India’s e-tail market
Malcolm Monteiro (in picture), chief executive for Asia Pacific for DHL eCommerce is bullish on India’s e-tail market and explains the potential of growth in this exclusive interview with Foreign Investors on India (fii-news.com).
fii-news.com: How do you see the Indian market share in the US$4 trillion global e-commerce by 2020 which is expected to increase nearly three times US$1.5 trillion as of now?
Monteiro: We will refer to the term e-tail here. E-tailing is a subset of e-commerce, and encapsulates all “commerce” conducted via the Internet. It refers to that part of e-commerce which entails the online sale of product merchandise involving the physical movement of shipments from the seller to the customer and does not include sale of services such as railway tickets, airlines tickets and job portals.
India’s e-tail market currently stands at € 9 billion (2015) and is expected to grow at a rapid rate to reach € 33-40 billion by 2020 . This explosive growth in the last few years has already catapulted the biggest firms among these ventures past the billion-dollar territory.
India has an Internet user base of 350 million in 2016 , and the demand trends will improve with more smartphone adoption. Currently, India has 240 million smartphone users and 50 million online shoppers, and this number is expected to go up to 175 million by 2020 .
The rising number of high speed internet users and mobile penetration is encouraging businesses to innovate and offer a diversified array of products and services online. Over the last few years, with significant payment structure improvements in the e-tailing market, consumers in India are gradually shifting towards the online space and are shedding their inhibitions of online shopping.
fii-news.com: India has announced a number of initiatives to modernize its economy – how do you think it is being done or what is being done to fit e-commerce into the mega but cumbersome Indian market?
Monteiro: The Government of India has been proactive in embracing and leveraging e-tail digital platforms to transform and organize traditionally offline markets such as agricultural produce. With the launch of Digital India and Make in India, the Government of India has been active in bringing out solutions that will help SMEs. Digital India will provide improved internet accessibility, while Make in India will help in indigenizing product manufacturing.
While there has been a temporary delay with the impact of DIPP regulations, though the long term story is still intact and will exponentially boost the number of online shoppers. With several start-ups entering the market, there is great opportunity of growth in the sector.
fii-news.com: Is Digital India enough as of the current e-commerce development or do you want it scaled up to meet global e-commerce standards?
Monteiro: Clearly, India’s challenge to becoming a digital economy remains formidable. The government has announced various initiatives such as Digital India; Make in India; Start-up India; and innovative applications of Aadhaar such as JAM (Jan-Dhan Yojana-Aadhaar-Mobile trinity). Successful and accelerated implementation of these programs can make up for some of the lost time. But India also needs to do more by strengthening the basic foundations of its digital economy.
Unified Payment Interface (UPI), launched by National Payments Corporation of India, is expected to bring revolutionary changes to the payment landscape in India. UPI will offer architecture and a set of standard APIs to facilitate the next generation of online immediate payments and facilitate an affordable payment mechanism to enable financial inclusion across the country.
Digital India is another initiative that aims to offer a one-stop shop for government services that will have the mobile phone as the backbone of its delivery mechanism. The program will give a strong boost to the e-tail sector, as bringing the internet and broadband to remote corners of the country will give rise to an increase in trade and will also present a potentially huge market for goods to be sold.
Making the Internet accessible, open and safe for all Indians is an urgent priority. The cost of mobile phone access is already low by international standards. India wrote one of the early success stories of the digital revolution when it became a global powerhouse for software development and information services. Its Aadhaar digital ID system has become a model for many other countries, helping governments to become more efficient and more inclusive in expanding services to those who had been left behind.
Whether the new initiatives will generate even greater and more widely shared digital dividends — faster growth, more jobs, and better services — depends not only on expanding affordable access to all, but also on making long overdue progress on the analogue complements of digital investments.
fii-news.com: How soon do you think 3G and 4G would spread out to rural India, especially for reaching out to people working in the rural economy, giving them access to e-commerce?
Monteiro: The proliferation of mobile devices combined with internet access via affordable broadband solutions and mobile data is a key factor driving the tremendous growth in India’s e-tailing sector. With the introduction of smartphones and tablets, digital content has come to the fingertips of consumers across the country. Given such easy accessibility coupled with affordability, there has been a dramatic shift from laptop/desktop to mobile devices. With 3G and 4G services making way into India along with declining data tariffs, spend on internet data is growing significantly. This trend has largely been dictating the growth story of the e-tail sector in India, which has been propelled by the rise in internet penetration due to major improvements in the telecom infrastructure with increasing demand from Tier II, III and IV towns.
fii-news.com: How do you see mega stores in major Indian cities/metros competing with small-corner (Kinara) shops?
Monteiro: One of the biggest opportunities and challenges that characterize the Indian retail sector is its sheer structure. While it has matured over the years, it is still fragmented with an estimated 12-15 million outlets. A large share of the business comes from the fragmented sector such as traditional family run mom and pop stores and corner stores.
The efforts of large-format food and grocery retailers to increase market share have been blighted mostly by the popularity of kirana stores, the shoe-box size shops that have been the mainstay of middle-class India’s grocery shopping for decades.
Going forward, the well-established sector’s growth potential will increase due to globalization, high economic growth, and changing lifestyle.
Moreover, high consumer spending over the years by the young population and sharp rise in disposable income are driving the Indian established retail sector’s growth. Even small towns and cities are witnessing a major shift in consumer lifestyle and preferences, and have thus emerged as attractive markets for retailers to expand their presence.
Although the growth potential in the sector is immense, it is not without challenges like rigid regulations, real estate costs, high personnel costs, lack of basic infrastructure, shrinkage, and highly competitive domestic retailer groups that could slow the pace of growth for new entrants.
Additionally, resource constraints at shopping mall projects are also delaying completion and disrupting many retailers’ entry strategies.
fii-news.com: The Dhabawalas’ tie up with Flipkart and Kirana’s link-up with Amazon. Is this an Indian innovation to create an Indian e-commerce?
Monteiro: To enhance consumer convenience and experience, innovative ways are being looked into. E-tailing marketplaces in India are trying out innovative ways to work around curbs on offering discounts as they prepare for the biggest shopping opportunity of the year in the upcoming festive season.
fii-news.com: Is DHL planning any tie up such small but well spread outlets across the country?
Monteiro: Blue Dart, which is a part of Deutsche Post DHL Group’s Post – eCommerce – Parcel (PeP) division, is South Asia’s premier courier, and integrated express package distribution company.
Secure, reliable, time-definite distribution across 34,831 locations in India as well as across 220 countries and territories worldwide is assured through integrated air support and ground network, with over 3 million sq. ft. of facilities. This includes seven aviation hubs and bonded warehouses, 13 Domestic Hubs and 85 Ground Hubs and dedicated air services with a fleet of six Boeing 757 operating each night to the seven main metros in India.
On top of that, in October last year, we launched the country’s first Parcel Locker, to allow parcel recipients to collect their shipments at any time of the day. This service uses mobile technology in tandem with specially designed lockers to ensure customers get all-day access to their shipments from a safe, secure and convenient facility. As soon as the package is delivered to the PARCEL LOCKER, the e-tail customer will receive a unique security code via SMS.
fii-news.com: In your presentation on Omni-Channel, you mentioned about DHL’s investment in infrastructure. Please elaborate on this? How far into the rural regions can you take this investment?
Monteiro: Blue Dart has been servicing the e-tailing industry ever since its emergence in India in 2009-2010. In 2014, Blue Dart successfully became a part of Deutsche Post DHL (DPDHL) Group’s Post – eCommerce – Parcel (PeP) division which has further enabled the company to tap on the strong growth momentum seen in the dynamic e-tailing market in India. Over the years, we have serviced all leading e-tailing players through our best-in-class, highly differentiated, last-mile delivery offering and value-added services.
To intensify our focus on the B2C segment and maintain and strengthen our leadership till 2020, we have introduced strategic initiatives such as the 6th B757 aircraft, introduction of a cost advantaged value added service for e-tailers, and have further differentiated ourselves with the highest service levels, offering consumer convenience options and maintaining reach advantage by expanding our network into 1,000+ cities across India.
Besides this, we are optimistic about the growth of select sectors like automobiles, life sciences and healthcare, consumer durables, banking and financial services, computer/IT which are largely domestic consumption-driven.
We will continue our focus on product innovation and service enhancements and registering good growth numbers by partnering in their growth.
The SME sector is also a good avenue for growth and we have been extensively partnering the sector in their growth through customized products and solutions and increased connectivity to markets. fii-news.com
