E-commerce is in its early days in India but has the potential to be an important high-growth sales channel for manufacturers. Rapid uptake can be attributed to its convenience as it leap-frogs the development of a traditional bricks-and-mortar infrastructure. Mini Pant Zachariah investigates. 

As in other global markets, India is increasingly becoming a nation of Internet users, thanks to increased access and a rise in smart phone penetration. There are currently 159m mobile telephone users in India, a number projected to rise to 300m by 2017, according to research by KPMG and the Internet and Mobile Association of India. 

Shubhendu Roy, principal at management consultants AT Kearney, highlighted the degree to which Internet access is shaping Indian consumption patterns. Speaking at the India Food Forum staged in Mumbai last month, Roy revealed 53% of urban dwellers in India are online, more or less every waking hour. As many as 55% urban Indian consumers under-25 shop online once a month: “Consumers are using the [online] channel across the purchase-decision cycle, for discovering, exploring, buying, services, etc,” he observed. 

Shopping online is becoming more commonplace in the country and the development of e-tail means India’s retail landscape looks set to almost bypass the development of a broad-based modern bricks-and-mortar marketplace and move straight to the age of digital retailing. 

One of the primary reasons for the success of the online model is its convenience. At present, the consumer has to go to five different brick-and-mortar stores for something as simple as organising a party. “There is huge potential for online retailer to not only act as an assortment provider but also act as an aggregator for the Indian consumer,” Roy noted. 

Counting online retail as one of the major enablers for growing foreign food brands in India, Harshita Gandhi, director of India-based foreign food importer Tree of Life, said: “We operate in 45 cities across India but we supply to 62 cities. This includes places we never thought we needed to venture into.” Waking up to this demand and how the consumer is exploring new products can help manufacturers and suppliers plan new strategies, Gandhi suggests. 

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Elsa Fairbanks, director of the UK’s Food and Drink Exporters Association, concurs that online is becoming an increasingly important sales channel for international food companies that want to export to India. “The market is evolving quickly… The future appears to be with e-commerce. Both local players, like Big Basket, and global ones, like Amazon, are working with local importers to bring imported products into India and make them available to a wide range of Indian consumers,” she tells just-food. 

That said, retail consultant Dr Joost van der Laan, founder of Retail Economics, told the India Food Forum that, for a very effective player it may take up to five years to break even in online retail in food and grocery.

However, Indian e-retailers remain bullish. “In traditional and modern retail, 80% of the cost is rent, manpower and power supply, which is constantly rising. When the 17,000 square feet store space is now contained in mobile phone measuring four by three inches, it seems profitable,” said K Radhakrishnan, co-founder of GrocerMax.com.

Radhakrishnan argued unit economics really exists in Indian online retail: “The reason why online grocery retail believes and has the conviction to do better is because you can go to a cheaper source of rent, [and] store costs are substituted by the delivery van: the moment you optimise the delivery van [and] you put [your service] on a database, I think it becomes profitable.”

In a country where the profit margins on food and grocery is 12-16 %, one route to profitability is through bigger basket sizes. So, impulse buying and selling of goods with a higher profit margin are both important, which is something Radhakrishnan and van der Laan, noted.

And online shopping can offer achieve this by offering choice. “Online has a competitive edge: compared to 1,300 SKUs of a traditional retail or 10,000 SKUs of a modern retailer, an online retailer can capture up to 200,000 SKUs,” said Tapan Malhotra, vice president sales at Indian mobile e-commerce platform Grofers.

Seshu Kumar, national head merchandising at e-commerce firm BigBasket.com, agreed. Kumar said technology is woven into every part of his company’s strategy. The two major challenges for online retail are supply chain management, delivering to customers what they want, when they want and with 100% quality; and ensuring that merchandise is available. Kumar said BigBasket does not officially launch services in a regional market before it builds a supply of 10,000 SKUs to meet likely orders.

Kiran Komatla, associate vice president for IT, at Burger King, warned that e-commerce investment and technology plans needed to be flexible. “Technology platforms are changing very fast. You cannot decide on a particular technology for the next five years. You need cutting-edge technology that is scalable that can accommodate the business needs,” he told the conference.  

And technology – coupled with a collaborative approach – offers food makers and retailers with a unique insight into the shopping habits of consumers. Manav Sethi, group CMO and head of digital strategy for online shopping site Askmebazaar.com, said: “In offline retail there is no way of knowing a customer that spends INR2,000 (US$29.40) or INR20,000.” Online data shows who is buying what, he said, allowing retailers to offer “differentiating treatment…to treat consumers differently”.

The use of data presents opportunities for more targeted promotions. Having gathered information about a customer’s behaviour, a shopper can be selectively and directly targeted with marketing, rather than spraying promotions across a demographic or community, GrocerMax.com’s Radhakrishnan said.

Harnessing this data is critical for online players and this includes manufacturers who may want to bypass third party retailers altogether. For the manufacturers operating in online retail, Malhotra had a clear message: drop assumptions on how the industry works. “Capture the data – if a customer has searched your product and ordered it and it is not on the shelf [of a local physical store] then you have captured the difference between demand and supply,” he said.  

Retail consultant van der Laan identified nine battles to win for successful online retailers: market development; a good online assortment; effective online product presentation; online pricing; traffic building; consumer retention; efficient ordering and checkout systems; reliable order packing; and dependable home delivery. Master these and an e-commerce firm can be successful. 

While social media systems such as Facebook, Twitter, Pinterest can all be used to reach out to customer, he said building traffic in a fiercely competitive sector as online food retail can only happen by building trust, especially for fresh produce.