EComm for Bharat: New Phone, who dis?

#eCommerce #Bharat #WaterbridgeVentures #Kirana

Commerce in India has been quite the story over the last 30 years, with growth coming in distinct waves.

First, was the creation of modern trade- a direct result of the opening up of the economy in the 1990s. The 2000s brought the evolution of organized players and multi-category stores like ShoppersStop and BigBazaar (2000s) that looked to compete through formalized supply chains. The last decade (2010s) saw versions of horizontal e-commerce players like Flipkart and Snapdeal pave the way for the digital age. 

Largely built on replicating US/Chinese business models, the eCommerce story in India has catered to urbanized metro cities that have high internet penetration, global tastes, and a high propensity to spend money online. International players like Amazon and Walmart have made significant investments and tweaked pieces of their global playbook to attack the top-tier Indian market.

From a GMV perspective, categories that have been popular include electronics, FMCG, apparel, and household appliances all which have a high AOV (Avg ~ INR 600- 1000) with favorable margins. While innovations like ‘cash-on-delivery’ helped adoption, success in eCommerce so far has been marked by a large roster of options, aggressive marketing, and the convenience of online shopping.

Yet, all this activity in eCommerce still represents only 15% of the total Indian retail market. Domestic strategics and international giants have both found it challenging to expand the TAM for eCommerce outside of large cities where General trade rules supreme. Dramatic differences between Indians in metro cities and those living in Tier 1+ cities have made expansion difficult.

Enter the fabled India vs Bharat discussion.

Over the last 5 years, the rest of India (Bharat) has been catching up in terms of mobile penetration and affordable access to the internet. Pioneered by the Jio revolution, India has close to a billion Indian mobile subscribers today and the lowest data rates globally. Buoyed by a boom in technology and an increase in data/internet penetration, users from smaller towns and villages are now increasingly exposed to the digital realm.

While digital reach has expanded, there are a multitude of reasons why the ‘traditional’ eCommerce model struggles in Bharat. High CAC, poor logistics connectivity, prohibitively low AOV (Avg. INR 200-300) and a demand/consumption pattern that speaks to a low margin category mix poses unique business model challenges that require crafty solutions. 

While it's tempting to look to either the US or China for analogs, first principles thinking suggests Bharat solutions will have to be inherently domestic. For starters -unlike the US or China, India is a non-homogeneous market with non-standard tastes, languages, and preferences. 

As a result, the cookie-cutter approach that defines most American malls (online ones too) does not translate well, limiting our ability to scale supply quickly. Likewise, the lack of an overarching/data-rich super app like WeChat (which has empowered Chinese companies with the ability to segment, target, and aggregate users with unparalleled precision) means founders will have to find a new vector to aggregate demand across local markets.

Customers in Bharat do not speak English, tend to live in sparsely populated towns with tightly knit communities, and have a household income of ~ INR 25k. As extremely value-conscious consumers, they prefer value above all else and are used to a relationship-based, physical touch-feel buying process. Categories like Staples, Consumables (Atta, Sugar, Oil & Ghee), FMCG, and perishables form a bulk of an average consumer order.

The physical conduit of this shopping experience is the humble Kirana store. Over 12Mn unorganized Kirana stores form a web of informal and often disorganized distribution channels that provides adequate (but not ideal) choice to the Tier 1+ consumer.

Kiranas form the cornerstone of everyday life. Owner-operators keep track of preferences, recommend new products, and often extend monthly lines of credit. Customer behavior is defined by walking up to a neighborhood Kirana and choosing from a limited roster of options which is often determined by regional or local supply chains. Price sensitivity is very high and Kirana stores are tightly run businesses with wafer thin margins.

While many of these consumers are now exposed to a larger array of products through the internet, they have been hesitant to shop online. Search-driven, faceless digital transactions are diametrically opposed to the relationship-based, friendly Kirana experience. An inherent lack of trust is the largest roadblock.

And building trust is a difficult and expensive proposition.

Startups and large strategics across the spectrum are exploring different avenues to tackle this problem statement. While mobile-first and vernacular focus forms the base of any strategy, there are various paths to building new-age commerce for Bharat. 

One avenue could be to partner with existing Kirana stores at a large scale and centralize warehousing operations and fulfillment. This ‘phygital’ model brings the best of offline touch and feel with the power of technology integration but brings with it operational complexity and massive capital requirements which probably suggests a strategic play (hint: Jio).

Another model could be to build new pillars of trust by creating micro-influencers that review products and humanize the shopping experience in various vernacular languages. This model hinges on customers relating to and resonating with like-minded influencers through interactive videos as a path to building trust. Finally, the community-led group buying model (we have seen up close with our portfolio company CityMall) leverages existing social trust in hyperlocal communities to aggregate demand across delivery points. 

At WaterBridge Ventures, we believe Bharat is ready for socially powered new age commerce and we are eager to hear from talented entrepreneurs looking to unlock this next wave of growth! 

In the next chapter of this eCommerce deep dive, we look closely at these new social commerce models and postulate what the future of eCommerce might look like. 

Stay tuned!