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September 16, 2024
Sesa Sen, NDTV Profit
16 September 2024
As India’s economy grows and digital technologies reshape consumer behavior, the future of kirana stores—the quintessential neighbourhood grocery shops—hangs precariously in the balance.
These soap-to-staple sellers, once impervious to change, now confront an existential threat from quick commerce players like Blinkit, Instamart, Zepto, and from modern retailers such as DMart and Star Bazaar, raising a pivotal question: Can kiranas survive the pressure of change, or will they die a slow death?
The All India Consumer Products Distributors Federation, that represents four lakh packaged goods distributors and stockists, has recently raised alarms, urging Union Minister for Commerce and Industry Piyush Goyal to investigate the unchecked proliferation of quick commerce platforms and its potential ramifications for small traders.
Their concerns are not unfounded. Data suggests that the share of modern retail, including online commerce, which is currently below 10%, is set to cross 30% over the next 3-5 years. Much of this growth will come at the cost of traditional retail.
“Unless the government takes on an activist role to support the smallest of business owners, the shift toward large corporate formats is inevitable,” according to Devangshu Dutta, head of retail consultancy Third Eyesight.
Casualties Of The Boom
Madan Sachdev, a second-generation grocer operating Vandana Stores in eastern Delhi, has thrived in the recent years, adapting to the digital age by taking orders via WhatsApp and employing extra hands for home delivery.
Despite having weathered the storm of competition from giants like Amazon and BigBazaar, he now finds himself disheartened, as his monthly sales have halved to about Rs 30,000, all thanks to quick commerce.
Sachdev is worried about meeting expenses such as rent, his children’s education, and other household bills. He finds himself at a crossroads, uncertain about how to modernise his store or adopt new-age strategies in order to attract customers in an increasingly competitive market.
India’s $600 billion grocery market, a cornerstone for quick commerce, is largely dominated by more than 13 million local mom-and-pop stores.
Retailers like Sachdev are also seeing a steep decline in their profit margins from FMCG companies, which now hover around 10-12%, down from the 18-20% margins seen before the Covid-19 pandemic. The consumer goods companies are instead offering higher margins to quick commerce platforms so that they can afford the price tags.
Quick deliveries account for $5 billion, or 45%, of the country’s $11 billion online grocery market, according to Goldman Sachs. It is projected to capture 70% of the online grocery market, forecasted to grow to $60 billion by 2030, as consumers increasingly prioritise convenience and speed.
Many of the mom-and-pop shops are family-run and have been in business for generations. Yet they lack the resources to modernise and compete effectively with larger chains. Modern retail businesses, including quick commerce, begin with significantly more capital, thanks to funding from corporate investors, venture capital, private equity, and public markets.
“They can scale quickly and capture market share due to a superior product-service mix, larger infrastructure, and more robust business processes,” said Dutta.
Moreover, their ability to engage in price competition poses a challenge for small retailers and distributors, making it difficult for them to compete.
“This is something that has happened worldwide, in the largest markets, and I don’t think India will be an exception,” Dutta said, adding that it would be incomplete to single out a specific format of corporate business such as quick commerce as the sole villain in this situation.
“India is a tough, friction-laden environment at any given point in time, including government processes which don’t make it any easier,” he said.
Peer Pressure
Data from research firm Kantar shows that general trade, which comprises kirana and paan-beedi shops, have grown 4.2% on a 12-month basis in June, while quick commerce grew 29% during the same period.
Shoppers are becoming more omnichannel, rather than gravitating towards one particular channel, said Manoj Menon, director- commercial, Kantar Worldpanel, South Asia. “While the growth [for quick commerce and e-commerce] might appear to have declined compared to a year ago, a point to note is that the base for these channels has significantly grown. Therefore, achieving this level of growth is still commendable.”
Consumer goods companies such as Hindustan Unilever Ltd., Dabur India Ltd., Tata Consumer Products Ltd., etc., have acknowledged the salience of quick commerce to their packaged food, personal and homecare products. The platform currently comprises roughly 40% of their digital sales.
“We are working all the major players in the quick commerce space and devising product mix and portfolio. This is a very high growth channel for us,” according to Mohit Malhotra, chief executive officer, Dabur India.
Elara Capital analysts have pointed out that the share of quick commerce is expected to rise to60% in the near future with e-commerce and modern trade turning costlier for FMCG brands than quick commerce. “The larger brands tend to make better margins on quick-commerce platforms versus e-commerce due to lower discounts on the former,” it said in a report.
However, it is too premature to draw a parallel between kirana and quick commerce in terms of competition, given the significant size difference.
The average spend per consumer on FMCG in kirana stores stands at Rs. 21,285 annually while the same is Rs. 4,886 for quick commerce, according to Menon.
Rural Vs Urban Divide
Quick commerce is still an urban phenomenon. In contrast, in rural settings, where internet penetration is still catching up and access to large retail chains is limited, kirana stores continue to thrive.
According to Naveen Malpani, partner, Grant Thornton Bharat, while the growth of quick commerce is undeniable, this channel is not poised to replace traditional retail, which still has a wider reach in the country. “It will complement older models, filling a niche for immediate, smaller purchases. Also, a 10-20-minute delivery may not have a strong market pull in rural markets where distance and time are not much of a concern.”
Yet many others believe, even in these areas, the challenge is palpable.
The small businesses are beginning to feel the sting of same slow decline that once befell the ubiquitous telephone booths in the era of mobile phone, according to Sameer Gandotra, chief executive officer of Frendy, a start-up that is building ‘mini DMart’ in small towns where giants like Reliance and Tatas have yet to establish their presence.
As rural customers slowly start to embrace digital shopping and seek more variety, kirana stores must adapt or risk becoming obsolete, he said.
Besides, the popularity of quick commerce is set to challenge the dominance of incumbent e-commerce platforms, especially in categories such as beauty and personal care, packaged foods and apparel.
“Quick commerce is primarily operational in metros and tier 1 markets, which is impacting the sales of traditional companies in these areas. However, if quick-commerce players were to extend their operations to tier 2 and tier 3, it would even challenge companies such as DMart and Nykaa, and would pare sales and profitability,” noted analysts at Elara Securities.
Frendy’s Gandotra believes the journey for kirana stores is not a lost cause, but it requires strategic interventions. Many kirana store owners struggle to integrate point-of-sale systems, inventory management software, or even digital payment solutions. These stores need to embrace technology.
Another aspect is the need for policy support. Regulations to ensure fair competition can prevent monopolisation by large retailers. Additionally, subsidies, tax benefits, and grants for infrastructure improvements can help small businesses adapt to changing market dynamics. With renewed support, kirana stores can continue to be the backbone of Indian retail.
Nonetheless, there will be some who’ll be left behind during this shift. Analysts at Elara Capital warn that the swift rise of quick-commerce platforms, combined with aggressive discounting, could wipe off 25-30% of traditional grocery stores.
(Published on NDTV Profit)
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September 12, 2024
By Richa Naidu and Dhwani Pandya, Reuters
London/Mumbai,12 September 2024
For years, the world’s biggest condom maker Reckitt Benckiser designed products and marketing to lure Indian men to its Durex brand. Now, it is pushing a growth strategy by betting on women and rural consumers.
India last year surpassed China to become the world’s most populous nation, but still fares poorly on the use of contraceptives. India’s government estimates only around 10% of men use condoms and for women, sterilization remains the popular form of contraception.
Social stigma surrounding sex – which some say stems from Victorian social norms established during British colonization – has for decades marginalized female pleasure in the Indian society.
But attitudes are changing and Reckitt is shifting marketing gears to take advantage of an upswing in condom use among Indian women – now a key target audience for Durex.
Around 9.5% of married Indian women cited using condoms during sex by 2021, almost double the use five years earlier, according to latest available government statistics. Among unmarried women, such use more than doubled to 27%.
Reckitt is reformulating products such as lubricants aimed at attracting women consumers, and has new marketing campaigns, Pankaj Duhan, Reckitt’s senior vice president of intimate wellness, told Reuters in an interview.
The Durex lubricants in India will use improved formulations to appeal to women and have been created after performing clinical studies to address concerns females face — 30% of Indian women experience some discomfort when having sex with their partner.
“We want to change this … That is why we are relaunching our lubes portfolio,” said Duhan. “The women tend to become a little bit more underserved consumer groups.”
The India condoms market is currently dominated by Mankind Pharma, which makes Manforce, followed by Reckitt and TTK Healthcare.
CHALLENGES
The British consumer goods firm faces some stiff challenges in its quest to carve out a lucrative slice of the female condom market and rural consumers, primarily with distribution and pricing – two areas industry watchers believe are key to success – but also in coaxing a still-largely conservative rural population to buy its products.
Moreover, competitors are making a pitch to women too, with Durex’s main rival and market leader Manforce tweaking its marketing — a recent ad stars a Bollywood actress talking about benefits of condoms and asking women to “go buy your own.”
“One challenge Reckitt may face is consistency of messaging,” said Devangshu Dutta, head of retail consultancy Third Eyesight, adding the company needs to figure out if it is targeting condoms for health, family planning, or pleasure as there could be different messaging for each type of shopper.
The growth opportunity is compelling – India’s condom market size is merely worth $210 million, compared to China’s $4.1 billion, but is forecast to grow at 7.4% compound annual rate between 2024 and 2030, according to Indian consulting firm 6Wresearch. The global market is worth $11.3 billion.
Growing the market will take some doing though, not least because of India’s vast size and millions of mom-and-pop stores require a widespread distributor network.
Currently, only about 10-15% of Durex’s sales in India come from rural areas, which is far more price sensitive than urban cities.
“Distribution is the big challenge simply because even though most consumer goods companies have made their way to all pincodes in the country, the question is maintaining availability at retail points,” said Dutta of Third Eyesight.
CHIPPING AWAY AT TABOOS
Sex education in the conservative country is also lagging, and there is a vast gulf between awareness and actual use of contraceptives.
Matt Godfrey, executive vice president for Asia Pacific at Monks ad agency, part of S4Capital, said marketing tweaks by the likes of Durex are a welcome change but condom use and sex education need to improve in India.
“There are significant societal and cultural aspects that need to be rapidly shifted to reverse the status quo,” he said.
In the eastern state of Odisha, for example, a small medical store of Sudam Padhan does not prominently display condoms as “people frown upon them”.
In India, it’s men who mostly buy condoms, but some like Pooja, a marketer in Mumbai, are trying to drive change. She made an “awkward” decision to buy condoms herself for the first time this year, saying “when I’m asking for a condom over the counter I am basically putting my health first”.
Still, in a telling sign of the somewhat taboo nature of the topic, the 31-year-old declined to share her last name as she is unmarried and feared societal admonition.
“An open conversation encouraging safe and responsible sex in India has been steadily progressing but needs to be continually supported” by brands including Durex, S4Capital’s Godfrey said.
Like many of its rivals, Reckitt has over the years largely focussed on Indian men, with many ads featuring women wearing skimpy clothes.
Rival Manforce Condoms features former pornstar Sunny Leone in videos, some labelled “EXCLUSIVE UNCENSORED”. Duhan said many of the condom ads “objectified women.”
But that’s changing. Durex earlier this year launched a risqué “Explorers Wanted” lubricants campaign in India which featured sensual shots of nude male body parts.
PRICING PAINS
Pricing is another big challenge, especially in stores in smaller towns and villages which are reluctant to stock condoms and lubes. Duhan said products have to be “extremely cheap” to sell in some rural areas, where many use free government-provided condoms.
Padhan, from the medical store in Odisha, doesn’t stock Durex “because they are costly and there’s no demand for them in rural areas,” and says most sales are of Ustad “Deluxe Condoms” made by a state-run firm.
Ustaad costs just 10 rupees (11 U.S. cents) for a pack of six. A pack of 10 Durex condoms starts retailing at around 250 rupees, with some priced above $6, and a similar pack of Manforce starts at $1.
But the smaller three-condom Durex pack starts retailing around 99 rupees, and Reckitt believes they will sell better in rural India.
“We are starting at the top (and) planning to get down to the rural areas,” Duhan said. “It’s a massive undertaking”.
(Reported and Published by Reuters)
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August 31, 2024
MG Arun, India Today
Aug 31, 2024
Nearly five years after the Centre brought in norms to rein in multinational e-commerce companies operating in India, Union commerce minister Piyush Goyal sparked fresh controversy by raising concerns over the rapid expansion of e-commerce. He also drew attention to the pricing strategies used by some e-commerce firms, questioning what he termed “predatory pricing”.
“Are we going to cause huge, social disruption with this massive growth of e-commerce? I don’t see it as a matter of pride that half our market may become part of the e-commerce network 10 years from now; it is a matter of concern,” Goyal said at an event in New Delhi last week.
His comments come at a time when the ecommerce business in India is growing exponentially. Estimated at $83 billion (around Rs 7 lakh crore) as of FY22, the market is expected to grow to $150 billion (Rs 12.6 lakh crore) by FY26. The growth will be due to multiple levers: a growing middle class, rising internet penetration, the proliferation of smartphones, convenience of online shopping and increasing digitisation of payments. The overall Indian retail market was pegged at $820 billion (Rs 69 lakh crore) in 2023, according to a report published by the Boston Consulting Group and the Retailers Association of India. E-commerce still comprises only about 7 per cent of that, as per Invest India.
The Indian e-commerce market is dominated by global giants, including Amazon and Walmart (which took over Flipkart in 2018). They, along with domestic players, offer huge discounted prices compared to retail prices, which drives online sales significantly. In FY23, Amazon Seller Services and Flipkart posted Rs 4,854 crore and Rs 4,891 crore losses, respectively. Goyal’s argument is that these losses are due to their predatory pricing.
“Is predatory pricing policy good for the country?” Goyal asked, while stressing the need for a balanced evaluation of e-commerce’s effects, particularly on traditional retailers such as restaurants, pharmacies and local stores. “I’m not wishing away ecommerce—it’s there to stay,” he said. Later, he said e-commerce uses technology that aids convenience. But there are 100 million small retailers whose livelihood depends on their businesses.
The Centre has specific laws that permit foreign direct investment (FDI) in e-commerce exclusively for business-to-business (B2B) transactions. However, according to Goyal, these laws have not been followed entirely in letter and spirit. Currently, India does not allow FDI in the inventory-based model of e-commerce, where e-commerce entities own and directly sell goods and services to consumers (B2C). FDI is permitted only in firms operating through a marketplace model, where an e-commerce entity provides a platform on a digital or electronic network to facilitate transactions between buyers and sellers (B2B).
The country’s laws also stipulate that in marketplace models, e-commerce entities cannot ‘directly or indirectly influence the sale price of goods or services’ and must maintain a ‘level playing field’. Entities in the marketplace model re allowed to transact with sellers registered on their platform on a B2B basis. However, each seller or its group company is not permitted to sell more than 25 per cent of the total sales of the marketplace model entity.
Goyal said certain structures have been created to suit large e-commerce players with “deep pockets”. Algorithms have been used to drive consumer choice and preference. For instance, several pharmacies have disappeared, he said, and a few large chains are dominating the retail space. He invoked the importance of platforms like the Open Network for Digital Commerce where small businesses can sell their products.
E-commerce firms counter the argument on predatory pricing. “It is the sellers’ discretion as to what price they should sell at,” says an industry source. The e-commerce player who provides the platform seldom has a role in it, he explains. “Sellers could be doing clearance sales or liquidation of old products at cheaper prices. Some sellers also source products at manufacturing cost and park it with e-commerce firms instead of involving warehousing agents. This helps cut their overhead costs and allows them to offer lower prices on the platform,” he adds.
Some experts are of the view that the government should not step in with controls and allow the market forces to play their role in determining prices. Price controls may lead to shortages, inferior product quality and the rise of illegal markets. Moreover, the Competition Commission of India (CCI), which is mandated to act against monopolies, may be given more teeth. It is ironical that, on the one hand, the Centre wants more FDI to flow in, but places more and more controls on foreign players on the other hand. At the core are the interests of small traders and retailers, a key section of the electorate.
Others argue that the government has a role to ensure that there is fair competition. “It is not just small retailers the government would be speaking for, but for large domestic players too,” says Devangshu Dutta, founder of consultancy firm Third Eyesight, emphasising that the government’s role should be to establish laws and practices that promote fairness.
According to him, it is no secret that e-commerce has grown through discounts. “For large e-commerce firms, market acquisition happens by acquiring a share of the consumer’s mind and through pricing. When a large sum is spent on advertisements, it is for acquiring the mind share of the consumer,” he says. “Pricing matters in a big way too. Whether you call it predatory pricing or market acquisition pricing depends on which side of the fence you are.”
(This article was originally published in the India Today edition dated September 9, 2024)
admin
August 30, 2024
In a startup world, founders are typically creators first while investors see themselves as the monitors. Therefore, conflicts between the two are almost a default feature of a relationship that in effect funds a dream. From ‘off’ chemistry to differences of opinion to what some founders see as shackles on entrepreneurial freedom, the reasons could be any or a mix of all. Watch this discussion, with a mega-panel of intense start-up founders on the one hand and investors with VC funds on the other, addressing the pain points on Cash, Control, Creativity, Chemistry and Culture in a supercharged encounter. Session Anchor, Devangshu Dutta (Founder, Third Eyesight) reflected, “Those who have heard classical music jugalbandi or witnessed jazz musicians jamming will appreciate the creative tension, the give and take that was the thread throughout this discussion, reflecting the reality of the relationship between entrepreneurs and VCs.”
Watch the video
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Abdus Samad, Founder, Sam & Marshall Eyewear
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Vaani Chugh, Co-founder & Director, D’chica
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August 24, 2024
Writankar Mukherjee & Navneeta Nandan, Economic Times
24 August 2024
Quick-commerce operators such as Blinkit, Swiggy Instamart and Zepto are aggressively trying to lure away consumers from large ecommerce platforms like Amazon and Flipkart by matching their prices across groceries and fast-selling general merchandise, triggering a price war in the home delivery space.
This is a departure from the earlier pricing strategy of quick-commerce players who typically charged 10-15% premium over average ecommerce marketplace prices for instant deliveries, industry executives said.
The strategy now is to win consumers from large ecommerce at a time when urban shoppers increasingly prefer faster and scheduled deliveries, they said.
An ET study of prices of 30 commonly used products in daily necessities, discretionary groceries and other categories, including electronics and toys, in both ecommerce and quick-commerce platforms reveal the pricing disparity has been bridged. “The pricing premium which quick commerce used to charge for instant deliveries is gone with these platforms now joining a race with large ecommerce to offer competitive pricing to shift consumer loyalties,” said B Krishna Rao, senior category head at biscuits major Parle Products.
It seems to be working. Quick commerce is the fastest growing channel for all leading fast-moving consumer goods companies, accounting for 30-40% of their total online retail sales, according to company disclosures in earning calls.
These platforms are also expanding their basket with larger FMCG packs to cater to monthly shopping needs but also non-groceries such as electronic products, home improvement, kitchen appliances, basic apparel, shoes and toys amongst others.
“Consumers have all the apps on their phones and all they want is quick deliveries at the best price,” said Rao of Parle Products.
The increasing competition is putting pressure on ecommerce majors to reduce delivery time.
‘Market acquisition cost’
Flipkart is even eyeing a quick-commerce foray by piloting a 10-minute delivery service called Minutes in some parts of Bengaluru.
Jayen Mehta, managing director of Gujarat Cooperative Milk Marketing Federation that owns the Amul brand, said now that people are buying regularly from quick commerce with an increase in their assortment, legacy ecommerce platforms like Big Basket and Amazon are trying to deliver faster and same day, which has increased competition pressure.
“At the end of the day, consumers compare across channels before buying. So, pricing equality has become important,” Mehta said. “But then, quick commerce has a delivery charge if the order is below a certain value,” he added.
But does their business model allow quick-commerce players to wage a sustained price war against ecommerce platforms?
Quick commerce model requires multiple dark stores to be set up in close vicinity in each market, while ecommerce players mostly make deliveries from centralised warehouses.
But then, quick commerce platforms right now are at a phase where ecommerce was 7-8 years back, said Devangshu Dutta, CEO of consulting firm Third Eyesight.
“Price matching by quick commerce is to acquire market share and is part of market acquisition cost even when it might not be profitable at a per unit transaction level,” he told ET. “They may have to sacrifice margins in the short term to get customers shopping more frequently.”
Blinkit chief executive Albinder Singh Dhindsa earlier this month said the advent of quick commerce has made people want things faster than they would have otherwise got from ecommerce.
“This has led to a direct share shift of a number of non-grocery use cases to quick commerce where customers were primarily reliant on ecommerce for buying these products,” he said in the Zomato-owned quick-commerce platform’s June quarter earnings release.
Dhindsa said quick-commerce platforms are gaining sales by incremental growth in consumption, shift in purchases from next day ecommerce deliveries and mid-premium retail chains.
Citing an example, he claimed the demand Blinkit has generated for online-first oral care brand Perfora is a testament that such brands’ growth and adoption on quick commerce is much faster than on ecommerce.
(Published in Economic Times)
