Tale of 3 digital ecosystems in India – Jio vs Amazon vs Walmart-Flipkart (Part -1)

Jio has been on the fundraising spree over the last 3 months and managed to raise ~$20 B dollars in these interesting times from a set of global marquee financial investors like KKR, PIF, Vista, General Atlantic and strategics like Facebook and Google for a modest ~33% stake. 

While they seem to have all the support and ingredients needed to rule the Indian digital ecosystem, it remains to be seen how well they are able to capitalize on this massive opportunity in front of them.

The Indian digital ecosystem is at an interesting juncture at the moment and it made me think what could possibly lie ahead for us. Pondering upon it, I thought of contrasting and comparing the Jio Ecosystem with other two existing digital ecosystems of Amazon and Walmart-Flipkart which have been transforming the Indian e-commerce landscape over this last decade and where do they stand currently and what can be expected in future. Apart from these top 3 ecosystems, I think there is a dark horse here which cannot be ignored and hence have taken Softbank funded companies as the 4th ecosystem as they have contributed significantly in the past and can become key parts of future evolution too.

Further here, I have tried to do a sector wise comparison of various sectors in which all these ecosystems are present to understand their current presence as well as identify opportunities where we can expect some more activity in the future. I will try to cover them all over few articles starting with Commerce in this part 1 of the series:

1)     Commerce

The commerce sector which is by far the largest one, almost to the tune of ~900 B of which e-commerce is ~4% or $36 B and growing rapidly. Covid19 pandemic has accelerated the digital adoption further which is seen in the e-commerce offtake worldwide. For example, in US, the e-commerce penetration almost doubled to 27% in 8 weeks after lockdown which otherwise took a decade to reach to 14%.  

In the table below, I have shown comparison of various existing businesses under the commerce vertical of these 4 ecosystems across online as well as offline channels. I have color coded each segment of every ecosystem into 3 buckets – a) having a strong presence, b)has some presence but need to improve and c) an opportunity to build or acquire a company in that segment.

 a)      Grocery and everyday items category –

Indian grocery is one of the biggest category pegged at ~$500 B with online food & grocery retail having a penetration of < 0.5%. This segment is expected to grow at 80% CAGR to a market size northward of $10B. Also, grocery acts as a hook product to upsell/cross sell and hence it becomes very important for every player to capture maximum no. of customers here. In this category all the players have reasonable presence in the online commerce. Let’s go through them one by one:

 Jio –

Reliance Jio ecosystem has strong presence in this space. It’s offline channel is already established, online is growing rapidly with JioMart launch across 200+ cities in India (highest ever). We can expect them surpassing the no.1 player Big basket in this category in the near future in terms of daily orders.

 Amazon –

Strong presence in the offline space with investee company Future group. This is currently under the assumption that Amazon remains the key investor in Future group which has multiple properties in the offline play. Currently, rumors are doing rounds about Amazon’s investment in Reliance retail, which if happens, can change the contours of this landscape significantly, pole vaulting Jio-Amazon combo to undisputed no.1. Simultaneously, Reliance Retail is also in talks with Future group for a stake purchase/complete buyout of Future retail vertical. These are definitely some interesting times in the Indian offline retail space where there could be a probable consolidation in the near future.

 In the online space, they have presence through amazon pantry and amazon fresh but there is a good scope to grow & improve there.

 Walmart-Flipkart –

Flipkart has recently launched Flipkart Quick and can build on this in a big way. It’s early days for them here but there is a big opportunity for them to build it or grow inorganically through acquisitions. They don’t have any presence in the offline grocery segment at the moment directly but have invested in Ninjacart. Offline remains a big opportunity for them.

 Softbank –

Softbank companies Grofers, Paytm & Snapdeal have some presence in the online space but there is a significant space to expand and improve their offerings. In the offline play, there is Grofers only at the moment with limited presence, so there is a sizeable opportunity for Softbank also to build/acquire startups in this space.

 My Take

My belief is that this segment is big enough and will continue to have multiple players and hence it would never be a winner takes all play here. Though Amazon and Flipkart have in a way mastered planned deliveries in other segments, deliveries of grocery items and perishables is all together a different ball game. Big Basket has built great expertise here over years and definitely is the biggest player here and will continue to grow until it becomes the part of one of these ecosystems. I believe Jio with their extensive understanding of Indian supply chains and good execution capabilities can emerge as the no.1 player in the near future. And obviously, we cannot forget the wild horse here in Swiggy and Zomato who have recently entered this space and have mastered instant delivery of perishables in a short time. This is definitely going to be one of the most hotly contested spaces in Indian startup ecosystem for the near foreseeable future.

 b)     Consumer Electronics category –

This is a $12 B category currently growing at ~13% per annum. As the commodities are pretty standardized here, so this is a go to segment for the consumers also to do their online purchase. The user penetration is also significantly higher at 17% in India for this category with an ARPU of $52. With the pandemic, I expect this segment to grow significantly in near future driving the ARPU up significantly as well as penetration growing significantly.

 Jio –

Jio has multiple online properties in this space but none of them are in the top 5 at the moment. There is a good scope of changing that by building/buying. In the offline space, they do have decent presence through Reliance Digital.

 Amazon –

Amazon is one of the leaders in the online consumer electronics category and it will only keep growing here in the coming years as it keeps adding more customers every year. In the offline world, they have presence through their investee company Future group to an extent but there remains a good scope to build/buy more offline presence.

 Walmart-Flipkart –

Flipkart, the original poster child of the Indian startup world dominated this online space and will continue to do so along with Amazon in close quarters with it. The company doesn’t have any offline presence currently and has an opportunity to develop it if they wish too.

 Softbank –

They have 2 companies which form the top 5 in this category in Paytm Mall & Snapdeal. However, the offline space is an opportunity for them too to build some meaningful presence. It remains to see what approach they take for the same.

 My Take

I see Amazon & Flipkart dominating in the online space in the near future and becoming bigger with more online shopping penetration thanks to favourable tailwinds due to Covid19. In the offline space, there is an opportunity for Flipkart & Softbank here if they were to expand to offline retail, however my sense is that as these are commodity products and hence focusing on online would make more sense driving better economics and profitability.

 c)      Fashion : Apparel, Footwear, Accessories –

Fashion is $11.4 B market in India with Apparel contributing the majority at around $7.6 B, Footwear at around $1 B and accessories at $2.7B. This segment saw a 21% YoY growth in recent times and will be impacted by the pandemic so it remains to see how it performs in the near future.

 Jio -

Reliance Jio has a strong presence in the offline space in this category whereas it’s online presence is not in the top 3 currently. It has good scope to improvise and improve its online play.

 Amazon –

Amazon too has strong presence offline through its investee company Future group’s properties like Central, ALL, Brand Factory as well as Shoppers Stop. On the online front, they lag behind Flipkart group companies.

Walmart-Flipkart –

Flipkart leads the way here with its marquee property Myntra which is the undisputed no. 1 and they also have Flipkart fashion, Jabong & HRX and some more private brands to support it. In the offline space, they currently have Roadster (a Myntra brand) with limited presence in couple of cities and an investee company Wildcraft. There remains a big opportunity to build on its offline presence through acquisition/investment route or building it themselves.

 Softbank –

Paytm mall as well as Snapdeal have fashion categories but there remains good scope to improve over here. Also, they don’t have any presence in the offline space at the moment and we can expect some investments here from the Softbank group.

My Take

Flipkart brands will keep dominating here in the online space in the near future. Jio and Amazon will have to improve their offerings drastically to match Flipkart brands. The D2C brands will gain lot of prominence in the coming times having their own independent presence and driving a good part of their sales through these platforms. Their dependencies on these platforms will only increase as CAC, logistics costs, etc. might become reasonably high for a standalone brand whereas selling on platforms might help them achieve better unit economics and at the same time focus on the product and its innovation & improvisation. 

d)     Toys & Kids category – Here, Reliance has Hamleys which is a global brand in toys category. Softbank has FirstCry which is the leader in Kids segment. Amazon and FK have relatively smaller presence here and there is a good scope here for Jio, Amazon as well as FK to build/buy companies in this category.

 My Take

This space is dominated by mom and pop stores currently and there remains a big opportunity for startups to build brands here. Firstcry will continue to become bigger and we will see many more new startups coming up in this space in the near future. In the toys category, again there is no recognizable brand currently and hence an opportunity to build a toy brand.

 e)     Jewellery category – Again in this category, Reliance has Jewels – offline retail chain of jewelry shops. Amazon has some presence through its investee companies Shoppers Stop as well as Future group. Flipkart & Softbank has almost no offline presence here and could be an opportunity for them. However, when it comes to online, all the players have tremendous opportunity to build/buy in this category.

 f)       Online Pharmacy category – Pharmacy is a ~$25 B market which cannot be ignored. Keeping this in mind, Reliance recently acquired Netmeds marking their entry into this segment. Amazon, FK and Softbank have nothing in this segment and it remains a big opportunity. Paytm currently has partnered with existing pharmacy players like 1MG, Docsapp, etc. for selling via their miniapp in their main Paytm app. In this category, there are strong vertical players like 1 MG, Pharmeasy, Generico, Medlife, etc. I believe in the near short term we could see some consolidation among these players. I expect larger consolidation happening in this space in the next 2-3 years where some of the companies end up aligning with one of these ecosystems.

 g)      Social Commerce category – FB has invested in Meesho, India’s biggest social commerce player as well as its own FB marketplace which is huge in this segment. But, there is a big opportunity here for all the players to buy out some of the existing smaller companies like Shop101, Glowroad, or build one. Group buying company Pinduoduo took the e-commerce game one level up with their social buying platform in China and this can become a big opportunity in India too. Tough, one of the keys to success for them will be completion of transactions online by making online payments. Without that, it becomes difficult for any platform to replicate the success of PDD.

h)     B2B e-commerce category – Here, Reliance, Amazon & FK have their own B2B platforms in place but they are relatively small at the moment. Immense potential lies ahead over here. Also, a big opportunity for Softbank to invest in one of the companies in this space or for Paytm/Snapdeal/Grofers to build one.

 Udaan, Indiamart and the likes continue to rule here currently and a new crop of companies like Jumbotail, Peel works, Shopkirana and many more are there who are digitizing small mom & pop stores around India. With the entry of Jio, competition in this space has got one notch up. Early days here and the player who can provide the best holistic offering will have a better shot at capturing the market. My belief is that this again is a very huge and fragmented market and multiple players will continue to exist here.

That’s a brief on how these 4 ecosystems stack up against each other in the commerce space. Please reach out to me if you are building in any of the opportunities outlined above or you have thoughts on what other opportunities could be created. Also, happy to understand your thoughts on how do you think about this comparison.

I will try and do a similar comparison for other sectors like FinTech, EdTech, Content, etc. in the coming articles of this series. Stay tuned.

#Ecommerce #Jio #Amazon #Flipkart #Walmart #India