Modern trade, or organized retail, the perennial new new thing in the Great Indian marketplace through the 2000s, is rapidly losing its lustre, with consumers graduating from mom-and-pop stores to e-commerce.
People are already drawing parallels between what is happening in this market and what happened in India’s telecom market in the 2000s, when hundreds of millions moved from having no phone at all to having a mobile phone, skipping traditional landline phones.
Or with what’s happening in terms of Internet access, with tens of millions accessing the Internet, for the first time, over the mobile phone and not the computer.
“I have absolutely no doubt that in India, e-commerce will do (to modern trade) what mobile phones have done to the telecom industry. We are going to leapfrog modern trade and hyper markets and go from mom-and-pop stores to e-commerce,” Harish Manwani, non-executive chairman,Hindustan Unilever Ltd (HUL), and former chief operating officer, UnileverPlc., the world’s second-largest consumer products maker, said at Nielsen’s Consumer 360 conference in Mumbai on Friday.
Think India. Think Retail, a February report published by property advisorKnight Frank India Pvt. Ltd and lobby group Retailers Association of India, estimated that the share of modern trade in retail would slip from 17% in 2013 to 13% in 2019, while that of e-commerce would jump from 2% to 11% in the same period
The overall retail market will double from around $500 billion this year to $1 trillion in 2020, another report by Boston Consulting Group and Retailers Association of India, said.
The numbers indicate a disruption—for the nine million mom-and-pop stores and, even more, for the 9,000-odd modern retail outlets across India.
It doesn’t help that India’s foreign investment rules—they effectively prohibit foreign investment in supermarkets and hypermarkets—have made e-commerce marketplaces such as Flipkart and Snapdeal proxies for any investor wishing to grab a piece of the famed Indian consumption story.
And even as modern trade struggles to go beyond the cities—there are over 50 with a population in excess of a million—e-commerce marketplaces such as Flipkart, Snapdeal and Amazon have already started delivering deep into the interiors.
Amazon India delivers to all of India’s 19,000 pin codes through a tie-up with India Post. Flipkart delivers to 1,000 cities, covering 10,000-15,000 pin codes. Snapdeal also covers all the pin codes in the country.
Sure, much of e-commerce is limited to books, electronics, phones, and apparel; the online sales of groceries doesn’t even add up to 1% of the overall consumer packaged goods sector. Then, even modern trade accounts for just around 6% of this, said Piyush Mathur, president, NielsenIndia, which is helping e-tailers grow the channel.
By 2020, e-tail will account for 6% of the revenue of consumer packaged goods companies such as HUL, Titan Co. Ltd and Colgate-Palmolive India Ltd and modern retail 8.5%, said UBS Securities India Pvt Ltd in a 17 April report.
Manufacturers such as HUL and Godrej Consumer Products Ltd are also working closely with the e-tailers.
For instance, HUL has designated distributors supplying to grocery e-tailers, ensuring availability on the online platform. It has also extended the credit period to e-tailers, a move that should enable it to build relationships and ensure shelf space for its products, the report added.
Groceries account for 65% of the consumer’s wallet spending, and if this category takes off online, there could be an upside to the growth of e-commerce which is expected to touch anywhere between $48 billion and $60 billion by 2020 from $4.47 billion last year, UBS Securities said in a 14 April report on e-commerce.
Grocery e-tailers such as localbanya.com and bigbasket.com have already got funding and are looking to expand.
Snapdeal launched its gourmet category in September 2014 and now has over 10,000 products on offer, said a company spokesperson.
In March, Amazon India launched a pilot ‘Kirana Now’ in Bengaluru, a partnership with five grocery stores to serve customers within two to four hours of orders being placed. “The intention is to take the pilot national,” said an Amazon spokesperson without giving a timeline.
Amazon is also working with traditional retailers through another programme, ‘Amazon Pickup’, where the retailer serves as a pick-up or delivery point for the e-tailer. This programme already covers 45 cities with 800 retailers on board.
Meanwhile, mom-and-pop stores are becoming more agile and providing different kinds of services—such as a wider assortment of products, being present online with their catalogues—to the customer to stand out from other neighbourhood stores. “The biggest hit in all this, though, will be to modern trade,” said Mathur.
Consumers shop online for reasons such as convenience, a wider assortment of products, better service and discounts. “Indian online consumers are deal-seeking value hunters, but they will not get deep discounts on their consumer staple purchases as trade margins are the lowest in the home and personal care goods sector at 12-17%,” said the 17 April UBS report. “Therefore, convenience and the availability of niche products may be the only reasons to buy consumer staples online.”
Modern retailers are also going online. Future Group, the parent company of listed retail companies like Future Retail Ltd and Future Lifestyle Fashions Ltd, announced in September an investment of Rs.100 crore to roll out its omni-channel retail strategy over the next 18 months. Omni-channel is a multichannel approach to sales that seeks to provide the customer with a seamless shopping experience, whether the customer is shopping online from a desktop or mobile device, by telephone or in a brick-and-mortar store. The retailer has also tied-up with Amazon to sell its private labels online.
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