E-Commerce Enablers
WaterBridge Ventures
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Not many of us would have thought that two engineering grads selling books online in 2007 could ever usher in a new area of commerce that would lead to a gigantic shift in the way an Indian consumer shops. Such is the power of e-commerce that a decade and a half later, none of us can imagine our lives without purchasing anything digitally.
Over the last few years, the initial scepticism related to e-commerce has paved way for its widespread adoption as the Indian consumer’s digital behaviour crossed the inflection point owing to the factors below:
1.????Rise in internet penetration – India has the 2nd largest internet user base in the world estimated at ~900Mn. The internet penetration in the country touched 60% while India saw the highest growth in mobile data usage, averaging 12GB of monthly data consumption per user, the highest in the world.
2.????Increased consumer spending and demand – With the increase in GDP from $2.3Tn in 2016 to $3.2Tn in 2021, the consumer spending-based contribution to the GDP rose from 59% to 60% and is slated to grow to 67% by 2030 indicating an increase in affluence and higher spending capacity.
3.????Surge of D2C brands – Pandemic brought about a radical shift causing D2C brands to go mainstream. ~60 D2C brands over the last 5 years crossed the $15Mn ARR threshold, providing evidence that the D2C market is here to stay and prosper.
As the fever of online shopping struck the Indian consumer and the challenges enveloping the e-commerce based startups grew, a fresh crop of founders drew parallels to the 1849 California Gold Rush, wherein those businessmen selling shovels and other accessories to the prospectors hoping to strike ‘Gold’ profited heavily with minimal risk. This development birthed the e-commerce enabler ecosystem in India and a new breed of startups began tackling the following age old, yet now widespread, problems, including:?
Landscape Overview of the Enabler Ecosystem
The following images describe the entire value chain, right from the time the idea of starting a brand is conceptualised by the founder to the delivery of the product to the end customer.
The value chain begins from the procurement of raw materials to manufacturing and then moves towards website / store front creation using low code tools.
After customers look at the social media adverts, the web-store is the first touchpoint for the customers where they enter the sales funnel and get introduced to the narrative of the brand. Subsequently, the customers identify the products to buy on and move towards checkouts page.?
As soon as the customer places the order and the purchase is confirmed, the OMS (Order Management Service) checks the order and signals the details to the WMS (Warehouse Management Service). Over the next day or in the next few hours, the order is either brought to the nearest warehouse or if the product is present in the closest warehouse, it gets packaged and is ready for delivery to the customer. In case of return, the reverse logistics aspect kicks in.
Now that an overview of the entire value chain has been explained, we jump into analysing a few of these segments in detail:
Website / Store Builders :
Low code/ No code tools to build websites and storefronts enable the long tail of sellers and brands, especially those below $1Mn ARR, to become digital first businesses. At a macro level, these low code/ no code tools serve as an extension to the Shopify for Bharat concept, tailoring their value propositions in accordance to the needs of the emerging home-based sellers, SMBs as well as mid-market enterprises.
Until recently, the primary focus of a majority of the companies in this segment lay in simplifying the onboarding process of the sellers by building a CRM of sorts that solved for cataloguing, order management and logistics integrations. With discoverability emerging as one of the biggest challenges for their customers, these companies have begun to integrate automated marketing solutions to provide a holistic solution set to their customer base. Companies that can enable their customers to boost monetisation, rather than strictly charge for convenience, and foray into the more lucrative mid-market and enterprise segment may have a competitive edge in this segment.
A few players dominating this segment include - Dukaan , Bikayi , Vajro , Plobal Apps etc.
Checkouts :
Research indicates that nearly 70% of the customers drop off after adding the items to cart, that conversion rate is barely 2% on brands' website and that certain categories have close to 30% RTOs owing to the Cash on Delivery based Indian consumer sentiment. These figures are alarming for upcoming D2C brands on their growth trajectory. To solve for the aforementioned pain points, especially RTO in the Indian context, several startups have emerged.
Good checkout mechanisms have the following attributes:
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The evolution of this segment might end up resembling the "High GMV Low Take Rate" template, owing to the major revenue stream being take rate driven. The key differentiators for the leading players might entail partnering with the D2C brands with the maximum ARRs and minimising the churn of these brands by superior customer service and diversification into other monetisation avenues like RTO insurance etc
Some of the marquee companies in this space are GoKwik , Xpresslane , Shopflo , GoSwift , Nimbbl etc
Logistics Aggregators :
The growth of numerous nationwide as well as long tail of delivery partners, in addition to the heavy capex required to set up the logistics and distribution platform, led to the emergence of a whitespace in the third party logistics aggregation segment. The tech layer, built on top of integrations with Shopify etc, permits the order flow management to delivery partners ranging from the likes of Delhivery , Ecom Express and Xpressbees to other local logistics companies, enables order pickup and tracks goods till they are delivered to the end customer.
Recently, this segment has seen rampant consolidation led by Shiprocket . Shiprocket's acquisition of Pickrr (high AOV products and enterprise customer based logistics aggregator), Wigzo (marketing automation platform), Rocket (contract manufacturer), Rocketbox (B2B logistics) and Omuni (inventory and warehouse management systems) has aided its vision of forming a post purchase full stack solution.
Other key players in this segment include Shipway and NimbusPost wherein Indiamart and Xpressbees are strategic investors.
With margins majorly resting on volume aggregation and Shiprocket occupying ~60% of market share, commoditisation is likely and the segment can become tricky to navigate for new players.
Warehousing :
Solving for scattered demand across the country by enabling a decentralised supply from the nearest warehouse/ dark store has become the need of the hour as brands scale. Buoyed by the acceleration of e-commerce and 3PL, the warehousing market has grown substantially and is expected to hit ~$30Bn by 2026 expanding at a CAGR of 11%.
India has a per capita warehousing stock of just 0.02 SqM compared to USA, China and UK?that have 4.4 SqM, 0.8 SqM and 1.09 SqM respectively, emphasising scope of greater expansion.
Grade A warehouses, that make up the bulk of the e-commerce logistics, have seen their average sizes double. Additionally, the average height of the warehouses has increased from 9m in 2016 to 12m in 2021 leading to trebling the average volume of the warehouses. Growth in supply of Grade A spaces over the years is due to high demand for spaces with high specifications, citing?increased inclination for high-grade structures and introduction of new players in the market.
The science of warehouse selection has become extremely data driven and involves precise assessment of parameters like proximity to the highest demand density and highest AOV, friendliness to reverse logistics, requirements pertaining to roof height and its materials like concrete and metal, demarcation between pickup and drop spots, percentage utilisation of space by the racks etc
As the expectations of quick commerce cement in the minds of the Indian consumers, a competitive edge in this space may lie in on-ground operations and other innovative ways to curtail the lead time across multiple processes, reduce the intermediate steps and optimise space utilisation.
Some of the notable players in this segment are WareIQ , Prozo , Grow Simplee , WholeMark etc.
D2C Aggregators :
D2C brands face a myriad of challenges across the value chain as they look to scale. With the entry of Rollups or D2C Aggregators, a majority of their obstacles seem to have come to an end. An aggregator acquires third party brands, either partially or fully, in a way that they fit its strategic vision, enabling the formation of a house of brands similar to the likes of P&G, Unilever etc. The underlying thesis is to explore the synergies between the acquired brands and scale them faster than would have been possible for the founder alone.
Rollups, at a broad level, look to acquire brands in categories that lack the presence of a well-known brand or premium brands that can be scaled further. Additionally, the rollups evaluate the brands for an acquisition by taking into account its EBITDA Margin (generally ~13-18%), Gross Margin (~60% or above), TTM or NTM revenue (ranging from $1Mn - $10Mn) and atleast 1.5x YoY revenue growth, along with factors like founder-aggregator fit. A certain multiple ranging from 0.8x to 1.5x is placed on the revenue to arrive at the valuation at which the rollups acquire.
This model has also caught up with mature brands like Honasa and The Good Glamm Group as they have begun forming their own house of brands, acquiring brands in segments related to their core offering.
Key trends visible in this segment are as follows:
Notable well-funded names in this segment include Mensa Brands , Globalbees , Upscalio , 10club , Evenflow, Warpfy etc
Our View
We, at WaterBridge Ventures , are excited about the Enabler ecosystem and how it intends to spearhead the D2C and E-commerce space from their current trajectory into newer horizons. We are looking out for entrepreneurs who possess an astute understanding of the major challenges in this space and who intend to tackle them with innovative solutions.
Meanwhile, the above article is the first part in our coverage of the E-Commerce Enabler ecosystem. The second part in the series will explore the whitespaces and the newer business models that can disrupt the way we shop.
Do write to?[email protected] ?or reach out on?LinkedIn , if you are building in the space or would like to brainstorm.
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