Ecommerce industry is challenged by poor logistics, huge costs and low consumer interest.
Bengaluru | By Rahul Sachitanand | Feb 21, 2016 04:28 AM IST.
At 6 pm on a Wednesday afternoon in Rathina Sabapathi Puram, a residential and shopping area of Coimbatore, shoppers are flocking to Kovai Pazhamudir Nilayam, a popular fruits and vegetable store in the city with a population of just over a million.
This store, part of a fourdecade-old chain, has an assortment of some of 1,500 fruits, vegetables and some groceries, and seemingly shoppers can’t get enough.
In a time of richly funded hyperlocal ventures and onlinegroceries-on-the-go, this store is evidence of the challenges India’s $18 billion ecommerce industry faces as it forays beyond tier-I cities. Rather than buy produce at the tap of a screen, some 1,000 people daily stream into Kovai Pazhamudir to make their purchases.
Despite the growth and advent of ecommerce, there are few signs of this chain slowing down — plans are afoot to have up to 100 stores across south India, with new warehouses being built to speedily process exotic vegetables and other produce to customers.
At this brightly lit facility, Senthil Natarajan, managing director at Kovai Pazhamudir, is an hour late for his interview. He’s been delayed by a series of meetings with suppliers, but is profusely apologetic even as he breezes to a first floor office lined with a series of pictures of Hindu Gods.
This small office often doubles up as a lunchroom (we’re served strawberry milkshake — with fruit from the store itself ), but for this evening it’s the MD’s office.
“People in Coimbatore — and indeed many other small towns — like to visit stores for their shopping,” the 34-year-old says. “The lure of ecommerce, especially grocery delivery, hasn’t caught on here.”
On January 5, Grofers, with $165 million in funding from the likes of Tiger Global, Sequoia Capital and SoftBank, discovered how hard these habits are to change. The Gurgaon-based online hyperlocal grocer withdrew from nine cities, including Coimbatore, as it looked to pare its cash burn and exit unprofitable cities. Little surprise that all locations were tier-II towns.
Not All on Board
As India’s once thriving ecommerce industry considers a future with slower growth and tougher questions from once spendthrift investors, a seemingly obvious expansion into the country’s hinterland may be difficult to execute.
If customer sentiment is hard to shift ( just ask Grofers’ founders), there are other issues that have hobbled this unbridled expansion. Shaky last-mile logistics and poor connectivity (despite plans such as an ambitious state-sponsored programmes like Digital India and private ones like Reliance’s Jio) are hobbling this surge towards small towns.
“The potential demand is real… but the problems are real too,” says Suchi Mukherjee, founder of Limeroad, an online fashion discovery venture. “Data networks, cost of reach and last-mile logistics are a daily challenge when you’re trying to reach the hinterland.” Other executives are more forthright.
“The logistics and supply chain is broken,” says Manoj Gupta, founder of Craftsvilla, an online vendor of ethnic products. Not everyone is convinced that a deep foray into the hinterland — tier-II towns and beyond — is the way to go.
Urban Ladder, an online provider of furniture and home furnishings, is present in 19 cities (including some tier-II towns, never mind the ‘Urban’ in its name), but that may be as far it will go. “The potential in small towns presents a quandary for us,” says Kaustabh Chakraborty, vice-president, operations and customer service at Urban Ladder.
“We look at both the offline organised competition (how many stores a HomeTown, for example, has in a town) and the kind of volumes our online competition drives before we enter a specific location.” While towns such as Amritsar and Coimbatore have significant purchasing power, Urban Ladder is circumspect about tapping the potential in cities smaller than those.
“Every time we consider entering a new location, we have to consider how capable we will be of providing the same level of logistics and services there,” he adds. “This is yet a work in progress; we will continue to hit bottlenecks a lot more, if the business is not robust and volumes aren’t substantial.” Samir Kumar, vice-president, category management, Amazon India, says that the internet giant doesn’t discriminate customers based on their location.
“When it comes to what they are looking for online they want the same thing… low prices, a trustworthy buying experience and fast and convenient delivery,” he says. “We have had customers buy large printers from remote Arunachal Pradesh as well as an assortment of products such as diapers, designer sarees and exotic teas from across the hinterland.”
Unlike earlier, he thinks Amazon’s customers in smaller towns — as well as those for other ecommerce companies — are better informed about products and are pushing firms to ship to them better and faster. For Amazon, some 30% of its business comes from tier-III towns like Nellore, Solapur and Kakinada. Like Amazon, a number of ecommerce companies have made a beeline for the hinterland and sales from there account for 50-70% of their business, according to claims from multiple industry executives.
As the opportunity in large cities is largely met, these companies have cast their net further afield. “Our aspiration is to cater to every consumer in every pincode,” says Jayant Sood, chief customer experience officer at Snapdeal, India’s second largest ecommerce venture. “Consumers in smaller towns want to live their lives in the moment and ecommerce has opened up the opportunity to access brands that may normally not be in their locality.”
This access gap and an ongoing improvement in internet access (much of it focused outside of large cities) has convinced Snapdeal and Sood that a focus on the hinterland is imperative. While the company already gets two-thirds of its business from these smaller towns, Sood believes it can do more — especially as it extends its reach deeper into the countryside.
The first time 34-year-old Vidhya Lakshmi, a resident of Salem, a tier-II city in southern Tamil Nadu with a population of over 8 lakh, ordered online (The Chamber by John Grisham), it was delivered on a bicycle three-and-a-half years ago. Today, the volumes have grown rapidly enough in this city, best known for its range of steelware, to see delivery personnel graduate first to scooters and motorbikes and now to autos and delivery trucks.
“Ecommerce gives us access to brands that aren’t present in smaller cities like Salem,” says Lakshmi. “But, the challenge is that deliveries take a week or more and, due to poor quality of logistics, parcels are often returned without even trying to reach us or without making more than a feeble attempt.” While ecommerce gives Lakshmi access to books, clothes, accessories and more, she’s frustrated with botched deliveries.
“A couple of sites do well but, on the whole, using ecommerce in Salem remains a challenge,” she says.
The Great Divide
The supply chain bugbear — especially in smaller towns — looks set to fester with the ecommerce industry. “It takes around a week for a shipment to move from south (India) to north and if it’s a more distant location, it takes an additional two to three days,” says Alvis Lazarus, an ecommerce and supply chain consultant.
“Remote places takes more time not because of distance but because of the logistics provider waiting to consolidate shipments so that his P&L won’t bleed.” In this game of logistics chicken and egg, consumers in the hinterland are the ones saddled with lengthy waits for their shipment and delayed or missed deliveries too.
“Unless you have volumes, logistics is not a good business to be in,” he adds. “And, unless we have a good logistics infrastructure (asset based logistics provider, connectivity, warehouses, transit hubs) no business owner will look to do business in small towns.” Even before products can be shipped, they first need to be bought online.
In the hinterland, this poses unexpected difficulties. For example, most data packs (used to access mobile internet on smart phones) are short-duration ones, with consumers using the web sparingly.
“We discovered that a lot of women in smaller towns with spending power don’t have smartphones … and those who have access usually have limited bandwidth and time,” says Mukherjee of Limeroad. “Very large chunks of the country have limited data issues — while there may be some 150 million smartphones sold in India, the number with reliable internet connections is not that high.”
For Mukherjee, 60% of her business comes from the hinterland —from towns as diverse as Sopore, Aizwal, Itanagar, Ambur, Kozhikode and Bellary — and fixing this patchy connectivity is more important than ever. “Established brands will have a fraction of the presence they own in large cities… there is massive demand and a complete lack of supply,” she adds.
A kilometer from the Golden Temple in Amritsar, Gurpreet Singh, the owner of a small auto components store, has been on the hunt for some new clothes for a week. Searching in local stores didn’t get him far. Online, he discovered was much simpler — he found a much larger assortment and thanks to heavy discounting, far better prices too.
“Amritsar doesn’t have half the options that I found online,” he says. “I book my tickets online and now buy clothes online too…I’m now considering buying groceries too off the internet.”
Consumers like Singh are exactly the kind Sood of Snapdeal is eyeing. The company, which recently raised $200 million from Ontario Teachers’ Pension Fund to fuel its expansion, is rethinking the way it does business in non-metro markets. For example, it has created Snap-Lite to aid purchases online, with the company claiming this option is 80-85% faster than the one used by consumers in larger cities on faster networks.
“If it takes 60 to 90 seconds for your product to load…then there’s a major pain point for consumers,” says Sood. “We want to make search, order and check out exponentially faster.”
Rather than just a strip-down version of its existing app and web page, Snapdeal went back to the drawing board to design this app, trying to ensure it takes next to no time to open up (no buffering on slow networks), with user experience at the forefront of this (re)design.
Snapdeal is also investing in expanding its logistics network and is recasting the way it locates its business, by being closer to the consumer than the supplier of products. Compelled by increasingly demanding consumers, Amazon is stepping on the gas and isn’t being deterred by low broadband penetration and limited logistics reach.
Opportunity in Crisis
Rather than wait for these metrics to slowly evolve, the company is devising its own workarounds. For example, it has some 4,000 Amazon Pickup Points nationwide that act as drop-off points in smaller towns where addresses are harder to track.
Consumers can pick up their products from these places (often a local kirana store or a local electronics shop), by using a text message they get from Amazon. Amazon India claims to be the first ecommerce company to tie up with India Post (it covers 1,40,000 post offices, according to Kumar, across over 19,000 pincodes), as it intensifies its focus on the last mile.
“We see a massive opportunity in some of the challenges the industry is facing,” says Kumar. “We have been positively surprised by the response to these initiatives.”
With Amazon India adding some 55,000 products to its products daily, it also needs to do more to get India’s disconnected population, online.
Through its project called Udaan, it has tied up with several private and state-run schemes (the Rajasthan government’s E-Mantra programme units) to give people access to its website or app.
“With a long-term focus, you have to lean in significantly to build these projects,” says Kumar.
When Amazon started its focused push deep into India, it had fewer than 100 cities with a last mile of its own; that number has doubled and the 50 cities to which it promised two-day delivery has trebled.
Hari Menon, cofounder of online grocer BigBasket, believes there’s a massive opportunity to be tapped, but stresses that companies need to reconsider their value proposition in these markets.
“In our case, for example, the biggest convenience is time… people are commuting long distances and don’t want to deal with traffic and crowds while grocery shopping,” he contends. “In smaller towns, these really aren’t the issues we deal with; going out is often a social occasion.”
With plans afoot to be in 25 cities by March 2016, Menon says Big-Basket will instead peg itself as a provider of aspirational products — international brands or premium vegetables — which may be unavailable with the local grocer. “If you try and transplant the same business model from large cities to smaller towns in India, you’re finished,” he says.
Other companies are also following this principle. For example, Gupta of Craftsvilla is thinking of how to extend the reach of his business in a market where quality logistics is rare.
The company has tied up with India Post (see The India Post Riddle) and has also developed an assisted shopping model to push what is mainly an online business offline. It is setting up a network of kiosks and allying with local kirana stores to act as helpers for people reaching out to Craftsvilla for the first time. It acquired Sendd, a virtual logistics company for $5 million a year ago to strengthen its supply chain.
“We are in 6,000 pincodes and in the next 12-18 months we want to cover 70% of them,” says Gupta. Perhaps the biggest shift in these companies’ approach may happen when they try to reach their consumers. While their businesses have remained mostly communicated in English, executives now say that they will invest in a strong regional language push as they hunt for more customers in smaller towns.
Snapdeal, for example, is rapidly expanding its vernacular presence. Says Sood: “We are already live in seven languages and will be in another four in the next three or four weeks.” As ecommerce companies seek new fortunes in India’s small towns, one thing is clear — it won’t be business as usual.