India’s eCommerce Firms Brace For Additional Losses
This week, India’s key eCommerce firms — Flipkart, Paytm Mall, PhonePe, ShopClues, and Swiggy — posted combined losses of ₹6,445 crore (US$970 million) for the 2017–2018 fiscal year. We expect this to worsen in the coming years as companies scale up rapidly to capture market share. Forrester sees the following trends coming in the Indian eCommerce landscape in 2019:
- Online retailers will suffer further losses. Flipkart lost ₹3,200 crore ($480 million) in the fiscal year ending in March 2018 — before its acquisition by Walmart and revamped focus on maintaining a lead over Amazon in categories such as smartphones and fashion. Flipkart is spending aggressively on the marketing, payments (PhonePe posted losses of ₹840 crore [$120 million] in 2017–2018), and grocery categories and expanding its logistics network to attract online buyers from rural India. Amazon’s spending in the offline grocery category will ensure that Flipkart continues to invest in the space, lest it sees the gap with Amazon narrowing. Flipkart has a stronghold on online fashion in urban and rural areas at the moment and has plans to launch “affordable” private labels and offer low-cost Walmart products. But Amazon is challenging Flipkart’s dominance in urban cities with the one-stop-shop allure of Amazon Prime. For many customers, Prime is a quick and convenient way to research and shop while offering top post-purchase customer service.
- Online retailers will move beyond metros, mobile, and fashion. Online retailers will target new buyers outside of metro areas and sell more categories to existing buyers to increase wallet share. In 2017, 65% of online retail came from consumer electronics, computers, and fashion; smartphones alone accounted for half of that. New customer acquisition and pushing for new product sales online will be expensive — putting retailers at additional risk for loss in 2019.
- Small players without niche offerings will feel the heat. Players, such as Snapdeal and ShopClues, without differentiated offerings will find it difficult to grow in 2019 as Amazon and Flipkart outfight them in the low-price category. Snapdeal will continue to face the problem of declining customer experience as it again tries to scale up — which has already led to its irrational losing battle with Flipkart to win in gross merchandise value.
- Paytm Mall is waiting for Alibaba to deliver the goods. Paytm Mall reported losses of ₹1,800 crore ($270 million) in 2017–2018 against just ₹75 crore ($11 million) in revenue. Paytm Group faces challenges in online retail as well as in its payments and Paytm Money businesses. In addition, Alibaba is still playing the waiting game, focusing on winning Southeast Asia before turning its full attention to India. After Walmart’s acquisition of Flipkart, time is running out for Alibaba to decide what it wants to do with Paytm Mall. Customers are still unsure about Paytm Mall’s positioning; while cash-back offers can bring customers to the platform, Paytm Mall can’t sustain this in the long run against Amazon and Flipkart.
- Food delivery competition is heating up. Food delivery companies such as Zomato and Swiggy are ready to fight it out aggressively to become the No. 1 player in this category; other players, including FreshMenu and Faasos, are focusing on building their brands to compete directly with traditional restaurants. Others, such as foodpanda and Uber Eats, are competing in this category just to prove to investors which one is better positioned to run their India operations. The ride-hailing business is also facing growth challenges due to changing economics for drivers and riders; those companies will focus on food delivery to ensure that they can demonstrate growth to investors. We expect that, in 2019, food delivery companies will have to attract additional investment to pay for increasing delivery costs and discounting, increase order volumes, and retain market share. The delivery and volume management costs of running a digital food business put pressure on companies’ profitability. To offset costs, companies are finding related streams of revenue to parallel their focus. For example, Swiggy monetizes its vehicle fleet to deliver other goods, and Zomato will look for ways of growing its listing, advertising, and subscription revenue. It will be difficult for food delivery companies to execute the “cloud kitchen” and “virtual kitchen” models. We think FreshMenu and Faasos are better placed for expansion into this segment, but Zomato and Swiggy will also invest there to improve their profit margins.
India’s eCommerce sector now has decent scale in terms of buyers and orders, and key players are emerging in leading positions. According to our forecast, “Forrester Data: Online Retail Forecast, 2017 To 2022 (Asia Pacific),” we expect India’s eCommerce sales to grow 29% annually over the next five years, but not all products will grow equally. This will attract more funds from investors and more aggressive investment by key players, which will ensure that the industry’s loss figures remain high for the next few years at least. So if you thought that this year’s loss figures are shocking, wait until next year.