GMT2017-01-11T05:11:55Z

© iStock
© iStock

The number of Indians making online purchases is expected to break the 100m barrier this year, an increase of roughly one-third over 2016 as people get increasingly plugged in.

Assocham, the association of Indian chambers of commerce, outlined in a paper on online sales across all segments that better connectivity, the rise of broadband and internet-ready devices, along with an anticipated increase in digital natives, will fuel the growth. The charge will be led by shoppers in Bangalore and backed up by residents of smaller cities across India.

Bangalore, the centre of the tech industry and India’s main internet outlier, left behind all other cities in terms of its residents’ desire to buy online, with Mumbai and Delhi following, Assocham found.

Last year, 69% of Bangalore’s population opted to buy goods through their computers and smartphones, while the figure is expected to grow to 75% this year across all categories.

The value of the consumer e-commerce market looks even more promising. Whereas in 2013 it accounted for just US$3.6bn, that figure could rise to as much as US$17.5bn by 2018, as online retail continues to register a period of “unprecedented growth”, Assocham said.

E-commerce is big business and getting bigger every day. Online shopping has been embraced by Indians in the last year. Online buyers starting with a base age of 18 are become more involved with e-commerce in their early teens.

This year mobile commerce is expected to become even more important as companies increasingly look towards smartphones as a sales channel, according to the report. 

Mobile already accounts for 30-35% of e-commerce sales, and its share should jump to 45-50% by 2017. It is not only in the metro cities where the boom has been fuelled: a surge of web consumers shopping on mobile from second- and third-tier cities displayed “increased dominance”. 

Fifty per cent of our traffic is coming from mobile and a majority of them are first-time customers,” the paper added. 

Meanwhile online retail has continued to create a wealth of new job opportunities and entice entrepreneurs attracted to a segment with low barriers to entry.

The unorganised nature of this expansion could bring with it problems, however, especially as India is in dire need of suitable e-commerce laws to regulate growth. 

Moreover, the market’s ease of entry is leading to reduced competitive advantages, forcing hordes of newcomers to tinker with their business models and fight among themselves for limited manpower and customer loyalty.

More positively, Assocham has singled out improvements to India’s internet banking infrastructure and stronger government policies for the financial sector, leading to a reduction of cash transactions. 

It may be that the country’s e-vendors, which originally combined cutting-edge web technology with traditional cash-on-delivery payments, are finally moving towards more credit card sales, though it is still too early to gauge how successful this will be in a country where formal banking is not the norm outside major cities.

While Assocham’s figures reflect the overall e-commerce market, the food and beverage industry specifically has enjoyed a "Goldilocks" year in cyberspace: hot for some, frigid for others, and just right for some lucky start-ups. 

The government announced last April that it would begin to allow full foreign direct investment in e-commerce, bringing long-overdue clarity on FDI policy. The process is expected to attract more international companies to India—or overseas operators in the local market—over time.

It has been a brutal year for India’s online food-ordering scene, though, which has been going through a tough period of consolidation following a severe drop in funding across startups, and well-publicised layoffs by majors like Zomato and TinyOwl. 

Other tech delivery start-ups, such as Spoonjoy, Eatlo and Dazos, appear to have folded in the last year, with surely more to come in 2017.

One Gurgaon-based logistics and delivery business, ShadowFax, will be starting the new year on a high note, however. Last month it closed a US$10m second round of financing round led by Chennai-based Eight Roads Ventures—which also took the company into a US$8.5m Series A round last year.

Founded in 2015 by Abhishek Bansal and Vaibhav Khandelwal solely as a food-delivery platform, ShadowFax claims now to make some 30,000 deliveries a day in 10 cities, shifting a growing portfolio of goods to customers from many vendors including Burger King and Amazon, as well as local stores and restaurants.

The company has built a differentiated technology platform and diversified from being a food-only delivery player to now delivering for grocery, pharmacy and e-commerce clients,” Eight Roads’ Kabir Narang has said.

Elsewhere, the founder of a Bangalore-based online fish and meat delivery service claims to have doubled sales every three months since its launch last March.

Shan Kadavil said that he hopes to expand FreshToHome to nearly 20 cities this year. It currently has more than 80,000 customers in half a dozen markets in southern India and Delhi.

Rajan Anandan, managing director of Google’s India operation, claimed recently that FreshToHome had become the fastest company ever in Indian e-commerce history to reach US$5m in revenues from scratch. Yet an overwhelming number of variables makes it difficult to predict the fortunes of companies like FreshToHome in the medium-term, even if their early days have shown a great deal of promise. 

According to the BWDisrupt, Indian businesses have realised how strong food-tech can be as a channel for acquiring and retaining customers, who are “more forthcoming on adding to the revenue stack of such companies”. 

This, coupled with customers paying convenience charges, will see the sector moving towards viability,” the influential blog added. 

What companies must consider over the next 12 months, however, is how they can increase revenues, perhaps by forming partnerships with high-margin food suppliers. It is also to be seen whether internet kitchens, which deliver their own stock, or third-party delivery services like ShadowFax will become dominant.

 

More stories from South Asia…

Minister promises to keep food inflation under check ahead of bumper harvest

The government has made maintaining stable prices of all essential food items a priority this year in a bid to manage food inflation and temper unrest.

Food minister Ram Vilas Paswan said the government was in a position to tackle food inflation after the laboured National Food Security law began being rolled out. Moreover, Paswan said the this year’s Budget would feature a new Consumer Protection Bill to put a stop to price gouging. 

"During 2016, we were able to control the prices of pulses as well as sugar. This year, our focus will be to keep food inflation under check and protect consumers interest," Paswan told the PTI news agency. 

Retail food inflation dropped by 2.1% in November, according to the most recent figures available. Overall, India saw a modest reduction in its overall inflation rate over the last year, attributed to an extent to the government’s demonetisation policy that reduced the supply of India’s banknotes by 86% and left many without ready funds.

Food inflation can become a serious issue in India, prompting savvy lawmakers to keep a watchful eye on official figures so they can act quickly in the event of wholesale price increases.

New Delhi does not forget how, in January 1980, Indira Gandhi used the drama of rising onion prices to march back into power. Never one to miss an opportunity to stir the emotions over onions, the symbol of Indian cooking and widely regarded as India’s most important food staple, she would wave massive strings of the vegetable at campaign rallies. 

A government that cannot control the cost of onions is not worthy of being in power, she professed. A generation later, 1998 witnessed both a sixfold increase in the price of onions in Delhi and the fall of the state’s ruling government as a result. 

And in 2011, wary of historical precedent, Manmohan Singh’s administration acted quickly and forcibly to ban onion exports, scrap import taxes and even send for onion supplies from Pakistan. The reason: the threat of a poor onion yield.

Most recently, there was widespread tension in 2013—among politicians and consumers—over the price of food staples. In August that year, price inflation hit a three-year high of 18% after vegetable production was hit by heavy rain across large swathes of the country. By December, onion prices were found to have doubled since the start of the year.

This time round the government has its eye on pulses, after being under siege a year ago by spiking prices of rice, wheat and lentils following a shortfall in production.

Paswan, the food minister, last week assured Indians that there would not be another pulse crisis this year due to an anticipated bumper domestic harvest that is expected to produce a record 20m-21m tonnes. 

Moreover, the government will create a 2m tonne buffer stock, which will be made available once prices begin to rise.

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