Devangshu Dutta
December 24, 2024
Opinion piece by Devangshu Dutta, published in TexFash.com
12 December 2024
TLDR:
The core premise of quick commerce is time-sensitive buying by the consumer, typically emergency purchases and top-ups of food and grocery, cleaning or personal care items. Although 10-minute delivery has been widely hyped, deliveries are usually—and more realistically—made in a time span of 20–60 minutes, which is often better than the cost and time involved in driving to nearby stores that are beyond walkable distance, in India’s crowded urban environment.
While quick commerce platforms had already begun disrupting FMCG and grocery buying, impacting traditional kirana shops, recently they have also started adding fashion products to improve their margin mix and profitability.
The fashion business, by its very nature, is built on width of choice, frequency of change and unpredictability, whereas the quick commerce business model depends on a narrow, shallow merchandise mix which comprises products that are sold predictably, frequently and in large numbers within a small delivery radius. Stocking a variety of fashion styles, sizes, and colours is inherently more complex than handling products like soaps or spices.
Also, unlike FMCG or essential products, fashion items certainly depend on sensory experience of touch and feel. Shopping for clothing often requires browsing through a variety of styles, fabrics, and fits; consumers spend considerable time researching, comparing, and reading reviews to ensure the right fit, colour, and fabric.
However, there is potential for basics (e.g. T-shirts in common colours, innerwear, socks, and hosiery), last-minute outfit changes, urgent replacement for damaged clothing, event-driven products, or specially promoted products that look like great deals, as all of these would fulfil immediate needs without the same level of evaluation and comparison.
In contrast, fashion shopping for high-value items such as dresses, shirts, or outerwear will remain a slower, more deliberate process. The higher the emotional or experiential value attached to a product, the less quick commerce will fit.
Myntra has announced its quick commerce launch offering 10,000 styles, across fashion, beauty, accessories and home, and expects to expand the offering to over 100,000 products in 3–4 months.
I see Myntra’s entry into this space partly as a defensive move to fend off the quick commerce upstarts from cannibalising its business in a market that is already beset with damp offtake and highly discounted sales. Surely Myntra would not want to lose its customers who may looking to make repeat, impulse or emergency purchases of fashion products and may be less price sensitive while doing so.
It’ll be interesting to see how they address the product complexity with super-quick deliveries, and how geographically spread this business model can be for Myntra.
Myntra’s parent company Flipkart has already announced that it expects to IPO by 2025–26, and it needs to be seen as evolving and staying relevant in an increasingly competitive environment, rather than losing customers and business to younger q-commerce businesses.
We shouldn’t confuse quick commerce with “fast fashion”. What is fast in quick commerce is the speed of decision making and shopping that is enabled by a limited choice, and fast deliveries.
The fast fashion model is built on the foundation of changing trends, which needs companies to quickly identify winning trends, get product ready to sell, and move out of trend so as not to be stuck with out-of-demand inventory. The fashion-conscious customer profile wants frequent and, most importantly, trendy changes to their wardrobe. Fast fashion is waste-inducing because it encourages discarding products that are out of trend, but otherwise perfectly fine.
Quick commerce, on the other hand, needs to have a profitable business on a much narrower product profile. The more predictable and basic the product, the more it suits a Q-commerce business model.
Sustaining the ability to make fashion-trend related changes to the product mix would be nightmarishly complex for quick commerce.
I would expect quick commerce of fashion to be more driven by “need” than by “want”, and in that aspect to be, hopefully, less waste-inducing and perhaps less environmentally harmful than the established fast fashion business models and brands.
Quick commerce could also create an additional outlet for inventory that is stuck and feed into value-conscious customers’ requirements.
For small manufacturers, Myntra’s entry into the q-commerce space could be a double-edged sword.
On one hand, quick commerce can create a new demand channel for them beyond modern retail, traditional stores and online marketplaces, offering growth in a tough market environment.
However, it can also intensify the pressure on their already tight margins because of the consolidation of trade demand and a push by large customers such as Myntra to improve their own profitability. Suppliers may also be asked to hold inventory at their end ready for replenishment of the quick commerce dark stores, to ensure that service levels are maintained.
This can increase pressure on production timelines and on working capital for small manufacturers, who would need to adapt quickly or risk being squeezed out by larger, more agile competitors.
On the competitive side, while larger retailers—whether traditional, family-owned department stores or large chains—are likely to be less affected, quick commerce of fashion products will certainly hit smaller fashion stores whose merchandise mix is limited in width and depth. These stores will necessarily need to define what is their continuing value proposition to the changing consumer.
admin
October 7, 2024
Writankar Mukherjee, Economic Times
7 October 2024
Reliance Retail has initiated efforts to enter the thriving quick commerce market in a move that is set to escalate competition for Zomato-owned Blinkit, Swiggy Instamart and BigBasket, among others. The country’s largest retailer has started offering quick commerce services in select areas in Navi Mumbai and Bengaluru through its ecommerce platform JioMart since last weekend.
It will initially sell grocery items from its retail stores totalling about 3,000 nationwide, eventually adding value fashion and small electronic products such as smartphones, laptops and speakers, a senior executive said. All orders will be fulfilled from its own network of stores including Reliance Digital and Trends.
The retail arm of Reliance Industries plans to rapidly scale up its quick commerce venture pan-India by this month-end with the aim to deliver most orders in 10-15 minutes and the rest within 30 minutes, the executive said. The company will use its acquired logistics service Grab for the fulfilment.
Reliance, however, doesn’t have any plan to set up dark stores or neighbourhood warehouses, unlike other quick commerce operators, the executive said. Analysts said this may become a challenge in delivering orders within 30 minutes in large cities where traffic is high during peak hours.
To entice customers, Reliance won’t charge any delivery fee, platform fee or surge fee irrespective of the order value, and keep a major focus on untapped smaller cities and towns where quick commerce operators like Blinkit are yet to enter, the executive said. Other platforms have a delivery fee and platform fee.
Reliance plans to offer a wider choice of products of 10,000-12,000 stock keeping units by linking its entire store inventory to the quick commerce business, which too is much more than rivals.
Eventually, the company aims to cover 1,150 cities spanning 5,000 pin codes where it runs grocery stores. The executive said the company would target a bigger share of business from towns and smaller cities hitherto untapped by quick commerce firms.
“Reliance has reworked the way orders are delivered for JioMart. Earlier, orders had a scheduled delivery taking 1-2 days by small trucks who would take multiple orders and deliver them one by one. Now, all grocery orders will be quick commerce where one delivery bike or cycle will deliver one order. Each grocery store will cover a 3 KM radius,” the executive said.
Earlier this year, the company tried to reduce JioMart delivery timings to a few hours or at least the same day under its hyperlocal initiative. It has fine-tuned the process further to 10-30 minute delivery. “This has become a top-of-the-kind requirement in the market right now,” the executive said.
A spokesperson for Reliance Retail didn’t respond to ET’s queries.
Devangshu Dutta, chief executive at consulting firm Third Eyesight, said Reliance can ultimately use a blended approach of quick commerce deliveries in areas near its stores and scheduled deliveries a bit far away.
“Since they are in a market share acquisition mode in quick commerce, charging no transaction fees and offering higher discounts on products is a given. There is significant scope for deep-pocketed players like Reliance to strengthen presence in quick commerce. They have aggressively backed other experiments in the retail business once they worked, and may do it again,” said Dutta.
For fast-moving consumer goods companies, quick commerce is the fastest growing channel, accounting for 30-35% of total online sales.
(Published in Economic Times)
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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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August 10, 2024
Faizan Haidar, Economic Times
10 Aug 2024, New Delhi
Japanese apparel major Uniqlo’s sales growth in India slipped by more than half to a still-strong 32% last fiscal year while its net profit expanded by 25%.
The Indian unit of Asia’s biggest clothing brand posted a net profit of ₹85.1 crore for the year ended March 2024 with net revenues of ₹824 crore, according to its latest filing with the Registrar of Companies (RoC). Uniqlo India had posted a profit of ₹68.1 crore with sales of ₹625 crore in the previous year. Its on-year revenue growth was 69% in FY23 and 64% in FY22.
Uniqlo opened its first door in the country in September 2019, but lockdowns and other constraints during the Covid-19 pandemic delayed its store expansion plans. At present, it has about 13 outlets in the country. Overall retail sales growth rate across segments such as apparel, footwear and quick service restaurants (QSR) fell year-on-year every month in FY24, reflecting comparatively weaker consumer sentiment.
Last fiscal’s comparatively slower 4-7% growth rate sustained this year as well, with May and June seeing a 3% and 5% rise each, Retailers Association of India (RAI) recently said after a survey of top 100 retailers.
“The market was sluggish for the industry as a whole last year, and that will reflect in practice every brand P&L, whether Indian or international,” said Devangshu Dutta, chief executive of retail sector consultancy Third Eyesight. “However, any brand that is committed to the Indian market as a strategic market for its future growth will take the ups and downs in its stride,” he said.
“Uniqlo’s expansion plans now include store sizes that would be smaller both in the cities it is already present in and in newer cities, which should help it tap into the demand at operating costs that are appropriate to each location,” Dutta said. Inditex Trent, Spanish fast-fashion major Zara’s joint venture with Tata that runs 23 stores in the country, saw its revenue rise 8% to ₹2,775 crore last fiscal, significantly down from 40% growth a year earlier, according to Trent’s annual report. Its net profit fell 8% on year to ₹244 crore.
Over the past decade, global brands Zara and H&M have become market leaders in the fast fashion segment in India.
Uniqlo has said India is one of the most priority markets where consumers are increasingly shifting from ‘fast fashion’ to long-lasting essentials and functional wear. As the world’s second most-populated country, India is an attractive market for apparel brands, especially with youngsters increasingly embracing western-style clothing.
Uniqlo is globally popular for functional basics like T-shirts, jeans and woollen wear, unlike fast-fashion rivals which are associated with designs that move quickly from the catwalk to the showroom.
(Published in Economic Times)
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May 3, 2024
SAYAN CHAKRABORTY, Nikkei staff writer
Bengaluru, 2 May 2024
India’s packaged spice manufacturers MDH and Everest are under regulatory scrutiny in several countries after their products were allegedly found to contain carcinogenic elements, barely a year after cough syrups made in the South Asian nation were linked to the deaths of over 140 children in Africa.
Countries like Australia, New Zealand and the U.S. are weighing investigations into the packaged spices made by the companies after Hong Kong authorities raised a red flag over their quality. This isn’t the first time that the two — among the largest such companies in India — have faced these kinds of issues, with the U.S. Food and Drug Administration ordering a recall of Everest spice mixes in 2023 and some MDH products in 2019, both due to salmonella contamination.
The Centre for Food Safety (CFS) in Hong Kong said in a statement on April 5 that it found ethylene oxide (ETO), a pesticide that can cause cancer if consumed in large amounts, in three types of packaged spices manufactured by MDH and one made by Everest. The products were taken off the shelves and recalled, the CFS said.
Taking its cue from the Hong Kong authorities, the Singapore Food Agency (SFA) a couple of weeks later recalled the Everest Fish Curry Masala product, saying in a statement that consumers who had purchased it were “advised not to consume it.”
The SFA also said, “As the implicated products [in Hong Kong] were imported into Singapore, the SFA has directed the importer to recall the products.” The agency clarified that “although there is no immediate risk to consumption of food contaminated with low levels of ethylene oxide, long-term exposure may lead to health issues.”
India’s Spice Board, a government agency that oversees spice exports, said that the limit for ETO varies between countries, from 0.02 milligram per kilogram of spices in places like the U.K. and Norway to 7 milligram per kilogram in Canada and the U.S.
Pesticides are widely used in agriculture in India, often leaving traces in food products. According to Indian government estimates, the cultivated area where chemical pesticide is used grew 33.4% from the fiscal year ending March 2019 to fiscal 2023, reaching 108,216 hectares. That was about seven times the area cultivated with biopesticides in 2023.
“We tend to look critically at the end product, but even more rigor is needed at the level of the ingredients,” said Devangshu Dutta, CEO at consultancy firm Third Eyesight, referring to the use of pesticides in cultivation. “Otherwise, we will end up kind of catching the product at the last point of control, which is not enough.”
Hong Kong and Singapore did not disclose the amount of ETO content in the recalled products. MDH and Everest had not responded to requests for comment by the time of publication.
Authorities elsewhere have also taken note of the allegations. “Food Standards Australia New Zealand is working with our international counterparts to understand the issue with federal, state and territory food enforcement agencies to determine if further action is required in Australia, e.g., a food recall,” the agency told Nikkei Asia in an email statement on Wednesday.
The regulatory scrutiny in the U.S., Australia, New Zealand, Hong Kong and Singapore, raises questions over an export market worth about $700 million, research firm Global Trade Research Initiative (GTRI) said in a report on Wednesday.
“Swift investigations and the publication of findings are essential to re-establish global trust in Indian spices,” GTRI said, adding that the “lack of clear communication [from government agencies] is disappointing.”
Indian food has been under scrutiny in Europe as well. The European Commission Rapid Alert System for Food and Feed estimates that since the beginning of 2023, Indian food products were deemed to pose “serious” risks in 166 instances. These included nine cases of ethylene oxide found in food supplements and spices in countries including Sweden, Greece and Italy.
Chinese food imports were found to pose serious risks on 115 occasions and those from the U.S. on 152 occasions.
The recalls come at a time when New Delhi is rolling out incentives to support local manufacturers and exporters in transforming India into a $5 trillion economy. India is the world’s largest exporter of spices with shipments worth $3.9 billion in 2023, followed by Vietnam and Mexico, according to data provider Tendata. Those figures give India a market share of 37.2%, with Vietnam at 28.1% and Mexico at 9.6%.
The issue with food products follows an outcry over the quality of medicines manufactured in India. Since 2022, the World Health Organization has linked the deaths of at least 141 children in Gambia, Uzbekistan and Cameroon to cough syrups made by India’s Maiden Pharmaceuticals, Marion Biotech and Riemann Labs that it alleged contained toxins.
But while the pharma companies are small local players, MDH and Everest made revenues of $260 million and $360 million respectively, in the fiscal year ended March 2023.
Poor food quality in India stems from a general lack of awareness about food safety and insufficient resources to track ingredients, among other reasons, said U.S.-based food and beverage consultancy AIB International in a report in October.
The Food Safety and Standards Authority of India found 16,582 samples unsafe in the fiscal year 2022, the latest such data available. That was a threefold jump from the previous year.
“Most of the food and beverage manufacturers in India are focused on reducing costs to make their product affordable to the public,” the report said. “As a result, many cannot prioritize food safety as a pillar of their business because it could prevent them from meeting their profit margins.”
“Food manufacturing and processing facilities can lack the resources to maintain proper hygiene,” it noted, adding that food-borne illnesses in India is estimated to top 100 million every year.
(Published on Nikkei)