Home-Grown E-Commerce: The New Business Model

Some of India's biggest FMCG brands like Unilever, Dabur, Marico etc have retained their edge because they have been serving the rural market and reaching villagers for years now.

Home-Grown E-Commerce The New Business Model

We all have heard of Flipkart, Amazon Paytm Mall and Snapdeal. They are some of India’s biggest e-commerce companies. However, have you heard of In three, eHaat, Vakrangee, Linq, India buys, ConnectIndia, stroking, urban bridge? These and many more like them could be the next big movers and shakers in the e-commerce space. The reason we have not yet heard of them is that they are working in the rural areas, but they are growing at breakneck speed. To give you an idea StoreKing clocked in revenues of Rs.1, 200 crores last year and expects to double it this year.

Rural India-you cannot ignore it

The next 100 million internet users and potential online shoppers will come from the rural hinterlands and small towns. According to Kotak’s Wealth Report, 45 per cent of India’s Ultra High Networth Individual population stays in small towns and emerging cities.

Rural India has been the heart of all big brands in the past. India’s biggest companies like Tata Steel were built in a small town (Jamshedpur). Some of India’s biggest FMCG brands like Unilever, Dabur, Marico etc have retained their edge because they have been serving the rural market and reaching villagers for years now.

In the future too it is the rural markets that will decide the fate of brands and all marketing battles will be fought here. So a brand will need to develop a strong understanding of this landscape if it wants to succeed in India.

The demand is there but the challenge will lie in being able to service this demand, as it would require completely different strategies as compared to the ones being used in the urban market.

Rural India is similar to urban India

TV changed the rural market. It exposed the rural folk to the world and today they too desire the best. The perception that shoddy stuff can be sold in rural parts is completely wrong. They have seen the best on TV and they want the best too. They understand value for money and want the big strong brands as much as their urban friends.

Not surprising brands like ITC, Dabur, HUL, Hero MotoCorp, and Tata have realized that the rural market is a very important segment that they cannot afford to miss. The internet along with TV has fuelled the demand for brands like never before. As the internet spreads so will the demand.

Some facts in bullet point

  • In 2010 internet penetration was 8%, it increased to 37% by 2017, and it predicted that this figure will increase to 55% by 2025.
  • 70% of India lives in the villages
  • The number of internet users in 2018 in rural India is expected to reach 500 million.
  • According to Boston Consulting Group (BCG) size of the rural internet, users will increase five times by the end of this year.
  • Rural consumers have the same aspirations and demands as urban consumers and according to research are searching for the very same things on the internet as urban consumers.
  • The Government is putting in intensive efforts to bring villages online and of the 15,000 wi-fi hotspots set up by it, 11,000 have been set up in villages.

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Rural market is different from the urban one -the Future of Online is Offline.

In 2017 Adi Godrej was quoted as saying that it would be the Kirana stores and not e-commerce that will be responsible for the growth of the FMCG sector in India.

The one company that understood his statement best is Mukesh Ambani’s Reliance Jio. Let us try and understand the Indian landscape. Fact one, the size of India’s retail sector is $650 billion; fact two, only 8% of this is controlled by organized retailers (eg Big Bazaar) and fact three, E-Commerce is only 3-4% of the total retail sector.

According to Morgan Stanley online retail in India is expected to increase by 1200% and from $15 billion (2016) become $200 billion by 2026. That is a very huge market and every retail giant wants a share of this pie.

But India is very different from the west.  The country has just started using the internet.  Indians, however, are very quickly discovering the benefits of smartphones.

It will take Indians about 4-5 years to get used to shopping online, as it takes time for habits to change and most of the e-commerce companies are waiting for that and planning accordingly.

However, there is one company that understands India like no other and has found a way to start making the most of this virgin area and not wait for 4-5 years. This company is rather helping the Indian guy who is still getting used to the internet and his smartphone, to taste the benefits of online transactions without shifting him too much from his comfort zone. This company is Reliance Jio.

Indians are used to buying from the local Kirana shop as they know and trust the shopkeeper and consider him as one of them. Reliance is using these Kirana shops and its mobile phone to take a lead in the e-commerce race. Reliance Jio owns about 15% of the market share and Mukesh Ambani is using this network to start a kind of a digital revolution. All Reliance Jio subscribers are being given ‘digital coupons’ of various different brands which they can use to buy discounted products from their nearest Kirana store. If brands/companies want to take advantage of Jio’s network and reach, they need to pay a small fee to Jio and the coupons of their brands would be made available to the consumers using Jio mobile phones.

So while most e-commerce companies are figuring out ways to make consumers go online Reliance is telling them to remain off-line and yet reap the benefits of online shopping (read discounts). E-commerce, as we know it may take a few years to come to all of India’s small towns and villages but the mobile phones, are already there and Reliance Jio is ensuring that these crores of consumers start using their mobile phones for commercial transactions.

By linking brands-kiranas-conumers through the mobile phone Mukesh Ambani seems to have a winner at hand.  Brick-and-mortar stores are here to stay and according to research, it may take a decade for India to shift to online because shifts in consumer behavior take time.

Not far behind is another home-grown entrepreneur Kishore Biyani and his retail giant Future Group. If Ambani is using his mobile phones to make customers buy online then Future Group’s digital strategy is based on the brick-and-mortar retail. It is ready with a 30-year plan where it will open new retail stores every 2km radius, These retail outlets would make 1,500 members each who would be required to pay a membership fee which would make them eligible for discounts, home deliveries, credit and also give them access to online shopping.

According to a report by AT Kearny in the US, it’s the stores that drive online sales. At least two-thirds of the consumers who shopped online used the offline store before or after the purchase. Hence Amazon too started Project Udaan in 2015. The aim of this project is to tie-up with offline stores like Kirana shops; medical stores etc and encourage local folks to shop online inside these stores.

Project Udaan is all about enabling digital commerce via assisted online shopping. The customer is familiar with his local kirana store owner and when that owner shows him the benefits of online shopping he is more open to accepting the new technology. He is convinced his money is safe, his product will be delivered and it will be just like the one he is shown on the computer screen. With people ordering goods like Adidas shoes, Apple watches and even Pedigree pet food from all corners of India it is proof enough that Project Udaan is moving in the right direction towards making shoppers online-literate. Amazon has already built a network of 12,000 stores in 21 states across India with Project Udaan.

Another brand that is using the Kirana stores very effectively is StoreKing. It is using the Kirana stores to do any with the ‘last-mile delivery’ hassles. Most villages in India do not have proper roads. No roads mean Google Maps would not know where to deliver. However, the Kirana stores are always on the roadside. So they become the ‘pick-up’ point for the locals. The company uses the Kirana stores as showrooms, and as many as 50,500 products are displayed inside these stores. The local people come here, see the samples, place an online order, and make an online payment with the help of the Kirana owner. Their purchases are delivered within 24-48 hours. The company has understood the market and its model is working fabulously, as a result, Malaysia’s Axiata Digital has already invested $16mn in this venture.

So online shopping in India has to be in tandem with offline stores. The familiarity of the Kirana shop and the convenience of the online transaction is what will make e-commerce thrive in India. This is India’s unique homegrown e-commerce model and the success of all the companies doing this shows that this model is the ‘best-fit’ for Indians and their unique purchase behaviour.

 Internet the great equaliser

India is great from the profits point of view for e-tailers but there is another more important aspect to it. With access to the internet, the people from far-flung areas are being exposed to the world. They are being made aware of not just products, but also of things happening around the world. A whole new world of opportunities is being delivered to them through their mobile phones. They can now buy products, buy and know about online courses, and expand their horizons. Their world is no more confined to the four walls of their mud houses, now they literally can see across the seven seas. All that is required is introducing the people to this new technology, winning over their trust and hand holding them as they take baby-steps into the digital world.

The government may have failed to build roads in their villages, there may be defunct schools, there may be no great showrooms and retail stores, and yet that one smartphone and one internet connection one Kirana shop can almost cover up for all this and change the fortunes of an entire village.

Authors Profile:

Che Kabir ChaudhuriChe Kabir Chaudhuri, 18, is a final year commerce and history student of Shri Ram School, Gurgaon. He loves reading and thinking on egalitarian societies. He is the author of the forthcoming book “Discover The Superhero in You” based upon lessons from superhero comics for everyday life. He is also the co-author of “What Marx Left Unsaid” a forthcoming book on ideal wage ratio between the highest paid worker and the lowest paid worker in an economy. He is a fine athlete who loves to play basketball and soccer; plays the guitar and loves sketching. He loves watching videos on science, atheism, and socialism.

Home-Grown E-Commerce: The New Business Model
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Home-Grown E-Commerce: The New Business Model
Some of India's biggest FMCG brands like Unilever, Dabur, Marico etc have retained their edge because they have been serving the rural market and reaching villagers for years now.
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The Policy Times
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