admin
March 16, 2015
Deepti Chaudhary, Shravan Bhat, Debojyoti Ghosh, Sohini Mitter, Forbes
India
Mumbai, 16 March 2015
When
Mithun Sacheti received a LinkedIn request from Tiger Global in
the first half of 2011, he didn’t even blink. It was probably
one of the many that came in every day, he thought. Turns out,
the chief executive and founder of CaratLane, India’s largest
online jewellery store, had never heard of the international investment
firm. (To be fair, Tiger Global does not have a website even today.)
A few days later, Sacheti learnt about Tiger Global’s credentials as an investment firm known for backing fast-growing local businesses worldwide. He did not waste a minute. A conference call was soon fixed up. But, put it down to happenstance and the busy life of an ecommerce honcho, Sacheti “forgot” to take the call.
Fortunately, the investment firm still didn’t give up on Sacheti and a meeting was set up with Lee Fixel, the media-shy partner at Tiger Global Management in New Delhi.
Two hours later, Sacheti left with a term sheet in his hand. And a month later (in June 2011), nearly $6 million were transferred to CaratLane’s bank account. The first investment by Tiger Global in CaratLane was in place. And last month, the startup announced that it had raised $31 million from Tiger Global, the fourth capital infusion by the fund in as many years.
Even a few years ago, this story might have sparked a gasp or two.
Not today.
The pursuit of Indian startups by global investors is no longer an exception, but rather the rule. And the more focussed the ecommerce vertical, the faster the chase. Just like Tiger Global first identified a category—jewellery—and, then, a company that was dealing in it exclusively—CaratLane. “People cannot discover the product in a giant website (a horizontal). Secondly, it (horizontal) doesn’t allow you to customise products,” says Sacheti, explaining why an investor like Tiger Global would prefer to back an independent online jewellery retailer instead of adding it as a category to the long product list of its large portfolio of horizontal ecommerce firms.
It is increasingly evident that investors in India have warmed up to ecommerce ventures that typically stick to a sharp vertical: Eyewear, grocery, aggregators for taxi and ticket services, financial products and so on. In 2014, 35 verticals were funded by investors who put in a total of $261 million into such firms, estimates VCCEdge, which tracks investment activity in the country. These niches are a far cry from horizontals (or marketplaces like Flipkart and Amazon), which engage in multiple categories and are generalist retailers.
Experts call this a step in the evolution of ecommerce in India.
There are currently three heavyweight horizontals—Amazon, Flipkart and Snapdeal—slugging it out for the top slot. They are all burning cash fast, have not yet reached profitability, have either deep pockets (like Amazon) or are backed by loaded investors and have left almost no space for a fourth undifferentiated, horizontal player.
But entrepreneurs have quickly realised that online retail is about more than the multi-product category play. The Indian ecommerce industry is likely to clock a compounded annual growth rate (CAGR) of 35 percent and cross the $100-billion mark in value in five years, a study conducted by The Associated Chambers of Commerce & Industry of India (Assocham) with PricewaterhouseCoopers (PwC) has said. According to the study, the Indian ecommerce industry is currently valued at $17 billion.
This expansion also means that, like those in other developed markets, Indian customers will scout for specialised offerings.
Investors, too, are keen on backing these ventures as they have better margins unlike the horizontals which are grappling with profitability issues. Also, many missed the ecommerce bus a few years ago as they either didn’t believe in the online retail business model or simply didn’t move fast enough. And now, valuations of existing big-ticket ventures have become too high for them to enter or compete against.
“Right now, one cannot get funding by competing against Snapdeal or Flipkart. It is not so simple to beat horizontals,” says Sasha Mirchandani, founder and managing director at Kae Capital, an investment firm, which has invested in HealthKart, an online health products store. “If you look at the US market, verticals have scaled up… take Zappos (a shoes etailer) or Diaper.com, for instance,” he says.
Verticals and horizontals tend to have different economics. Niche players need lower capital than a marketplace model does to scale up the business. Verticals also tend to burn less cash than their marketplace counterparts. “Verticals are interesting as margins are significantly better than horizontals,” says Niren Shah, managing director, NVP India, an investment firm which has invested in startups like FashionandYou and Pepperfry. “These companies are not much into discounts and, more often than not, these categories are inherently structured to support high margins; some of the gross margins are as high as 50 percent,” he says.
Verticals don’t have the scale of horizontals and not many of them will transform into multibillion dollar businesses but “they tend to become cash flow positive much faster”, says Shah, adding that furniture, home décor and grocery are the niches to look out for in the future.
Take Yepme, which retails its own brands online, and is looking at breaking even this year. “We operate after discount and coupons at a 48 percent margin because we are only private labels,” says Vivek Gaur, CEO and co-founder, Yepme.com, which started in 2011. The firm is now planning to take its offerings overseas.
The advantages notwithstanding, unlike for a horizontal, where a customer will find something of interest while browsing the site, the biggest challenge for a vertical is to identify an area which caters to a real customer need and is a real hook.
In the same context, creating entry barriers against cash-flush horizontals is a challenge for verticals as well. A few firms have, however, chalked out a thus-far effective strategy to combat the Goliaths. Lenskart, for example, not only ships spectacles, but also offers a number of features like home eye check-up programmes, a try-before-you-buy service, a virtual studio, new lenses in old frames as well as an exchange programme. The company also has 60 offline stores in the country. “Offline stores that do free check-ups are small outlets and mostly in tier-III towns. We believe the combination of stores and try-at-home initiatives complements our existing web platform. We are doing 500 home check-ups every day all over India,” says Peyush Bansal, founder, Lenskart.
Similarly, Pepperfry has planned an execution strategy that, he says, can’t be easily replicated by a horizontal. “Horizontals have built businesses on mobiles and fashion [categories]. They can create catalogues easily because the product exists and the brands are well known. For furniture, creating a catalogue is a mammoth task,” says Ashish Shah, CEO and co-founder of Pepperfry, an online furniture retailer.
The good news is that investors are optimistic: They say verticals are here to stay as the purchasing power of the Indian customer is on the rise. Aspirations, ease of multiple shopping options, free home delivery are further fuelling the demand. “Verticals require a critical mass and a certain purchasing power of consumers. The market needs to mature beyond staples… India is getting there. Brands are being built in the space,” says Prashanth Prakash, partner at Accel Partners, a venture capital firm that has invested in firms like Flipkart (horizontal) and verticals like Babyoye (baby products), Bluestone (online jewelry), BookMyShow (movie and event tickets), Myntra (fashion, apparel) and Urbantouch (cosmetics). Prakash, however, has a word of caution. “A player’s ability to give a meaningful experience to the customer is most important,” he says.
This is particularly relevant as verticals in India are not just about products. Services have also emerged as a strong focus, both online and on the mobile. Aggregators like Ola (cab services), Housing.com (real estate), BookMyShow, CarTrade (automobile classifieds) and Policybazaar (insurance) have emerged as front-runners in their categories.
“There was a time when horizontal classifieds gained traction and most dealers concentrated on getting listed. Now in the second phase, verticals are gaining traction. Companies are building deep services. That is bringing more people to their sites,” says Alok Mittal, ex-MD at Canaan Partners, who led the investments in CarTrade and also sits on its board. According to him, the automobile classifieds segment is being identified as the next billion-dollar opportunity. “The used car market is growing faster than the new car market. The margins on used cars are about 5 percent, while on new cars they are zero.”
For verticals, the saying ‘what a needle can do, a sword can’t’ is most appropriate. But, at the same time, if a company’s definition of niche is too broad, it becomes a generalist. And if the definition is too narrow, there is a fear that it may not have an optimally-sized market to cater to. For example, in the furniture space, companies are also offering home furnishing, home décor and kitchen goods—areas within their purview of offering home solutions. Just offering furniture may not be enough —customers buy two to three pieces of furniture a year but need around seven to eight bed sheets annually.
“These are the reasons for my customers to come back to my site. Margins tend to be 30 to 40 percent,” says Ashish Shah of Pepperfry. “Horizontals build on ‘search’. We are built on ‘browse’. I don’t expect customers to enter an exact item in the search bar,” he says. Shah can afford to sound confident. In the US and Europe, home and furniture account for 15-17 percent of overall ecommerce businesses.
Shah says it is imperative for his kind of company to engage with customers on an ongoing basis. One mode of engagement for Pepperfry is through product trials—think cleaning chemicals, housekeeping items, ladders, and light bulbs, among others. These are products that people need on a daily basis and there are high chances of an impulse purchase when they are browsing through the site. “They bring customers to me every month: Fifty-five percent of business happens from repeat customers, 50 percent of traffic is organic,” he says.
Constant upgradation of their offerings, adapting to customer needs and some lucrative surprises will help build brand stickiness. “I think if we don’t spend over 70 percent of our time, effort, mind space on products, two years later, nobody is going to remember us,” says Ashish Goel, founder, Urban Ladder, an online furniture store.
Not surprisingly, verticals—thanks to their niche offerings and positive gross margins—tend to attract acquirers. Globally, Amazon has acquired niche business like Zappos and Diaper.com, two very large verticals. Closer home, Flipkart acquired Myntra to strengthen its position as a fashion retailer. In February, Mahindra & Mahindra, which owns Mom & Me, one of the country’s largest chains of offline stores for baby and infant products, acquired Nest Childcare Services, which runs ecommerce site Babyoye.com.
Two weeks ago, online marketplace Snapdeal acquired Exclusively.com, an online retailer of premium and luxury fashion, for an undisclosed amount. Snapdeal is looking to touch $2 billion in gross merchandise value in the fashion category this year.
There are multiple acquirers present now, says Shah of NVP India. Global firms like Alibaba and Amazon are keenly looking at options here as well, he adds.
In India, ecommerce has largely seen consolidation through mergers between common VC-backed ventures—and typically in the same line of business. “You can’t have three grocery chains online,” says Rahul Chowdhri, partner, Helion Venture Partners, a VC firm. “People will remember only one name. And consolidation of the ‘Myntra getting acquired by Flipkart’ kind will take a few more years. All category leaders are still scaling up.”
K Ganesh, serial entrepreneur and promoter-founder of Portea Medical and BigBasket.com, says verticals do have the potential of going public but Indian regulations regarding profitability may come in the way. “IPOs are still about five years away. In the meantime, you will see a lot of trade sales and mergers and acquisitions at great valuations,” he says. Ganesh says in the next three years, India will see 20 companies in the $1 billion range and 100 companies in the $200 million to $1 billion range. “It’s absolutely possible.”
While the economics of verticals make sense, these companies have their own issues. Over the last 18 months, the play in ecommerce product retail has been all about marketing and customer acquisition. “The cost of acquiring customers has ballooned and stickiness is quite low, so most of the previous customers have to be re-acquired like the new ones. With an average acquisition costing about Rs 500-1,000 per customer, you’re losing money on every transaction in low-value products,” says Devangshu Dutta, CEO, Third Eyesight, a retail consultancy.
Also, a few companies like Bluegape, an online merchandise portal, and Koolkart shut shop as they did not get enough traction. Access to capital is also often an issue.
For BookMyShow, payments continue to be a problem and it is planning to focus on that. “Talent acquisition is another area that we are looking at,” says founder and CEO Ashish Hemrajani. To that end, BookMyShow did a talent drive in association with Accel Partners at the IIMs, ISB and other B-schools.
All said and done, the lure of the verticals and aggregators is here to stay. As Anil Joshi, partner, Unicorn India Venture, an investment fund, puts it, “For smaller investors, verticals are the only option.”
(Published in Forbes India.)
admin
March 6, 2015
Saran Poovanna, The New Indian Express
Bengaluru, 6 March 2015
The
turbocharged e-commerce in India may be staring at its second
round of consolidation with heightened Mergers & Acquisition
(M&A) activity in this space. According to experts, the trend
of M&A is set to grow by leaps and bounds.
“Any acquisition or merger will continue to remain good
for the ecosystem if it creates significant value. Together, with
distinct focus segments on supply and demand, we can continue
to grow the market faster,” Anand Subramanian, Director,
Marketing Communications at Ola Cabs told Express.
Ola acquired TaxiForSure for over $200 million in March 2015.
In the ‘first round’ of consolidation, homegrown Flipkart
bought fashion e-tailer Myntra for around `2,000 crore. Since
then there have been many such acquisitions by e-commerce players.
Even big companies like Infosys are looking for a piece of the
startup pie.
Global consultancy firm PwC has estimated that the sector is expected to grow from $16.4 billion today to over $22 billion by 2015.
The Economic Survey 2014-15 pegged this sector’s growth at 50 per cent in the next 5 years.
“Consolidation is part of the sector and we will see more in the coming days,” said Sangeeta Gupta, Senior Vice-President, Nasscom.
“Consolidation or acquisition by bigger players would help smaller companies with scale,” she said adding this would facilitate a mature market.
E-commerce companies have raised over $4 billion private funding, which have been used for expanding presence and scope and even acquisitions.
Stating that there are two main factors responsible for this, Devangshu Dutta, CEO of retail consultancy, Third Eyesight said that one is that of a push from investors and the other is of acquiring differential capabilities.
“Its faster to acquire a company with a specific capability,” he said and added that if a company waits to build capability organically, then visibility and market opportunity can start to decline.
“Growth can be organic or inorganic,” Anand said and added, “ Inorganic growth in such cases helps leverage strengths that have been built by brands over time.”
On if niche product or technology companies can continue to work without being acquired, Dutta said that this was possible in the long term only.
“In the short term, the environment is tough for niche products companies to sustain themselves,” he said.
(Published in The New Indian Express.)
admin
March 5, 2015
Sagar
Malviya, The Economic Times
Mumbai,
5 March 2015
Reliance
Industries (RIL) has sought shareholders’ approval to make major
forays into the online retail space to cash in on the boom in
the country’s e-commerce market that is expected to grow four-fold
to almost $70 billion by 2019.
The Mukesh Ambani-run firm included a clause of "operating, establishing, providing and managing e-commerce and m-commerce websites, direct-to-home and mail order services for all categories of products and services, and dealing in all kinds of goods, materials and items in India or in any other part of the world" in a recent notice to its shareholders.
A Reliance Industries spokesman said the activities are closely related to the firm’s initiatives in retailing and digital services which are being implemented through substantial subsidiaries. "This will facilitate creation of value for Reliance shareholders by expanding the scope and breadth of offerings from these two businesses," he said.
The move is part of company chairman Mukesh Ambani’s wider strategy of placing its telecom venture Reliance Jio Infocomm, which is set to launch its 4G mobile and data services this year, at the intersection of "telecom, web and digital commerce" as he mentioned at the company’s AGM last month.
It comes at a time when e-commerce business is growing at a rapid pace in India, with players such as Flipkart, Amazon and Snapdeal luring Indian consumers by offering heavy discounts across products.
According to a joint report by Boston Consulting Group and Retailers Association of India, e-commerce market in the country is expected to quadruple to $60-70 billion, or about 3,72,000-4,34,000 crore, over the next five years. Increasing Internet access through affordable smartphones and efforts by online retailers to develop payment channels such as cash on delivery, mobile wallets and streamlined logistics infrastructure are expected to boost e-commerce growth in the country.
To shore up its nascent e-commerce business, Reliance is expected to reshuffle jobs within the group and not necessarily bring all outsiders. Recently, the group moved Anupama Ahluwalia from Reliance Jio into an expanded role in its retail arm Reliance Retail as chief marketing officer.
At present, Reliance Retail’s online presence is restricted to Reliance Fresh Direct that sells fruits and vegetables and home and personal care products through a virtual store. The company – which operates 2,285 stores across fashion, lifestyle, digital and food segment – dislodged Future Group as the country’s largest retailer by revenues earlier this year.
Experts say its deep pockets and existing retail logistics infrastructure will help Reliance in the e-commerce space.
"While online is a potentially large market, whether Reliance entry could be disruptive is still a question," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. "The e-commerce sector itself is getting cautious in spending money on marketing and discounting. While the stakes and capital requirement has increased, Reliance has an advantage of having a deep pocket," he said.
Though many retailers in India are struggling with falling store traffic as shoppers make more purchases online, food and grocery retailing still remains predominately insulated.
Yet, several retailers including Future Group and Aditya Birla Retail have either entered or plan to enter e-commerce space, especially when their stores network and warehouse could come handy to cut logistics costs and delivery time.
(Published in The Economic Times.)
admin
March 2, 2015
Varun
Jain, The Economic Times
New
Delhi, 2 March 2015
Want
to cook an exotic dish just the way Sanjeev Kapoor does it? Gurgaon-based
online grocer Meragrocer.com, which launched operations recently
and is endorsed by the celebrity chef, will soon start offering
a solution: you can order chef special recipe packs that contain
all the ingredients in the same quantity that Kapoor uses, along
with detailed cooking instructions.
Online grocers such as Meragrocer.com, BigBasket.com and LocalBanya.com are showcasing food recipes and blogs on their websites and selling all-in-one, do-it-yourself kits to engage the customer. They help the consumer pick the right ingredients at the right quantity at one go, to make their favourite food.
"These initiatives are more about sharing knowledge, ensuring consumer loyalty and creating a high brand recall," says Saurabh Chadha, co-founder and COO of meragrocer.com.
Bengaluru-based BigBasket.com is working on the same lines, too.
The way groceries are consumed have changed, says co-founder Vipul Parekh. Today there is a lot of interest in people wanting to try out new cuisine – once they know the recipe, they want to figure out how to cook it and start looking for ingredients. "We are servicing this need of our customers wherein they can see the recipe and then can buy the whole recipe on our site, instead of buying all the ingredients individually which is a difficult task," he says. "The idea is to give everything in the single box."
The importance of putting up recipes is to give the customers another way of shopping for grocery. According to Parekh, this is a channel which e-grocers are looking to exploit, and he is looking to build a full-fledged business around it. This trend is fueled also by cooking shows and food channels that are becoming increasingly popular, he says.
Godrej Nature’s Basket, the premium food retailer owned by the Godrej Group which has reportedly acquired online grocer ekstop.com, has a detailed recipe and food blog section. According to chief executive Mohit Khattar, the food blog and food facts section empowers consumers to learn about ingredients from the best in the business, while the recipe section not just shares easy recipes to recreate world food, but also enables customers to order all the ingredients simultaneously.
Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight, says in India grocery is a category that the customer is willing to explore and experiment with. So any retailer, physical or virtual, that can present new product suggestions frequently can also avoid price-based competition and can look at sustaining better margins, he says. "A great vehicle to do this is to present recipe ideas, especially of cuisines that are unfamiliar, that is from other parts of the country, or from other countries. This can help the retailer side-step commoditisation of their product and service offer."
LocalBanya.com relies more on food blogs than recipes to engage with customers. It has also put up content on the website explaining the use of various ingredients which are not common to Indian households. "While we are selling a lot of rare ingredients which many our customers might not have heard of or maybe they do not know their use or the health benefits associated with them, we thought we have the opportunity to create content around them and educate people and at the same time drive our sales," says co-founder and chief operating officer Rashi Choudhary.
(Published in The Economic Times.)
