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India E-Commerce: Trends And Notable Players

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia, 6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s e-commerce market has been booming but the story is just beginning. Out of India’s 1.3 billion population (the world’s second largest after China), an estimated 574 million are active internet users according to consulting company Kantar representing an internet penetration rate of about 44%. That is bigger than the entire population of the United States. This makes India the second largest online market after China which has 904 million internet users as of March 2020 according to CNNIC.

There is still tremendous opportunity for internet users to grow in number. Kantar estimates an 11% growth rate for 2020, with India’s internet users reaching 639 million. As India’s online population grows propelling to country’s digital economy, e-commerce is poised to grow as well. With about 100-110 million online shoppers as of 2019 according to data from a report by Bain & Co, about 17% of India’s internet users shop online.

By comparison, representing 78.6% of China’s internet population, China has 710 million online shoppers as of March 2020,. That is about seven-times that of India’s online shopper population, suggesting an enormous growth opportunity in India. As Indian incomes grow and consumption increases, consumers will seek greater product variety, and quality, at competitive prices. E-commerce can help unlock consumer spending as incomes rise. India’s GDP per capita growth has exceeded 5% since 2016.

Column chart showing GDP per capita (PPP) growth, 4 selected countries. In 2016 GDP per capita rose 8.26% in Bangladesh, 4.58% in China, 6.86% in India, 0.85% in Pakistan, 5.77% in Sri Lanka, 3% in Malaysia, 2.77 percent in Singapore, 7.71% in Vietnam, and 2.41% in Indonesia. In 2017 GDP per capita  rose 8.11% in Bangladesh, 5.69% in China, 5.93% in India, 3.66% in Pakistan, 2.94%, 4.46% in Malaysia,  6.21% in Singapore, 8.86% in Vietnam, and 4.2% in Indonesia. In 2018 GDP per capita rose 9.26% in Bangladesh, 8.77% in China, 7.5% in India, 6.13% in Pakistan, 4.64% in Sri Lanka, 5.63% in Malaysia, 5.38% in Singapore, 8.52% in Vietnam, and 6.44% in Indonesia. In 2019, GDP per capita 8.9% in Bangladesh, 7.57% in China, 5.78% in India, 0.69% in Pakistan, 3.43% in Sri Lanka, 4.75% in Malaysia, 1.32% in Singapore, 7.84% in Vietnam, and 5.69% in Indonesia. Data from The World Bank and LD Investments analysis.

India’s youthful population bodes well for e-commerce growth; as of 2020, 43.82% of India’s population was aged 24 years and below according to data from the CIA World Factbook. As they enter the workforce they will continue to be a major driving force for Indian e-commerce in the long term. India’s e-commerce market is expected to quadruple from US$ 48.5 billion in 2018 to US$ 200 billion by 2026 according to the International Trade Administration representing a CAGR of 19.37%.

Trends and notable players

Social commerce

Riding on India’s vast user base of social media users, social commerce is on the cusp of growth. India had the biggest rise in social media users in 2019, seeing 130 million new users (a 48% YoY) according to Hootsuite. Yet, at just 29% of the total population as at January 2020, India’s social media penetration is lower than the world average of 49% indicating ample room for growth. As more Indians get social, social commerce is poised to flourish.

Bar chart showing social media penetration for selected countries as of January 2020. The worldwide social media penetration at 49%. Social media penetration was 99% in the UAE, 88% in Taiwan, 87% in South Korea, 81% in Malaysia, 79% in Singapore, 78% in Hong Kong, 75% in Thailand, 72% in China, 70% in the United States, 67% in Vietnam, 67% in Philippines, 65% in Japan, 59% in Indonesia, and 29% in India. Data from Hootsuite.

Considered to be the second wave of e-commerce in the country notable Indian social commerce players looking to capitalize on this vast and growing userbase include Meesho, Bikayi, and JioMart. While first wave e-commerce giants such as Walmart-owned (NYSE:WMT) Flipkart, Amazon (NASDAQ:AMZN) and Snapdeal offer the opportunity to open an online store on their marketplace platforms, Meesho, Bikayi and JioMart leverage on social media platforms to offer businesses and individuals a chance to sell online, somewhat similar to WeChat’s mini-programs which enabled businesses to open stores within the WeChat app. China’s third biggest e-commerce player Pinduoduo for instance was born out of a WeChat’s mini-program.

Whatsapp is the number one messaging app in India with more than 400 million Whatsapp users, making India the country with the world’s biggest Whatsapp user population. Not surprisingly, Whatsapp is a popular social media platform for social e-commerce. Y Combinator-backed Bikayi’s app enables businesses to create a Whatsapp-integrated e-commerce store in a few minutes. The startup reportedly has more than 100,000 businesses using its app. For micro and small SMEs with little capital for a full-fledged e-commerce store, Bikayi’s app is an ideal solution for them to offer their catalogs online. From a consumer point of view, Bikayi is an ideal solution for a mobile-first market like India where 97% of internet users are mobile internet users.

Bikayi’s larger rival Meesho, also enables businesses to open a social media store but its app supports not just Whatsapp, but several other popular social media platforms as well such as Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Instagram. There are more than 260 million Facebook users in India, making it the leading country in terms of Facebook users.

New social commerce startup Bulbul meanwhile has attracted investor interest with Bulbul raising USD 14.7 million from Sequoia Capital this year. 

The elephant in the room however is JioMart, the online grocery arm owned by petrochemicals behemoth Reliance Industries (NSE:RELIANCE) which has also jumped into social commerce arena; already available to shoppers via app or e-commerce website, JioMart recently piloted a Whatsapp-based grocery ordering platform that allows shoppers to order essentials through Whatsapp. The order is then routed to one of the 1,000+ mom-pop ‘kirana’ stores nearby the customer to fulfill the order.

The social commerce opportunity is driven not just through rising social media penetration but also from a growing number of online shoppers in rural India where internet penetration is less than 30% but growing considerably faster than urban India. According to data from the Telecom Regulatory Authority of India (TRAI), urban internet users grew 1.54% during the quarter ended march 2020 while rural internet users grew 6.53% during the same period.

For these new online shoppers, there is a general lack of trust for the millions of unknown online merchants on e-commerce marketplaces such as Flipkart. Social commerce on the other hand enables merchants to interact with first time online shoppers, clear their doubts and essentially provide a ‘face’ to the online store, helping bridge the trust deficit. Meesho for instance generates about three-quarters of its business from outside the top six cities.

Vertical e-commerce

While Amazon, Walmart’s Flipkart, and homegrown newcomer Reliance JioMart focus on the horizontal e-commerce marketplace arena which is crowded with other rivals such as Snapdeal, and ShopClues to name a few, India is increasingly seeing a growing number of vertical e-commerce marketplaces the e-commerce landscape. Flipkart’s fashion marketplace Myntra, Reliance Industries’ fashion marketplace Ajio, beauty e-commerce marketplace Nykaa, and furniture e-commerce marketplaces Pepperfry, and Urban Ladder are some notable established vertical e-commerce marketplaces. As they increasingly gain popularity along with growing e-commerce popularity in India, the number of specialized vertical e-commerce marketplaces is anticipated to continue an upward march in the coming years.

A report by research firm Redseer expects vertical e-commerce marketplaces to grow their share of India’s online retail Gross Merchandise Value (GMV) from 20% in 2019 to 30% by 2022. Marketplaces in industry verticals that have a strong advantage against horizontal e-commerce marketplaces highlighted in the report include pharmaceuticals, furniture, mom and baby care, and beauty and personal care, owing to their differentiated supply chain, and non-standard product which leads to consumer expectations of greater variety, quality and specialized service.

Mom and baby care e-commerce marketplace FirstCry achieved unicorn status this year with a valuation of US$ 1.2 billion, after Softbank committed to investing US$ 400 million in February.

Homegrown startup Livspace, an interior design marketplace connecting homeowners with trusted interior designers, vendors, and customers, currently serves 9 metro areas in India (Bengaluru, Chennai, Hyderabad, Delhi, Gurugram, Noida, Mumbai, Thane and Pune) and plans to expand locally and overseas (its only overseas market is Singapore currently) having raised US$ 90 million in September this year in Series D equity funding, and Indian Rupees 300 million in debt funding in October. Livspace is expected to generate US$ 500 million within the next 24-30 months.

Indian agriculture marketplace DeHaat meanwhile, raised US$ 12 million from Sequoia Capital this year,  after raising US$ 4 million in Series A funding in March last year, bringing the total amount raised to US$ 16 million to date.

Direct-to-consumer (D2C) e-commerce

India’s vast retail market features numerous local brands, and with e-commerce gaining popularity in the country, there been a trend of these brands going directly to consumers, essentially eliminating ‘online middlemen’ e-commerce marketplaces.

According to a report by e-commerce-focused SaaS company Unicommerce, there was a 65% increase in brands developing their own websites in June 2020. Meanwhile, an increasing number of online shoppers too appear to be going direct to brand websites, bypassing marketplaces. According to the Unicommerce report, brand websites reportedly saw an 88% increase in order growth compared with 32% for marketplace platforms during India’s lockdown period in June 2020 which led to an increase in self-shipped orders. Given the many advantages of a brand going direct to the consumer, such as greater control over brand perception, and direct interaction with consumers, it is likely that brand e-commerce popularity will continue growing in the years ahead.

The rise of D2C e-commerce in India looks set to follow a path similar to that of China, where rising brand e-commerce has led to the birth of brand e-commerce SaaS (Software as a Solution) companies such as Baozun (NASDAQ:BZUN). India too, has its own homegrown brand e-commerce SaaS solutions companies, notable ones include Zoho and Zepo.

Last year, Indian SaaS major Zoho Corp which has millions of users in more than 180 countries, launched an e-commerce solution enabling small retailers to set up their own e-commerce sites. Unlike other solutions that charge users on a per transaction basis, Zoho will charge a flat monthly fee for stores earning up to US$ 1,000 monthly after which a transaction fee of 1.5% is imposed (for its most basic plan). Zoho is a very established SaaS player offering a plethora of SaaS applications including productivity tools, CRM, and cloud solutions for finance and HR to name a few. This extensive suite of SaaS solutions and an existing customer base gives Zoho ample cross-selling opportunities for its new e-commerce SaaS solution which puts the company in great position to capitalize on India’s rising brand e-commerce market.

Homegrown e-commerce enabler Zepo which raised INR 31.9 million in August 2017 in funding from angel investors Kunal Shah (co-founder FreeCharge), Anupam Mittal and Hetal Sonpal, has its own advantages in the brand e-commerce race. The company offers merchants an integrated platform that enables them to manage their own e-commerce website, as well as manage orders from their online stores on marketplace platforms such as Amazon and Flipkart. For merchants wanting to maintain official marketplace stores while running their own e-commerce website, Zepo could be the player with the ideal solution.

Shopify (NYSE:SHOP), one of the world’s most popular e-commerce SaaS solution providers is another notable player in this space. Having begun operations in India in 2014, Shopify now has thousands of Indian merchants on its platform including Blue Tokai Coffee, apparel company Raymond Group, clothing brand NUSH by Anushka Sharma, John Jacobs Eyewear to name a few. Shopify said the number of merchants in India using their platform grew 44% in 2019 and GMV grew 59%. Shopify supports ten languages in India which is an advantage as more non-English or Hindi speaking Indians increasingly shop online (according to the latest census data from The Office of the Registrar General and Census Commissioner of India, Hindi was spoken by 43.63% of the population which means more than 56% of India’s population speak other languages).