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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)
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April 24, 2024
Mumbai, 24 April 2024
Sharleen Dsouza, Business Standard
With the Supreme Court cracking down on Patanjali over misleading advertisements, the advertisement industry is concerned. While industry players acknowledge that some degree of exaggeration in claims is common, the Supreme Court’s firm action signals an impending shift.
On Tuesday the SC said that its interest was not limited to Patanjali but all those Fast-Moving Consumer Goods (FMCGs) and drug companies that mislead consumers through their advertisements.
And Patanjali is not the first one to have crossed the line of puffery. There have been many cases in the past, like Horlicks Ltd versus Zydus Wellness Products where the former sought for a permanent injunction against Zydus for the broadcast of false advertisement.
Similarly, in Rajendra versus Union of India, the Bombay High Court restrained any good or service sale claiming it had supernatural and miraculous powers.
“Puffery in advertising is as old as advertising. There is always an element of exaggeration. Over the years, the government has looked the other way. Guys on the ground should take companies and brands to task and have largely been in cahoots with most of the brands,” said Sandeep Goyal, chairman and managing director of Rediffusion Brand Solutions.
Goyal believes that the SC coming down heavily on Patanjali would be a deterrent for other brands. “Puffery or not is for someone to figure out. In most food products, FSSAI doesn’t care. Who is to identify these ads? I think the SC has done something. This won’t deter other brands and get them to make claims which are within the realm of what is correct,” Goyal said.
A question of ethics
Industry experts point out that the primary objective of advertisement is to stimulate desire in the consumer’s mind. This happens by hook or by crook.
“Misleading a consumer has become inherent in advertising to a certain extent. I think this is dangerous when it comes to food, as it is basic nutrition. If you are embedding misleading information or mis-stating facts in ads then it has a real impact on whoever the customer or consumer is of that product. It is good that the issue has been highlighted,” said brand expert Devangshu Dutta, founder of Third Eyesight.
Then there is the Advertising Standards Council of India and discussions about ethical standards within the industry.
But Dutta believes there is a clear disconnect between what advertisements should say and what actually transpires. “I hope it gets acted upon from the government’s side as well. Self-regulation doesn’t seem to work. We all wish that it works, but it doesn’t. If it becomes more stringent, then it will be good overall,” he said.
While FMCG players are concerned about the stringent action of the Supreme Court, they believe that this will lead to improved advertisement regulation.
Ensuring compliance
Speaking on condition of anonymity, a senior executive of a leading FMCG company said, “The industry is already disciplining itself due to the growing consumer awareness, stringent ASCI guidelines and the impact of influencer marketing. This will further ensure that misleading ads will be few and far in the future.”
Some companies also ensure that their ads adhere to ASCI guidelines before launching them. “We run our ads with ASCI before we release them. This practice has worked in our favour,” said another executive on condition of anonymity.
In its hearing, the SC had said, “We are of the opinion that the issue relating to implementation of the relevant provisions of the Drugs and Magic Remedies Act and the Rules, the Drugs and Cosmetic Act and the Rules, and the Consumers Act and the relevant rules needs closer examination in the light of the grievances raised by the petitioner…not just limited to the respondents before this court but to all similarly situated/ placed FMCGs who have… misleading advertisements, and (are) taking the public for a ride… affecting the health of babies, school going children and senior citizens who have been consuming products on the basis of the said misrepresentation.”
(Published in Business Standard)
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March 18, 2024
Christina Moniz, Financial Express
March 18, 2024
It is not difficult to understand why e-commerce firm Flipkart wants a bite of the Q-commerce pie.
India’s quick commerce market has been growing year-on-year at 77% to reach $2.8 billion in GMV (gross merchandise value) in 2023, according to a Redseer report. In comparison, e-commerce has been growing at 14-15% year-on-year. No one would dispute that with instant deliveries of products and groceries in 10-20 minutes, quick commerce firms like the Zomato-owned Blinkit, Zepto and Swiggy Instamart have changed the face of e-commerce and retail over the past few years.
While quick commerce thrives, none of the players in this ring are profitable yet. According to Devangshu Dutta, CEO at Third Eyesight, most quick commerce firms are in an expensive market acquisition phase and are at least a year away from profitability — perhaps longer. He expects that the unit economics for these companies will improve. “Some of the quick commerce players have created a substantial consumer base, which is growing in the frequency of transactions, moving to higher order values and transacting more products with potentially better margins,” says Dutta.
Both Zepto and Blinkit expect to turn profitable in FY25, as per their public statements.
So what are the primary challenges? “Traditional large e-commerce players face obstacles in facilitating last-mile deliveries, establishing dark stores, managing supply chains effectively, and navigating fierce market competition,” says Anshul Garg, managing partner & head, Publicis Commerce India.
The other key challenge for the late entrants is that customers seldom switch platforms. This is different from the way customers shop for products like electronics on e-commerce, where they compare prices/ deals across multiple e-commerce marketplaces. Brands like Flipkart need to define their playbook by maybe exploring categories other than grocery if they are to make a dent in this market.
As things stand, quick commerce has a mere 7% of the potential market. The total addressable market is estimated at $45 billion, higher than food delivery, as per JM Financial. Blinkit leads the market with a 46% share, followed by Swiggy Instamart at 27%, and Zepto at 21%.
Growing-up pangs
Kushal Bhatnagar, associate partner at Redseer Strategy Consultants, explains that there are broadly three ways that Q-commerce firms are working towards profitability. The first is by pushing higher priced items on their platforms and bumping up higher average order values. They’re also foraying into non-grocery segments such as cosmetics and headphones.
The other lever is ensuring dark store efficiencies. “While dark stores are an added cost, most platforms have a solid understanding of the demand across micro markets and are able to extract better profitability from each dark store. So the trend is positive, even if profitability is still to be achieved,” explains Bhatnagar.
For a dark store to deliver ROI and become profitable, it needs to cross 1,200-1,300 daily orders.
Some players like Zepto are also experimenting with a nominal platform fee of Rs. 2 per order, which they sometimes increase during peak times — by up to Rs. 10 — to gain from a surge in demand. Some are also implementing 12-15% fees for orders under Rs. 500, nudging customers to spend more.
Ad revenue is another important lever driving growth for these platforms, especially as D2C brands hop on board and advertise on them to reach GenZ and millennial consumers in metros and tier-I markets. Advertising revenue is around 3% of a platform’s GMV, and it is expected to keep growing.
FMCG and F&B are the top advertising categories on quick commerce currently but that can change as platforms move into higher value categories. “Quick commerce is also venturing into unconventional categories such as electronics, mobile and large appliances. If all goes according to plan, we can anticipate a significant shift in advertising contribution, given that these categories boast higher average selling prices, prompting advertisers to adopt a slightly more aggressive stance,” says Shashank Rathore, vice-president, e-commerce at Interactive Avenues (IPG Mediabrands India).
(Published in Financial Express)
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February 21, 2024
Sharleen D’Souza, Business Standard
Mumbai, 20 February 2024
Over the past year, Amul has undergone a transformative journey, evolving from a dairy-centric entity to a comprehensive foods company.
Since 2022, PepsiCo India, too, has embarked on extensive launches in the food category.
Not to be left behind, ITC, which has been introducing an average of 100 fastmoving consumer goods (FMCG) products across categories every year, has also launched a number of packaged food items.
The shelves in stores are packed. The options on e-commerce platforms are dizzyingly aplenty. The consumer is spoilt for choice. Which flavour of oats to go for? What packet of chips to pick? Should one reach out for those mouthwatering frozen snacks or think healthy and opt for atta (wheat flour) cookies?
Companies are pulling out all possible goodies in the form of packed food.
It is a strategic shift initiated during the pandemic and which has proven to be a lasting trend. During the pandemic, when other businesses were curtailing expenses, food companies started launching new products as consumers turned to packaged food.
Amul identified a growing preference for purity during the pandemic, and realised that this preference was here to stay. The company aggressively expanded its product range, venturing beyond dairy into items such as organic dal, atta, and basmati rice.
“We noticed that consumers were moving from unbranded to branded products, and were increasingly seeking out those that would boost their immunity,” says Jayen Mehta, managing director, Gujarat
Cooperative Milk Marketing Federation. Even later, as the world moved out of the pandemic, the preference for packaged foods continued.
Convenience foods, which had gained prominence during the pandemic, sustained their popularity. The widespread adoption of modern retail formats, including brick-and-mortar, e-commerce and quick commerce, proved to be further growth enablers for packaged foods. These formats facilitate the display of entire product ranges to a larger consumer base, says brand expert Devangshu Dutta, founder at Third Eyesight, and that helps.
Growing platter
Today, while Amul’s flagship product, packaged milk, is recording double-digit growth, Mehta says the company is also focusing on premiumisation by introducing artisanal cheese and products such as
Amul High Protein Buttermilk, high protein lassi and shakes, and whey protein.
ITC’s diverse launches, meanwhile, include lump-free Aashirvaad Besan, frozen breads, Dark Fantasy centre-fill cookies, and a variety of Master Chef frozen snacks such as paneer pakoda and onion rings, B
Natural fruit juices, Aashirvaad Svasti ghee, and so on.
Last year, as the focus turned to millets, and 2023 was declared International Year of Millets, the Kolkata-headquartered conglomerate saw a healthy business opportunity. It launched ITC Mission Millet with
an array of millet-based products: Sunfeast millet cookies, Aashirvaad millet mixes, YiPPee! millet-based noodles, Candyman Fantastik chocsticks with millets, and more.
“The company will continue with its focus on consumer-centric innovation and product launches across its portfolio,” says Hemant Malik, executive director, ITC. A finger on the consumer’s pulse, product research and development through ITC’s Life Sciences and Technology Centre, and an extensive omnichannel distribution infrastructure are helping the game.
PepsiCo India, too, is in the race to capture a growing share of the packaged food market. How serious the company is about this can be gauged from the fact that since 2022, its launches in the packaged food category have been the highest since it entered the food space in 1995.
It is not even two months into 2024 and PepsiCo has already launched three flavours in oats: masala magic, herby cheese, and mixed berries.
Last year, it had four launches and introduced seven new flavours in Doritos and Kurkure. And in 2022, it launched five new products and eight new flavours in Doritos, Quaker Oats and Lay’s.
In Lay’s, it went premium and launched Lay’s Gourmet.
Sravani Babu, associate director and category lead at Quaker Oats, says while the category is nascent compared to other FMCG segments, it is growing in double digits. So, the three new flavours were a
considered call.
While “basic oats continue to be the leading segment in the category,” she says, with these new flavours, the company is looking at oats as not just something one eats for breakfast. With PepsiCo keen on broadening the oats portfolio, the bowl is expected to see even more variety in the time to come.
Food in a jiffy
Quick commerce, which promises deliveries within 10 minutes, has also accelerated in-home consumption trends, said Saumya Rathor, category lead of potato chips at PepsiCo India, in an interview.
Consumer habits, she said, take decades to evolve, but the pandemic hastened that shift. So, the convenience-driven traction for packaged foods has persisted. E-commerce and quick commerce have only expanded packaged snack penetration across the country.
In response to the growing demand, PepsiCo India has announced its first food manufacturing plant in Nalbari, Assam, with an investment of Rs. 778 crore ($95 million). Scheduled to be operational in 2025,
this expansive facility spans 44.2 acres and underscores the company’s desire to make the most of the rising consumption trends in the foods sector.
Other food companies, including ITC and Amul, have also embraced an assertive stance, launching products strategically.
The trajectory indicates a promising future for India’s packaged food sector. The shelves are set to overflow.
Size of the packaged foods market: In 2022, India’s packaged food market size was $2.7 billion and it is projected to reach $3.4 billion by 2027
(According to Statista)
(Published in Business Standard)
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January 26, 2024
Sagar Malviya, Economic Times
Mumbai, 26 January 2024
Hindustan Unilever and United Spirits together present a study in contrasts that seemingly reinforces the current purchasing trends in India’s consumption sector. At the country’s biggest consumer-goods and alco-bev companies, respectively, premium brands are flying off the shelves, but mass-priced products remain relative stragglers.
“At the premium and luxury ends, they (consumers) are continuing to spend, continuing to experiment, continuing to do repertoire drinking, especially experimenting with the white spirits, drinking at home,” Hina Nagarajan, managing director at Diageo-controlled United Spirits, told investors in a post-earnings call. “However, Middle India, or the value-oriented consumer, is actually cutting down on the number of occasions (to spend) to manage their money.”
The maker of Johnnie Walker and Smirnoff posted a 12.4% volume decline in the mass-priced segments, while pricier prestige and above categories saw a 10% growth during the December quarter. The Indian unit of the world’s biggest distiller said it expects this trend in purchasing behaviour to continue over the next couple of quarters.
At Hindustan Unilever, the country’s biggest consumer company by both sales and market value, the story isn’t vastly different. The FMCG bellwether said its premium portfolio expanded more than two-and-a-half times the mass segment over the past few quarters.
This trend was seen even in the rural areas that make up nearly half the annual sales at the maker of Dove soaps and Glow & Lovely skin creams. Pricier products now constitute a third of Hindustan Unilever’s total sales. “In rural areas, there are people who can afford and spend money, and hence, the premium portfolio in has also grown well – like it has grown in urban parts of the business,” Rohit Jawa, managing director, Hindustan Unilever, told investors after the December-quarter earnings. “We have always seen that essential and discretionary are the two realities of (the) rural (market).”
Incomes & Business Cycles
This dichotomy in purchase decisions appears to be a function of income disparity and is market-agnostic, experts believe. For instance, rural India that accounts for nearly 40% of the overall FMCG market saw a noticeable drop in demand for a year due to inflation and erratic monsoons. Cities, meanwhile, appear to be at the vanguard of overall consumption demand across categories as urban incomes, typically linked to organised sectors of the economy, are more resilient to business cycles and promise better protection against broader inflationary pressures. “Even if the consuming class, mainly upper and middle class, saw an impact on their incomes, it is still not significant to affect their discretionary spends,” said Devangshu Dutta, founder of Third Eyesight, a strategy consulting firm. “There is a buffer available for higher income growth and it will hit them later in any economic downturn. At present, it is felt in the lower-income segment.”
Over the past decade and a half, consumer companies expanded sales by pushing both pricier and affordable products. Companies still have budget-friendly options in their portfolio, but lower incomes, especially in rural areas, appear to have dented purchasing power at the budget end of the market. “The real pressure on the wallet is on the lower side, where we do see upgrades are not happening from country liquor to either the popular category or the lower end of prestige,” said Nagarajan at United Spirits.
(Published in Economic Times)
