The e-commerce
market in India is looking for boom times. The market which for long seemed to
be finding difficult to cross the Moore chasm seems to be moving to headier
times. Reliance with its JioMart might shake things up like it did in telecom.
It has managed to get numerous investors on board Reliance Retail and Reliance
Jio. Meanwhile, there is a battle building up between Reliance and Amazon that
is being fought over India in Singapore with the issue being of their rival
Future Group which perhaps is facing testing times. The e-commerce market too
faces network externalities. The number of apps an individual users uses in his
or her smartphone is obviously limited. It is difficult to experiment with
multiple shopping options. By and large barring exceptions, most users prefer
to shop from one or two apps. Without doubt, it is important for an e-commerce
user to be on the top of the mind recall for an individual user. Very few would
be willing to experiment with multiple shopping apps. Furthermore, once the
user becomes comfortable with a certain app, they are unlikely to shift. In
retail industry familiarity with goods is important and thus category
management plays an important role even in the physical shopping world. The
same applies well in the online shopping world too. In this context,
interesting games are being played out in the e-commerce industry.
While Reliance
and Amazon are battling their turfs, another interesting news has appeared in
the media. If all goes well, the Big Basket is up for grabs and in all
probability Tata’s will end up buying nearly eighty percent of the share in Big
Basket. Big Basket emerged some years ago to provide online shopping in fresh
groceries and vegetables and over a period of time has moved beyond into other
categories in the grocery business. To Big Basket, JioMart would obviously be a
big threat. The models however are very different. While BigBasket is building
up into a single vertical in a centralised approach similar to the other
e-commerce players, JioMart is venturing into something different. It wants to
be more of a Uber or Ola of e-commerce. It is planning to leverage a chain of grocery
stores to deliver the household items that they would require in the quickest
possible time. Amazon too has its presence in household goods segment though
its economies of scope has allowed it venture far vast. While Amazon might hold
on against Flipkart or others, BigBasket will have to dig hard to fight the
cash rich Reliance Retail.
To any start-up,
there are twin objectives which might turn out to be mutually exclusive in the
initial period. They might be aiming at profits but higher margins at initial
stage might deter customer acquisition. The second option for them would be
customer acquisition and thus consolidate market share but this would mean
playing on the prices thus impacting profits. Therefore, there would be this
dilemma in front of these start ups. A sustained profit in the long run necessitates
customer retention and thus they choose in most cases to go in for the latter. Uber,
Ola, Big Basket are all in the process of customer acquisition and yet to see
the profits flowing into them. The valuations of course are high given the long
term prospects of these firms. The investors are bullish, once the market acquisition
happens, the market shakes out consolidating in favour of the few, in all
likelihood, the customers having got accustomed to these services will continue
inspite of higher prices allowing higher profits for the firm.
As the Reliance
flexes it muscles, to Big Basket, the Tata deal would be pretty good one. The valuations
are believed to be $1.6 billion with the deal amount to Tatas buying around
800% of the share at 1.3 billion dollars. This would give Tatas a head start in
the e-commerce market where they have struggled. Furthermore, Tata’s purchases
would include the buying off all the 29% stake which the Chinese retail giant
Alibaba has in Big Basket. This might prove to be smart since Alibaba might
come under the government scanner at any moment of time. The deal from
geostrategic perspectives might be sound as it ensures the exit of a Chinese
player from an Indian market though it might be symbolic in the short to mid
run. What is of critical import are the plans of BigBasket as they move beyond
the grocery vertical where they have established themselves. As the CEO of Tata
Sons point out, the new super-app would encompass other verticals like fashion,
electronics, insurance and financial services, bill payments etc. E-commerce is
evergreen candidate for economies of scope into many unrelated areas and thus
to Tatas this would be a great opportunity to establish themselves in the
market.
Big Basket
reports around three million orders per day. As it expands into multiple cities
over a period of time, the orders would jump even higher. A bulk of the growth
for Big Basket would have happened in the lockdown period as people preferred to
shop online major cities in particular. There was of course a time during that
period when its services were not available but moment they were available,
there obviously was scarcity of slots given the supply demand mismatches. It perhaps
a shortage of labour for sometime but has picked up over the last few months.
Despite the increase in orders, it is still reporting losses and unlikely to
report profits in the immediate period. The gross merchandise value has hit $1
billion with nearly 20 products being sold. Fruits and vegetables of course
account for anywhere between one in five to one in four of the total merchandise
value. Customers by value has increased nearly three times in the post corona
period.
As Reliance
prepares deep discount market in retail, Big Basket needs sufficient war chest
to gear for its deep discount retaliations. Without doubt, Amazon too would be
firing all cylinders. In this context, Big Basket obviously needs a giant to
back it which it gains from Tatas. Tatas too are looking for big time entry in
retail and acquisition of a firm with significant market share would spare them
from market acquisition from the start. It must however remain to be seen how the
market will evolve and what it would mean for both Big Basket and Tatas in the
long run.
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