[The Outline By Inc42 Plus] A Digital Diwali… But Will It Be A Happy New Year?

Hey!

Time to wake up!

After the gloom of the past six months, the end of September brings a glimmer of sunshine and optimism. And no, we aren’t forcing ourselves to say that. 

While Diwali is not on the calendar till November, October is when things are beginning to kick into gear. If your home is anything like millions of other Indian homes, the preparations would be well underway with checklists of things to do before Diwali — perhaps the biggest Diwali in many years for millions of Indians still shellshocked by Covid-19. 

The festival season is also set to bring cheer for businesses that have been hammered just as badly by the pandemic. And signs of recovery are already being seen on the ground to some extent. For instance, Indian startup funding deal sizes in Q3 2020 surged 167% compared to Q2.

Ecommerce companies, for one, are stretching and warming up to meet the expected demand surge in online shopping because of the many new internet users acclimating to the online shopping experience. The major ecommerce marketplaces like Amazon and Flipkart have already launched banners for their upcoming festive sales. 

Besides the uptick in demand for online shopping due to Covid, the entry of Reliance into the ecommerce fray and pent-up consumer demand are also seen as the signs for an expected growth in ecommerce sales. The reports have predicted ecommerce GMV to grow by 50% this festive season, as compared to the last. 

Further, the number of online shoppers during the festive season is expected to expand by about 70% to about 45 Mn-50 Mn in the first few months. As Dussehra is just the beginning of festivals in India, closely followed by Diwali, Halloween, Christmas and finally New Year.

Research firm RedSeer estimates that Covid-driven digital adoption will add 30 Mn-40 Mn new online shoppers in the whole of 2020, in addition to the 130 Mn shoppers recorded in 2019. Adding to this, Kunal Gupta, consumer intelligence lead at Nielsen Global Connect said that through the past six months, around 37% of ‘online shoppers’ have been buying products from fast moving consumer goods (FMGC) category online for the first time at least once a month. In 2020, Nielsen Global Connect expects nearly half the ecommerce sales to come from Indian cities with less than 10 Lakh population. 

Ecommerce-focused supply chain SaaS platform Unicommerce also noted a similar trend in business queries from Tier 2 and beyond cities. “Prior to lockdown, just 30% of queries were from Tier 2 and beyond cities, but now this number has seen an exceptional growth contributing over 50% of overall queries,” CEO Kapil Makhija said. According to an Internet and Mobile Association of India (IAMAI) report, India had 227 Mn active internet users from rural India as compared to the 205 Mn internet users in urban India in November 2019.

With JioMart’s entry, the reach of ecommerce is also expected to grow significantly. In India, Reliance’s is often considered as a brand for the masses. For new and first-time shoppers, having a trustworthy brand name helps in strengthening the confidence in online shopping. 

“JioMart’s foray will definitely fasten [sic] the adoption of online shopping — especially in semi-rural households where trust is a major concern. In turn, this will lead to an increase in ecommerce share of the purchase pie. I think JioMart will capture new users more than existing ones and in Tier 2/3 cities more than in Tier 1,” Ashray Gupta, management consultant at Boston Consulting Group (BCG) told Inc42. 

Despite a rapidly growing number of online shoppers, the country’s ecommerce market is still small — it was pegged to be at $38.5 Bn in 2017 by IBEF and is projected to grow to $64 Bn in 2020, according to Statista. This is in stark contrast to the ecommerce market size of China which is pegged at over a trillion dollars. 

For this reason, the Indian market may not be able to absorb multiple ecommerce giants like the Asian powerhouse. While Flipkart and Amazon together control over 70% of Indian ecommerce today, Reliance’s foray with billions of dollars in funding is sure to put pressure on the duo.

In a sense, this season’s festive sales might turn out to be a harbinger of how the heated market will evolve over the next couple of years. While Flipkart and Amazon may have braved the black swan event that the pandemic is, it will be interesting to see how they deal with the onslaught brought about by India’s richest man. 

Festive Cheer For Digital Payments

With the onset of the Covid pandemic, digital payments had taken a beating as people lost jobs and economic activity dwindled. The volume of UPI transactions, for example, plunged in April to INR 1.5 Lakh Cr, but it has doubled to INR 3 Lakh Cr in September, according to data published by NPCI on Thursday.

“This festive season digital payment volumes are likely to receive a boost. We should see increased usage of online payments especially with UPI,” said Harshil Mathur, CEO and cofounder of payments facilitator Razorpay. Further, 50% of new users are expected to make an entry during the festive season are likely to be from smaller towns and Tier 3,4 cities. 

“The consumer behaviour from Tier 2 and 3 cities towards digital spending has rapidly changed in the last 4-5 months. We foresee demand to increase by 60% in ecommerce purchases from Tier 2, 3 cities since a lot of businesses have moved online,” the Razorpay founder added.

However, the surge in digital payments is not restricted to just ecommerce payments as even storefront digital payments too have grown in lockstep. 

“We believe that the retail market is upbeat and committed to mitigate the impact of Covid-19. In September, we are already at 50% above the pre-Covid levels in the value of the transactions we process,” said Suhail Sameer, group president of BharatPe, which offers QR code payments at retail stores. 

These efforts are in sync with the revival in consumer demand in many key sectors. 

Consumer Demand Brightens Ecommerce Prospects

Apart from automobiles, where carmakers reportedly registered a 13% rise in shipments to vehicles dealers, other bright spots in the economy emerged this week as GST collections rose to a seven-month high of INR 95,480 Cr in September 2020. This means that business is recovering in many sectors. 

Another positive indicator is the expected spike in smartphone shipments, which account for a large share of ecommerce transactions this time of the year. 

Counterpoint Research analyst Shilpi Jain said the firm expects smartphone shipments to grow 7%-10% during the festive season compared to last year. Given that Diwali was in October last year, shipments peaked in September whereas this year, the same is expected to happen in October as Diwali is on November 14. Jain expects that there would be a growth of 20%-25% in month-on-month smartphone shipments in October. Last week, Apple also announced the launch of its online store in India, just in time to tap into the festive season demand. However, some customers have noted gaps in the online store’s customer experience, maybe the company has been a little too hasty. 

Anticipating the demand, ecommerce warehousing and logistics capacity are being beefed up — Flipkart has expanded its wholesale unit to 12 new cities to support local kirana stores and other MSMEs, while Amazon is setting up five new sort centres in Visakhapatnam, Farrukhnagar near Gurugram, Bengaluru, Mumbai and Ahmedabad. Amazon will also expand its eight existing sort centres to boost its overall capacity to meet pan-India demand. 

The rapid expansion of the two ecommerce behemoths will also have a second order effect on job creation. While Amazon claimed that its operational buildout has already created 100,000 seasonal job opportunities ahead of the festive season, Flipkart said that its Big Billion Days  would generate 70,000 direct and lakhs of indirect employment opportunities.

Ayyappan Rajagopal, head of business, Myntra, also noted the company’s intensified focus on driving customer acquisition in Tier 2, Tier 3 and southern markets through a multi-pronged scheme including brand endorsers across cinema, cricket, and digital, along with a diversified market-contextual and multilingual approach to its marketing campaigns. 

Third-party logistics players are also seeing higher demand in non-traditional markets. Shiprocket cofounder and CEO Saahil Goel noted that in August, the logistics tech company saw about 60.4% growth in first-time sellers from Tier 2 cities, as compared to 39.59% of first-time sellers from Tier 1 cities. Similarly, Logistics service provider Delhivery is also expecting to ship 65 Mn to 75 Mn packages in the coming festive season, which is almost a 100% growth over last year for the company.

Abhishek Rajan, COO of Paytm Mall, said the company has started the preparations for the upcoming festive sales and is investing towards onboarding more sellers, merchants for its offline-to-online business, and logistic partners. 

“Our special focus is on SMEs and ‘Make in India’ brands that are being extensively promoted on our platform. While overall demand compared to last year might be tempered, we believe that certain categories including home electronics, work from home essentials, athleisure wear, and home and kitchen products will do well,” Rajan added. 

Meanwhile, a Snapdeal spokesperson shared that the company has planned three mega sales for this festive season —- first one in mid-October coinciding with Navratri, closely followed by the two more which will run in late October and early November. 

While ecommerce biggies claim how their growth is going to help the small businesses in the country, traders and brick and mortar retailers aren’t convinced that the offline to online transition will turn out to be benign for them.

The practice of deep discounting is something that traders’ body CAIT has been opposing for a while now. CAIT’s position has been that by offering deep discounts ranging from 10% to 80% on their ecommerce portals, these companies are influencing the prices. 

In an effort to level the playing field, the traders’ body is launching a phygital marketplace in October to plug millions of brick and mortar shops in the country to digital commerce. CAIT has also asked the government to constitute a monitoring committee to regulate and check the festival sales held by ecommerce companies. Meanwhile, mobile phone retailers have reportedly asked handset makers to offer them the same deals as ecommerce players so they can pass on similar discounts to customers. 

Besides omnichannel and ecommerce marketplace, Covid-19 has also led many brands to choose the direct to consumer (D2C) option. With the growth in demand and expansion of the new shoppers’ base in India, D2C also seems to have a better chance in the user-acquisition game now. Which justifies the growing investment by new-age D2C Brands like mCaffeine. The personal care brand claims to have expanded its warehousing capacity to three times of the pre-covid level. The company is expecting at least a 50% jump in its sales this festive season. 

Will D2C Brands Cash In On Online Rush?

Naturally, any increase in the number of online shoppers is a sign of the market maturing and the more habituated ecommerce consumers will gravitate towards D2C brands for a differentiated experience. 

“Overall, the market has opened up for D2C brands as trust levels in the online purchase ecosystem rise. For festive sales, sales this year will rise (some reports expect a 20% jump) as more and more people order online and in the next 1-2 years, sales should boom as the economy charts a path of recovery and disposable incomes rise,” added BCG’s Gupta. 

Unicommerce’s data also shows that order volumes from brand websites grew by 88% as compared to 32% growth from ecommerce marketplaces since the Covid-19 outbreak. The company is expecting similar or higher growth for D2C brands in the current festive season. 

While all data points signal a spike in sales for ecommerce brands and a possibility of a good Q3 after two troublesome initial quarters, there is still need for some caution in terms of the spending capacity of consumers. India’s GDP has contracted by 23.9% (YoY) in the April-June quarter, about 41 Lakh people are said to have lost jobs in India during the pandemic —  will this economic downturn mean conservative shopping trends in India or would ecommerce sales help fulfill the pent-up demand? 

A Digital Monopoly?

After Chinese apps, the glare of the Indian tech world has fallen on the Google Play Store. The tech giant recently said that all developers selling digital goods in their apps must use Google Play’s billing system (from Jan 2021). Which means the digital companies will have to pay 30% commission on all in-app purchases. 

This includes purchase of virtual items, subscription services (such as fitness, game, dating, education, music, and video), ad-free version of an app, data storage services, business productivity software, and financial management software. For many Indian tech startups, operating at a zero profit margin, such a commission rate would mean taking an additional -30% hit on the EBITDA. 

This clarification on Google’s Play Store payments policy has come on the heels of Indian fintech major Paytm being pulled down from the Play Store for allegedly violating Google’s gambling payments policies last month. Earlier this week, food delivery apps Swiggy and Zomato were also called out by the software giant for their sports-based cashback program. 

This all has naturally upset quite a few startups and many Indian startups are now considering the possibility of moving away from Google Play and setting up an alternative app store. Even, Indian government is reportedly planning an India-focussed app store which would become pre-installed in all phones to enable reach. But will an India-focussed app store match the scale of reach provided by these popular app stores? 

A Digital Future

The pent-up consumer and business demand also presents an opportunity for young startups to enter the festive bandwagon. Inc42 has curated a list of 30 early-stage startups that have shown the most promise in the past few months even as the Covid pandemic hurt sales and funding flows, as part of 30 Startups To Watch series. 

Among a slew of D2C brands entering the festive fray is Bold Care, a startup that caters to the men’s health and wellness segment. In true D2C fashion, the startup manufactures its own products in GMP-approved facilities and has no middlemen hence guaranteeing consistent quality. 

Cub McPaws, an ecommerce platform for kids that uses a patented AR technology to drive engagement with consumers, is also on the list. The company also claims to be growing its business at 50% month-on-month.

Apart from ecommerce startups, the most dominant sector on the list is enterprise tech — a sector that seems to have got a big boost due to the post-pandemic market conditions. Companies that ease operational hurdles that have seen their stock rise and are also seeing increased investor interest. 

While the dates for India’s biggest ecommerce sales are not announced yet, there’s a great deal of hype and anticipation for a season of big discounts and finally, some festive cheer for ecommerce marketplaces, sellers, brands and the consumer. 

Happy Shopping, 

Yatti Soni & Deepsekhar Choudhury