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Unlocking the Indian eB2B Retail Opportunity

November’ 2019
Unlocking the
Indian eB2B retail
Bangalore | Delhi | Mumbai | Dubai | Singapore | New York
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Unlocking the Indian eB2B Retail Opportunity

  1. 1. 21st November’ 2019 Unlocking the Indian eB2B retail opportunity Bangalore | Delhi | Mumbai | Dubai | Singapore | New York
  2. 2. 3 Disclaimer Copyright © RedSeer Management Consulting Private Limited (“RedSeer”). All rights reserved. While we have made every attempt to ensure that the information contained in this report has been obtained from reliable sources, all data and information provided in this report is intended solely for information purposes and general guidance on matters of interest for the personal use of the reader, who shall accept full responsibility for its use. RedSeer does and seeks to do business with companies covered in its research reports. As a result, readers should be aware that RedSeer may have a conflict of interest that could affect the objectivity of the report. All information in this report is provided “as is”, with no guarantee of completeness, accuracy, of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in the information contained in this report. Accordingly, the information in this report is provided with the understanding that the authors herein are not engaged in rendering legal, accounting, tax, or other professional advice or services. As such, it should not be used as a substitute for consultation with professional advisers. This report cannot be sold for consideration, within or outside India, without the express written permission of RedSeer. In no event shall RedSeer or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any errors, omissions, or delays in the content of this report or any losses, injuries, or damages including any incidental or any consequential, special or similar loss or damages, arising out of, or in connection with the use of this report.
  3. 3. Preface We are almost approaching the end of Q3 for the financial year, and it has seen a slightly modest year in terms of Indian economy growth. While there have been a mixed point of views on the causes, the economy appears to be well positioned for rebound in the near term, to continue growing at about 7%. The consumer retail market has been one of the key pivotal drivers for the Indian economy growth in the past, and will continue to play a critical role in the future economic growth. The beautiful as well as the intriguing fact underlying this ~900 BN consumer retail market, is the huge and complex B2B retail supply chain, which makes sure that ~15 MN retailers are able to service the 1.3 BN strong Indian population, whose per capita consumption levels have been increasing. Out of these 15 MN retailers, ~13 MN are smaller mom and pop retail stores, which enable the reach to the big Indian geography, including Bharat cities and towns. This B2B retail market surpassed $700 BN in FY 19, and more than 70% of it continues to be un-organized i.e. traditional format of low cost retailing being catered through un- organized distributors. Driven by complexities, this supply chain suffers with lower fill rates of <70%, which brings the consumer experience down. In the economy which is increasingly getting digital by the day with the cheapest cost of mobile data available on the planet, and highest amount of data consumed per smartphone across the globe, eB2B has a strong use-case to resolve the traditional un-organized B2B retail supply chain complexities, and enhance the end consumer experience by addressing the pain points of the intermediaries in the traditional B2B un- organized supply chain. In this report, we have tried to decode this exciting eB2B use case for the Indian retail industry by speaking the key stakeholders across the retail value chain, including the buyers, sellers and the existing eB2B players. Hope you find this report an insightful and pleasurable read. For any queries, please feel free to directly reach out to me at anil@redseer.com. Anil Kumar Founder & CEO RedSeer About RedSeer RedSeer is a leader in the Internet and new age advisory, over the last 11 years of its operations we have advised 200+ clients across the breadth of Internet and investment industry in India, Middle East and South East Asia. Our advisory is differentiated through our high quality IP of market insights and research, which is unparalleled in Industry and helps both corporate and funds make right choices. With more then 200 consultants across 5 offices, we have emerged as the largest home grown regional consulting firm in India.
  4. 4. Key Themes Why is the Indian B2B Retail Industry ‘the opportunity’ to tap? 7 1 Indian eB2B market opportunity - “The Juggernaut”! 19 2 Glossary & Methodology 52 “The Path to Profitability”! 45 4 Current Indian eB2B business models - “What it takes to win”! 32 3
  5. 5. 6 Understanding the age old plight... Being the owner of one of the four kirana stores within a radius of a kilometre has done no favours to 53 years old Umesh Chand. He owns a 250 square feet store in Kaithal, Haryana. When he started 25 years back, his was the only store in the neighbourhood. Business was good and margins were high. Cut to 2017, things took a drastic turn. The other stores run by a younger more tech savvy lot gave tough competition to Chand. While one of the new stores was getting his supplies from a cash and carry, the other two relied on eB2B portals to get the best prices which helped them give better discounts. Chand on the other hand preferred his old suppliers in the nearby wholesale market and made a fortnightly trip to buy goods in bulk, a decision for which he paid dearly a long time. Things finally changed when his nephew heard his plight. He did a thorough market survey and spoke to two a few cash and carry companies as well as eB2B players. Finally, they zeroed in on one eB2B player, who provided them with a one-stop modernization & digitization solution to improve margins, profitability, sourcing channels and compete with the modern retail landscape They helped remodel his traditional closed format kirana store into an open format one to make it more modern and competitive. From getting the right set of inventory management tools, credit line, delivery and logistics help to a robust point-of-sale (POS) system Chand business was made future proof. Further, his business also benefited from the consumer pull that the eB2B player enabled by providing more product choices and localized consumer promotions. Just like Chand, India has north of 13 MN kirana store owners who are waiting to turn digital with the right ally. The country by all means is set to be the biggest eB2B market and the market size by 2025 could be over $60 BN. The opportunity is driven by the growing need to have a ‘kosher’ supply chain which is not marred by middlemen who create barriers which cause stress on the retail journey of a kirana store owner and end user- the customer. What I did not realise was that my suppliers were giving me far less discounts. Before demonetisation getting supplies on credit was kind of a norm but after that it was mostly cash only, which puts added pressure. Buying inventory in bulk, I was rarely able to get benefits of a cut in prices of commodities.
  6. 6. 7 1 Why is the Indian B2B Retail Industry ‘the opportunity’ to tap?
  7. 7. 8 Note(s): 1. PFCE – Private Final Consumption Expenditure 2. Remaining PFCE (PFCE - B2C Retail Spend) includes spend on services such as transport, communication, education, restaurants, hotels, electricity and other miscellaneous services 3. 1 USD = INR 70 Source(s): Redseer Analysis Driven by consistent expected increase in private consumption, the Indian retail market is expected to grow at ~10% CAGR to reach ~$ 1.6 TN by FY 25 Despite the current economic slowdown and our expected normalized real GDP forecast of 6 to 7%, we expect the private consumption expenditure to continue driving ~60% of the nominal GDP. This is predominantly going to be driven by consumer retail consumption of goods, which is expected to continue driving ~50% of the private consumption. Driven by the same, the consumer retail market will grow at 10% YoY from nearly $900 BN today to reach $1.6 TN by FY 25. • B2C Retail market size = Nominal GDP x PFCE1 % x Retail spend on goods%. • Forecasting has been done on the same assuming a real GDP growth of 6-7% in the wake of recent economy slow down. B2C Retail market size = Nominal GDP x PFCE1 % x Retail spend on goods%. India Retail Spending Funnel (FY 19) USD BN3 Nominal GDP ~2940 BN ~60% ~50% PFCE1 (Domestic) ~1760 BN B2C Retail spend on Goods2 ~886 BN Total B2C Retail Market Size – Growth Forecasts USD BN3 Forecast (%) Definition Real GDP growth (FY 19-25) 6% – 7% - Nominal GDP growth (FY 19-25) 9% – 10% ~5,000 BN PFCE1 (as% of GDP) ~57% – 60% ~3,000 BN B2C Retail Spend on Goods (% of PFCE1 ) ~46% – 50% ~1,570 BN 886 FY 19 CAGR~10% 1573 FY 25F
  8. 8. 9 Source(s): Redseer Analysis Multiple intermediaries exist between the brand and end consumers This huge retail market is facilitated through a long B2B retail supply chain between the brand / manufacturers, and the end consumer through multiple intermediaries. All these complexities bring in their own set of implications. Mostly, there are as many as four to five layers of intermediaries starting from a forwarding agent, distributor, a sub distributor, a wholesaler to finally a retailer a brand / manufacturer needs to go through to get to the end user. This traditional system of supply chain causes multiple bottlenecks that lead to longer timelines, losses in efficiency, issues with quality and most importantly, reduction in retailer margins. » Long timelines (Goods flow through multiple intermediaries) » Efficiency loss due to multiple intermediaries » Pricing inflation for end consumer » Product assortment and quality issues » Operational issues - reliance on un-organized credit and logistics End Consumer 1 2 3 4 • Works with select brands and has a fixed geography decided by company C & FA • Services the market – wholesalers and big retailers • Sub-distributor/ sub-stockist is present only in the rural chain to distribute products to retailers in the interior regions Distributor/ Stockist • Private entity – No restriction from brands • No restriction on geography • Better reach in rural/ smaller cities Wholesaler • Pushes products to final consumers Retailer • Manufacturing and Marketing Brand / Manufacturer Multiple levels lead to implications B2B Retail Value Chain
  9. 9. 10 Despite varying personas for various intermediaries in the traditional retail value chain, they face challenges Education Level Income Sources Income Level / Store Sales Tech Usage 1 Risk Averse Wealthy Traders C&FA/ Large Distributors Graduates Multiple Businesses + Rental Income through real estate + Investments >$3,000 + per month (Household income) Premium Smartphone + Laptop/ Tablet + Smart TV 2 Margin Savvy Strategic Traders Stockists/ Large Wholesalers Typically Graduates Business revenue + credit lending Business revenue + credit lending $1,000 – $2,000 per month (Household income) Smartphone 3 Emerging Traders Small Wholesalers Non-Graduate or First Generation College Graduates Wholesale business revenue only $500 - $1,000 per month (Household income) Budget Smartphone 4A TraditionalRetailer Class A Retailers Typically Graduates Retail store revenue only >$40,000 + per month (Store Sales) Smartphone 4B Traditional Mom & Pop Class B/C/D Retailers Non-Graduate or First Generation College Graduates Retail store revenue only <$40,000 + per month (Store Sales) Budget Smartphone Source(s): Redseer Analysis
  10. 10. 11 It is fascinating to see that the people involved in the retail value chain, while they are all working towards the same goal, face several issues in their day to day operations. These issues could be similar or diverse, basis the role they play in the entire process. In this retail value chain, the 13 MN traditional mom & pop retailers are the big rollers for driving the retail consumption due to their deep penetration, especially in Bharat (Tier III cities and beyond). A Mom & Pop store owner is mostly a first generation college graduate who earns less than $40,000 a month in store sales. For them getting a credit line as well as reliable contacts for sourcing products is a major issue. Purchasing stock requires me to shut shop for a duration and I lose consumers during that time. Also, I cannot keep multiple products in my shop, so information on consumer preference would be helpful. ~ Class B FMCG Retailer, Vizag The traditional big retailers despite their larger scale of individual operations too, face problems around predicting the future needs and wants of customers. While their month store sales go north of $40,000, they also face high margin pressures. I have limited knowledge about what consumers prefer and how their preferences change. I lose out on several customers due to lack of stock of trending items as they go to my competitors-both offline and online. ~ Class A Apparels retailer, Mumbai Small upcoming traders, who act as both buyers as well as sellers in the retail supply chain, are non-graduates or the first in their families to go to college and graduate, have a household income of a little over a $1000 a month. For them the biggest challenge is dealing with extreme competition from others who are from similar backgrounds. Rental and inventory costs take a massive toll on their margins and profits. Now-a-days there are so many wholesalers in the market that price competition is very high. I need to manage trucks, staff and inventory. My profits are affected badly. ~ FMCG Wholesaler, Lucknow Large wholesalers and stockists whose monthly household income is around $1000 to $2000 earn from a maximum of two sources of income which are mostly around trading and credit lending. They face challenges around O2D due to non-reliable logistics support, and warehouse management. Warehouse management and logistics is a big issue. I lose out on customers at times due to poor third-party logistics. Credit is another issue. I cannot give credit to everyone. ~ Electronics direct distributer, Indore Last but not the least, the risk averse wealthy traders, who act as C&FAs or large distributors to the brands/ manufacturers, mostly ‘play safe’. They earn from multiple income sources such as rental income from real estate etc. and typically have a household income of more than $3000 per month. For them the problems are around figuring out space for large inventory that they need to carry, to getting more reliable logistics partners for their smooth day to day operations. They are also mostly tech savvy and have everything from a premium smartphone, laptop to a smart television. I get regular orders from the company, but I do not have place to store so much inventory. Also, logistics partners cannot be fully relied on for delivering goods to merchants on time. ~ Fashion C&FA, Kolkata
  11. 11. 12 Brand / Manufacturer C & F Agent Distributor/ Stockist Traditional Wholesaler Retailer End consumer Definition Manufacturer- may be branded or un-branded, large or mall Solution to logistics- Leases out warehousing space - Works for brands in areas decided by company - Stockists in rural areas & distributors in urban areas Private entity – No restriction on brands/ geography Create reach in semi-urban Pushes products to final consumers Creating consumer pull through tech to buy from local retailer Unorganized B2B (Unbranded + Branded) 72%1 Brand / Distributor Led 27%1 Cash & Carry <1%1 eB2B <1%1 B2B2C play Online ordering via customer but fulfillment through local retailer or customer loyalty programs. These intermediaries engage with each other through multiple models, with unorganized B2B driving bulk of the market (>70% by value) Traditional Retailer Traditional Retailer Traditional Retailer LFR/EBO Traditional Retailer This consumer retail market in India is largely un-organized, which drives 72% of the retail goods flow by value. The key stakeholders in this value chain are ~13 Mn class B/C/D retailers (turnover of less than USD 40K per month), who are largely under-served by brands and distributors. These retailers get on an average ~65-70% fill rates, even from brand distributors. Estimated 70% products reach retailers through wholesalers without formal credit, no service and limited selection. This high number of retail stores plus plethora of smaller wholesalers / stockists operating in the supply chain, create a challenge for demand consolidation for the brands / manufacturers. A B C D Note(s): 1. India B2B Retail value share% – FY’19 Source(s): Redseer Analysis 1 2 3 4
  12. 12. 13 A broken retail chain causes nothing but pain to buyers and sellers Various supply chain issues bog down everyone starting from brands / manufactures, distributors, wholesalers, to retailers. Limited resources and non-availability of tech tools are just few of the problems they have to deal with on a daily basis. Seller - Pain Points (Brand, C&FA, Distributor/ Stockist, Wholesaler) Buyer – Pain Points (Wholesaler, Retailer) Demand fulfillment Demand predictability Payment collection Inventory management Limited consumer insights Order returns Buyer credit worthiness Conflict resolution Product Availability & Quality Conflict resolution Delivery times Inventory management Pricing Vendor reliability Minimum order quantity requirements Credit availability Issues are a plenty for buyers (Retailers and smaller wholesalers / stockists), mostly ranging from finding easily available quality products, right pricing, getting reliable vendors on-board, credit availability, minimum order quantity requirements to getting a consistently good pricing on products. During our research, we also discovered several pain points that sellers face. Sellers in this supply chain include brands / manufacturers, C&FAs, Distributors, Wholesalers and Stockists. For them, the major challenges range from understanding end consumer trends and behaviour, availability of reliable logistics partners and a large geographic presence. Source(s): Redseer Analysis 1 2 3 4 C & FA Distributor/ Stockist Wholesaler Retailer Brand / Manufacturer SELLERS BUYERS Traditional Value Chain – B2B
  13. 13. 14 Low satisfaction Neutral High Satisfaction Product Product selection Fill rate/ SKU availability Pricing Prices Trade schemes availability Logistics Pin code coverage O2D times Logistics cost Credit options Credit period & duration Interest rate on credit Un-organized channels leave a long line of dissatisfied buyers and sellers Over the years, dealing with un-organized channels has given heart-burn to a host of buyers and sellers. During our research, we have found out that a buyer’s experience through the whole process is mostly less than satisfactory or just bearable. Satisfaction w.r.t to traditional sourcing channels for buyers % of respondents, N = 970 (buyers) How satisfied are you with the following parameters relating to traditional sourcing channels i.e. Wholesalers / Distributor led? (On a scale of 0-10) 0 4 7 10 In most parameters starting from product selection, pricing, trade schemes availability, credit options and interest rates, ‘Buyers’ are mostly left wanting for more. Cost of logistics is high and the delivery footprint or the pin-codes covered is quite low. This creates major gaps in the supply chain for these players. On a scale of 0 to 10, most of the scores given by buyers on the said parameters is between a low 3 and 6.5. Buyers
  14. 14. 15 ‘Sellers’ too face massive issues around lack of good logistics options. Their satisfaction levels are even lower compared to buyers. Most of them face issues around predicting demand, discovering potential customer base and lack of credit to funding their working capital requirements. On a scale of 0 to 10, sellers mostly just gave between 3 to 5 points. Satisfaction w.r.t to traditional sourcing channels for sellers % of respondents, N = 300 (sellers) How satisfied are you with the following parameters relating to traditional B2B retail (On a scale of 0-10) Low satisfaction Neutral High Satisfaction Demand Demand predictability Discovery of potential customers Logistics Limited capability and pin code coverage Lack of manpower / tech capability Credit Collection issue from customers Lack of credit to fund working capital Sellers 0 4 7 10
  15. 15. 16 v Seizing the $1.3 TN B2B retail opportunity - channels such as eB2B and Cash & Carry, are expected to take increasing share from the ‘Un-organized’ pie We calculated the size of the B2B retail market in India, by subtracting the margins that retailers make across multiple retail product categories through multiple channels. Please refer to the graphic below, which explains the calculation clearly Note(s): 1. Absolute $ value amounts for retailer margins are calculated at median value of%age retailer margins 2. Others include stationery, sports & fitness, equipment, toys, etc. 3. Retailer margins indicate lower limit and upper limit as% of MRP which the retailer earns when the good is sold to end-consumer 4. 1 USD = INR 70 Source(s): RedSeer Analysis B2C Retail market FY19 Retailer Margins B2B Retail market FY19 886 - 172 = 714 India B2C and B2B retail market size (USD BN) 12% 35% 30% 10% 20% 30% 12% 30% 20% 10% 14% 40% 35% 12% 25% 60% 17% 50% 25% 15% FMCG & Grocery Apparel & Accessories Footwear Mobiles & Accessories Consumer Durables and Appliances Jewellery & Watches Beauty & Personal Care Furniture & Furnishing Pharmacy Others2 74.0 12.4 4.9 2.6 34.8 6.6 3.8 3.6 26.3 3.0 $BN ∑: USD 172 BN Retailer Margins1,3 range%age
  16. 16. 17 Note(s): 1. 1 USD = INR 70 Source(s): RedSeer Analysis This $714 BN Indian retail B2B market would grow at the same CAGR of 10% of the B2C retail market growth as highlighted earlier, to reach $1.3 TN by FY 25. Largest chunk of this $714 BN B2B retail market in FY19 currently is driven by the un-organised B2B retail, where numerous smaller sellers such as wholesalers, stockists and sub-stockists operate, and supply branded as well as un-branded goods to the retailers. According to our research, around 72.2% of all B2B retail is still un-organized. Indian B2B Retail Market Growth USB BN Cash & Carry Brand/ Distributor Led 714 FY 19 1262 Brand/ Distributor Led B2B - 27.2% 66% 28% Un-organized B2B Retail - 72.2% CAGR~10% eB2B - 0.25% Cash & Carry 0.35% 1% 5% Examples eB2B FY 25F Driven by the challenges faced by the buyers and the sellers from the un-organized play as elaborated earlier, we expect that the share of the un-organized play will be challenged, and new models such as eB2B as well as Cash & Carry will grow faster by capturing more share from the un-organized pie driven by several merits. eB2B specifically is expected to grow the fastest, at a CAGR of >80%, driven by its capability to connect everyone in the whole retail supply chain. It helps in connecting all the dots for a traditional retailer. A traditional retailer is able to jump over a lot of barriers as eB2B does the tough task for them of connecting to the right set of people to fulfil the requirements of a retailer. Starting from handing delivery logistics, warehousing needs, getting right inventory from right set of distributors to taking orders online and getting them fulfilled by the retailer, eB2B has the capability to fill in the blanks. Driven by the same, eB2B will outpace all channels in terms of growth.
  17. 17. 18 Huge margin potential in the retail supply chain is available for new models such as eB2B to tap At present in tier-I cities, on an average while C&FA has a maximum of 3% margin, organized cash and carry potentially have a margin between 7 – 9%. For direct distributors the margin ranges from 5 – 7%, and wholesalers who buy from them get a margin of around 3% when they sell to retailers. Note(s): 1. Organized retailers procurement is similar to organized cash & carry 2. The numbers indicated are mark-up on landing cost of the stakeholder as a% of MRP 3. Strong play in Tier 2+ citiesas it addresses fragmented supply & inefficiencies Source(s): RedSeer Analysis Indian B2B Retail Market Growth2 Route 1 Organised Cash & Carry Route 2: Distributor Led Strong play in Tier 2+ cities3 . Data and information flow Route 4: Bharat (Tier 2+)/ Un-organized/ Unbranded Retail Route 3: eB2B Metro and Tier 1 cities Tier 2+ Cities Brand / Manufac- turer C&FA (2-3%) Retailers (10-12%) Retailers (10-12%) Organized Cash & Carry (7-9%) Direct Distributor (5-7%) eB2B (Current: 0-4%, Potential: 7-9%) Stockist (2-3%) Sub-stockist / Distributor (3-7%) Wholesaler (2-3%) Wholesaler (2-3%) C&FA (2-3%) 1 2 4 5 5 4 1 3 3 Brand / Manufac- turer In the retailer supply chain in the tier-II and Bharat cities, there are additional intermediaries which affect the retailer as well as the end consumer. In Bharat cities, stockists, sub-stockists,distributors and wholesalers – most of them come into play and consume margins Currently eB2B have margins of between 0 – 4%. But the potential to increase that almost two-fold is immense majorly due to direct procurement from brands, providing value added services such as tech. solutions and credit among other things. Going further, it can have a strong play in tier-II and beyond cities as it addresses the problems of fragmented supplies and inefficiencies in the traditional retail supply chain. We believe that eB2B certainly has the potential to make 7-9%, with room to make addition 3 to 5% through additional profit streams like marketing and new product launch services (for which brands have a separate trade marketing budget).
  18. 18. 19 2 Indian eB2B market opportunity - “The Juggernaut”!
  19. 19. 20 The eB2B retail value proposition works on channelizing the product flow across the traditional retail value chain from brands / manufacturers until retailers. With the help of technology and manpower, eB2B retail helps brands reach to the end user. Companies such as Udaan, ShopX, Jumbotail and many more are connecting brands / manufacturers to different buyers and sellers through their technology platforms. In the process, they are also trying to address the numerous pain points that these buyers and sellers face by working through the un-organized retail. In addition, few companies such as ShopX are also trying innovation around B2B2C, by enabling consumers place order through their app, but fullfilment happening through local retailers, thereby adding newer demand avenues for last mile retailers.. Note(s): 1. Selected companies have been included to illustrate the respective buckets basis RedSeer analysis 2. eB2B2C includes end consumer base initiative such as customer ordering via app but fulfillment through local retailers, customer loyalty programs etc. Source(s): Redseer Analysis eB2B Retail Marketplace for Brands, Wholesaler/small Enterprises (sellers) and Retailers (buyers) Listing Platforms Enable supplier/ buyer discovery on platform; Transaction is offline Customer Ancillary Supplier O.E.M / Brands Raw Material Retailer B2C Online Platforms Direct selling platforms to end customers Raw Material Focussed Online marketplace and auctioning for raw material used by industries Distributor/ Wholesaler MRO Focussed Online marketplace and enterprise sales of manufacturing supplies (MRO) eB2B2C2
  20. 20. 21 Traditional retail is all about wading through one challenge after another During our conversations with various people in the whole retail chain, the pain points they faced dealing with the ‘old school’ system of traditional retail were clearly visible. Tracking and monitoring the products from seller to my place is difficult due to the lack of technology involvement. ~Class A FMCG Retailer, Patna The whole idea of omni-channel retail resonates the most with eB2B players. They can help solve one of the biggest pain points of a retailer in today’s world, losing customers to online marketplaces. ‘ My customers are finding online prices of daily needs cheaper and more convenient. ~Class C FMCG Retailer, New Delhi Small town retailers mostly lose out on on-boarding brands as they might not meet the minimum order quantity (MoQ) requirements. I don’t meet the minimum order quantity requirements of brand appointed wholesaler; the independent wholesaler is unreliable and charges extra. ~Class C Mobile Retailer, Guna Ambitious but sadly with limited means, retailers sometimes might not have the tech knowhow to pull off things like a successful loyalty program. I want to introduce some loyalty programs that actually increase the customer spend – have tried manually but it did not work. ~Class C FMCG Retailer, Mysore eB2B, along with eB2B2C, is the potential problem solver of all these issues and can help even the smallest of retailers to be equipped with tech and future proof their business. Challenges related to daily operations Challenges related to end-consumer Source(s): Redseer Analysis Sometimes, the price of certain products are high when compared to online channels. ~Class B Electronics Retailer, Ujjain My customers want availability of several SKUs of product. My store outlet has limited capacity. ~Class B Fashion Retailer, Bengaluru I cannot purchase limited quantity from a local wholesaler rather I have to buy clothes in bulk every time which leads to over-inventory. ~Class B Apparel Retailer, Thrissur I need to travel to Ahmedabad, Surat, Jaipur or Mumbai so that I can get different cloth varieties from wholesaler, due to which, involves an additional cost. ~Class C Apparel Retailer, Hyderabad I want to introduce some loyalty programs that actually increase the customer spend – have tried manually but it did not work. ~Class C FMCG Retailer, Mysore Monthly working capital is not sufficient at times where I am thinking to ask financial assistance.
  21. 21. 22 Low satisfaction Neutral High Satisfaction Product Product selection Fill rate/ SKU availability Pricing Prices Trade schemes availability Logistics Pin code coverage O2D times Logistics cost Credit options 1 Credit period & duration Interest rate on credit eB2B is resolving challenges compared to other channels including traditional retail for buyers During our survey, most of the respondents showed higher satisfaction with eB2B retail in most of the parameters ranging from product selection, fill rate/SKU availability, prices, trade schemes availability, ease of logistics, interest rate on credit among other things. Satisfaction w.r.t to sourcing channels for buyers % of respondents, N = 1248 How satisfied are you with the following parameters related to sourcing channels? (On a scale of 0-10) Direct Distributor Un-organized Wholesaler Cash & Carry eB2B 0 4 7 10 Note(s): 1. Not applicable for Cash & Carry Source(s): RedSeer Analysis
  22. 22. 23 Awareness about eB2B platforms is helping convert a host of non-believers Tier 3+ Cities 40% Tier 1 & 2 Cities 62% Metro Cities 44% Awareness of eB2B platforms % of respondents, N = 1248 Are you aware of eB2B platforms for sale and purchase of goods. Check “Yes” if applicable. Willingness of respondents not using eB2B to use in future % of eB2B non-user/ eB2B-aware respondents, N = 790 Open to try eB2b 40% No Maybe Yes 25% 35% Source(s): RedSeer Analysis More people are getting to know about eB2B platforms surprisingly on the back of positive word of mouth endorsements by users. A rise in awareness has helped in increasing the user base as everyone wants to experience the merits attached to dealing with an eB2B player. Almost 62% of the respondents from tier-I and tier-II cities know about these platforms. Many who have heard about eB2B players are either willing to order from them or have already shifted to them as their primary supply channel. The ease of ordering and having the option of not keeping their establishment closed for a supplies run is another factor which is pulling retailers towards eB2B players. Driven by the merits, ~60% of non-users are willing to try eB2B. My friend in the city informed me about eB2B players. I was drawn to the idea that I won’t have to shut my shop for sourcing products as I could just place order online from my smartphone. We started hearing about eB2B players around a year back. For sellers it has been great as it has opened access to markets and buyers. Earlier we had to go on tours to get orders. I saw ads of some eB2B players on TV. I am happy with current sourcing channel but good to know that there are alternatives. Buyers Speak
  23. 23. 24 60% 56% 42% 24% 67% Wider market reach/access Logistics Support Payment Terms Predicability of demand Inventory management and end-customer insights (tech support) Primary trigger for selling through eB2B platforms % of respondents, N = 30 (Sellers) Select the primary trigger for selling on eB2B platforms Sellers also give a big thumps up to eB2B’s wider market reach, tech enablement and logistics support Time spent for looking for buyers is very high (e.g. visiting different stores, cities, etc.) Credit is a big pain point as every retailer wants to buy on credit. Unsold inventory and inventory management cost is a big concern. Logistics management - retailer expects wholesaler to arrange delivery - reliance on 3PL leads to inconsistency and in some cases losing out on clients due to bad experience. Sellers Speak Source(s): RedSeer Analysis
  24. 24. 25 In an age when ordering services, checking facts, discovering restaurants is all done in palm of the hand courtesy the ever evolving smartphone, both buyers (retailers, wholesalers) and sellers (distributers) want the convenience of a digitally connected life. The consumption of data, and further thanks to the Jio effect, has removed most of the socio-economic barriers around who uses the internet and who does not. Many retailers after losing out to online players, are now trying to evolve, by leveraging some tech back up from eB2B players to fight back. Post demonetisation and massive campaigning by the government digital payments for day to day buying has become a habit for a large chunk of people in the country. So many retailers are now trying to integrate it as part of the payments system. In the age of digital living, ambition also flows seamlessly be it tier-I or Bharat cities. The hope to expand beyond their location has become a great pull for sellers to tie up with eB2B players. Moreover, eB2B will merit from increased digital appetite across buyers and sellers Metro Tier-1 & 2 Bharat Cities Sellers Speak Sometimes, I run out of the stock because of variance in demand. Market intelligence that helps with demand predication may be helpful. lack of demand predictability. Apparel Wholesaler, Bengaluru Although, we keep a track of our inventory, some support/ assistance to determine the optimal order placement quantities. I am going to Mumbai next week after Diwali to enquire about solutions. FMCG Wholesaler, Ujjain I want to cater to Wide range of retailers , but currently there are very less retailers in my geographical location; I will be willing to try out if online platforms helps me connect to new retailers. Footwear Distributor, Moradabad Buyers Speak Nowadays my customers want to pay through UPI. I want a platform that helps integrate different UPI options with my sales log/ software system. I lost out a few customers because BigBasket was offering good promotions. I’ll be interested to inquire if there are ready technology options that helps introduce loyalty programs/ promotions that I can try out. My loyal customers often take goods on credit. Technology can be helpful in keeping an accurate log and follow up with customers. Class B Electronics Retailer, Kolkata Class B FMCG Retailer, Kolkata Class C FMCG Retailer, Guna
  25. 25. 26 NPS1 of eB2B platforms N = 1248 How likely are you to recommend the following sourcing/purchasing channels to other retailers? On a scale of 1-10 Direct from brands eB2B platforms Cash & Carry stores Distributor / Wholesaler Promoters Neutral Detractors 28% 63% -9% 27% 66% -7% 37% 55% -8% 43% 52% -5% 19% 20% 29% 38% NPS for ‘eB2B platforms’ is the highest among available sourcing channels Net Promoter Score (NPS) has come out to be the highest for eB2B platforms when compared to everyone ranging from brands, cash and carry stores as well as distributers. Retailers dealing with eB2B players have been able to grow and expand, thanks to the seamless and convenient flow of inventory, help with warehousing and logistics as well as credit options. More than 43% of respondents believe that eB2B is the sourcing channel that they would recommend to others. With more adoption, this %age would surely go up. Note(s): 1. NPS =% Promoters (Score 9-10) -% Detractors (Score 1-5). Source(s): RedSeer Analysis)
  26. 26. 27 Favoured by the government and over a BN dollar in investments, Indian eB2B retail is more lucrative than ever Key Recent Policy Changes 2016 - eCommerce Clarifications • Bars foreign backed companies to keep inventory or sell products directly to consumers. • Capped total sales originating from one vendor at 25%. 2019 – New policy changes • Restrictions put on sale of products where the market place owns a equity stake. • Restrictions put on exclusive listings. • Restrictions put on value of inventory sourcing allowed from one wholesaler Pressured margins in eB2C Democratisation of marketplace limits marketplace’s ability to offer discounts Regulations were tightened for e-B2C companies but remain very investor friendly for e-B2B giving push to the segment. B2C • 100% FDI in “single-brand” retail, e.g. Ikea • 51% FDI in “multi-brand” retail • 100% FDI in food retail if all the products are locally sourced B2B: 100% FDI allowed General India FDI Policy $1,122 MN 26 28 338 730 India eB2B Investments: 2016 – 2019 USD MN Any company operating in India has dealt with regulatory issues sometime or another. The ecommerce space is no different. While eB2C companies have over the years faced a slew of tight guidelines, eB2B has had a smooth sailing. The biggest fillip the eB2B space in India got in the recent times, was the allowance of 100% FDI in the B2B sector. This has opened a floodgate of opportunities for the sector. FDI norms in the recent times have been rejigged to bring in more international investments. The government has also allowed 100% FDI in ‘single-brand’ retail, and more recently food retail with a rider that all the products need to be locally sourced. While between 2016 and 2019, around $1.1 BN in investments have been made in eB2B space in India, a lion’s share of those investments have been made this year as more than $730 MN in investments were made in this space into various players. Note(s): 1. 1 USD = INR 70 Source(s): RedSeer Analysis) 2016 2017 2018 2019
  27. 27. 28 eB2B outpaces eB2C sectors proving to be much more capital efficient Our research indicates that eB2B sector is growing at a much higher speed than the eB2C sector. Investments that have gone into eB2B space have been much better utilised vis-à-vis the eB2C space that has seen big dollar figure investments being made over the years, which is indicated by the GMV per investment dollar until FY 19 for both of these sectors. eB2B generated around $3.5 GMV for every dollar invested, almost 1.7 times when compared to eB2C. Note(s): 1. Measured by time in years to reach the GMV level. Higher the number of years taken, lower the speed of growth Source(s): RedSeer Analysis Sector GMV FY19 ($ BN) GMV / Investment $ - cumulative until FY 19 eB2B 3.5 eB2C 2.1 High Growth Food-tech Hotel-tech Mobility E-Pharma Slow Growth Medium Growth E-Tailing 30 25 0 Low Speed of growth1 High 1 2 3 4 5 6 E-B2B Compared to the other digital commerce sectors including hotel tech, food tech, e-pharma and the mobility space which are all witnessing medium speed of growth, eB2B is growing much faster, which proves that the sector is capital efficient.
  28. 28. 29 Note(s): 1. 1 USD = INR 70 Source(s): RedSeer Analysis eB2B will ride on the eB2C e-commerce wave We believe that there is a direct and strong correlation between growth of eB2C and expansion of eB2B in the country. eB2B has been and is going to further benefit from the infrastructure, digital ecosystem and digital maturity (including habit formation) which eB2C growth will enable. This is the same phenomenon that struck China, UK and US among other mature markets. With the supply chain and logistical capabilities created by eB2C players, eB2B would be able to expand across the country. The Chinese eB2B market size is the largest in the world worth over $1990 BN. India’s market size stands at just $1.7 BN in FY19. But the growth potential for eB2B is immense and could go up to $60 BN as eB2C penetration is set to rise further. E-B2B & E-B2C Penetrations – Global benchmarks %, FY 19 10% 4% 20% 30% 40% 40% 10% Low High eB2C Market Penetration (%, 2019) India 30% 20% US $1100 BN eB2B Market Penetration (%, 2019) UK $140 BN China $1990 BN 4.8% ($60 BN) (FY 25F) $832 BN Un-organized B2B 0.24% ($1.7BN) FY 19 0%
  29. 29. 30 Note(s): 1. Others include Jewellery & Watches, Furniture & Furnishing, Pharmacy & other smaller categories such as Toys, Sports, Alcoholic Beverage & Tobacco, Stationery, Luggage etc. 2. 1 USD = INR 70 Source(s): RedSeer Analysis Driven by the growth drivers as elaborated above, eB2B market is expected to grow at 35x by FY 25, at a CAGR of >80%, with all categories expected to witness healthy growth Over the next six years, tier-II and Bharat cities would be the real growth driver for the eB2B space. We estimate that in FY 25, eB2B will witness strong penetration in India in almost all categories ranging from fashion, consumer durables, FMCG and grocery. India – E-B2B Retail USD BN2 FY 19 $BN eB2B Penetration 1.7 0.24% FY 25F 60 4.8% 2 8 % 9% 54% 28% Others1 Fashion & Accessories Beauty & Personal Care Consumer Durables & Electronics (Including Mobile) FMCG & Grocery Fashion & Accessories Beauty & Personal Care Consumer Durables & Electronics (Including Mobile) FMCG & Grocery CAGR FY 19-25% 85% 55% 90% 70% eB2B penetration FY 19 (%) 0.2% 0.8% 1.3% 0.1% eB2B penetration FY 25F (%) ~4.2% ~7.0% ~22.5% ~2.1% Key growth drivers Increasing penetra- tion in Tier 2+ cities is expected to drive growth. Category is domi- nated by few large players (brands). Growth is expected to lag other high growth segments. High penetration and acceptancev of online channel in eB2C is expected to have domino effect on eB2B. Local sourcing and efficient supply chain is expected to drive future growth. 81%-CAGR% 4% 8% 5% 41% 43% 6% 3%
  30. 30. 31 Thereby, eB2B will outpace eB2C A host of growth drivers as detailed earlier, will help the eB2B sector pace ahead of eB2C. Amidst several supply chain issues that affect country’s large un-organized retail market base, more people will continue shifting towards eB2B. Moreover, favourable government policies as well as high receptiveness of buyers and sellers towards eB2B will further enable the sector growth. The eB2B space will also continue cashing on the increasing penetration and influence of the eB2C space in the country. eB2B Growth Drivers Favorable govt. policies Opportunity from large un- organized retail market Increasing eB2C penetration High receptiveness of buyers and sellers towards eB2B Higher capital efficiency ratio of eB2B as compared to eB2C Sector GMV FY25 forecast ($ BN) High Growth Food-tech Hotel-tech Mobility E-Pharma Slow Growth Medium Growth E-Tailing 180 160 0 Low Speed of growth High 10 20 30 40 50 60 E-B2B Source(s): RedSeer Analysis
  31. 31. 32 3 Current Indian eB2B business models - “What it takes to win”!
  32. 32. 33 The varied models of eB2B players Multiple business models have already come-up in this sector, driven by immense opportunity that everyone sees, as quantified earlier. While there could be multiple ways for classifying these models, we believe that these models try to differentiate on their operating model on 2 key axes. The first axis is basis inventory ownership. Some companies want complete control on what is being sold on its platform and own the inventory stored in their centralized warehouses. Others prefer inventory fulfillment through managed tech led JIT inventory model. The second axis is driven by tech led vs people led (FoS) demand generation. Note(s): 1. Selected companies have been included to substantiate the business models basis RedSeer analysis Source(s): RedSeer Analysis India eB2B Retail Business Models1 100% digital 100% FoS Products are owned by the e-com entity and stored at centralized warehouses Inventory fulfillment through managed JIT inventory model or through Logistics network connecting suppliers and retail- ers with no products of its own. Inventory based – Tech Led Inventory based – Assisted Asset Light Technology Led Marketplace People Led Marketplace Self-help digital ordering / demand generation Tech/ App Led1 Assisted ordering / demand generation Assisted through Feet on street (FoS) 100% owned inventory No inventory When we plot the various existing players on the 2 axes, 3 business models come out: 1. ‘Asset Light Technology Led’ marketplace, which relies more on pure tech led demand generation, in addition to relying on JIT inventory. 2. ‘Inventory based - Tech led’ players, who maintain their inventory, but rely more on tech led demand generation. 3. ‘Inventory based – Assisted’ players, who maintain their own inventory in their warehouses, plus they promote FoS assisted demand generation i.e. they have their sales force who visit the respective buyers for taking or- ders, in addition to also having app support.
  33. 33. 34 Less is more for Asset Light Technology led marketplace In an asset light technology based model, sales are majorly driven using digital marketing campaigns run on the technology led marketplace platform. Also they do not assign sales targets to their limited salesforce personnel. In an inventory based assisted model, sales are driven by in person interactions, bringing in a direct connect between the retailer and eB2B platform. It works on territorial sales model, with area sales managers assigned quarterly or annual GMV targets. GMV ($ MN) per Feet-on-street (FOS) Asset Light Technology Led Marketplace Inventory based - Assisted ~$3 Mn per FOS ~$0.2 Mn per FOS 15X Source(s): RedSeer Analysis Different business models aim at the common goal of addressing buyer and seller pain points While the business models might seem different, there are certain synergies in the way they address issues around demand fulfillment, availability and quality of a product, logistics, credit facility and pricing. Both asset light technology led as well as inventory based tech marketplaces work through helping a retailer adapt to ordering online, rather than relying on seller’s feet on street network. Product availability in both models is determined through the strength of seller partnerships. When it comes to maintaining quality control of products, while an asset light technology marketplace has managed warehousing, strict SOPs and a highly controlled supplier network, inventory based eB2B players control warehousing and of course have robust SOPs. Logistics for an asset light eB2B marketplace are all about close knit partnerships with third party logistics players (3PL). While 3PL manage it, the eB2B keep a close watch on all warehousing and delivery operations. For an inventory based eB2B, logistics are mostly an in-house operation on the back of a controlled network to handle warehousing as well as delivery. Pricing in these two models might vary a little bit as the parameters are different. An asset light eB2B has to factor in operational efficiency, strength of the network, exclusive partnerships, managed invoicing procedures and multiple monetization levers. For an inventory based eB2B model, effective demand forecasting and inventory management is extremely important for pricing.
  34. 34. 35 Asset Light Technology Led Marketplace Inventory based – Tech Led Inventory based – Assisted Demand Fulfillment Completely technology led, through retailer adapting to ordering online, rather than relying on seller’s feet on street network. Predominantly driven by feet on street model as on date. Product Availability Determined through the strength of seller partnerships (as observed through fill rates) Determined through the strength of backward supply chain sourcing and supplier partnerships Product Quality Control Determined through managed warehousing, robust SOPs and controlled supplier network (as observed through damaged products and return rates) Determined through controlled warehousing and tech driven quality control SOPs Determined through controlled inventory management procedures and oversight Logistics Driven by 3PL partnerships, robust SOPs, technological oversight, and warehousing network (as observed through O2D and delivery timeline compliance) Driven by partnerships or internally controlled network, robust SOPs, technological oversight, and warehousing network Credit Facility Determined by partnerships, buyer quality, and regions, categories catered to by the platform Pricing Determined through operational efficiency, strength of network, exclusive partnerships, multiple monetization levers and managed invoicing procedures Determined through effective demand forecasting, inventory management, monetization levers and exclusive partnerships Determined through effective asset utilization, strength of network, exclusive partnerships and managed invoicing procedures Source(s): RedSeer Analysis The third model inventory based assisted eB2B marketplace is much more personal in the way it creates and fulfils demand. Mostly driven by ‘foot-soldiers’, product availability is determined through the strength of the backward supply chain sourcing and supplier partnerships. For them pricing is all about effectively utilising assets, capitalising on the strength of network, exclusive partnerships and managed invoicing procedures. For all the three models providing credit facility depends on partnerships, buyer quality, regions and categories catered by the platform.
  35. 35. 36 Warehouse/ Inventory Brand & Manufacturer Farmer’s Agent / Producer C&FA Wholesaler Distributor/JIT Retailer / Wholesaler / Corporates End Consumer Demand Generation: Assisted (FoS) Demand Generation: Tech Led Demand Generation: Tech Led Mills / Factory Applicable for selected players such as Demand Generation: Assisted (FoS) • Leased by online player • Inventory management • Perform QC of products • Packaging and barcoding • Schedules delivery • Perform QC of products • Packaging and barcoding • Schedules delivery Bridging gaps between sellers and buyers through tech, eB2B players are gaining traction ‘An almost’ one stop shop solution providing a whole bouquet of services has made eB2B popular in a short span of time. What eB2Bs have successfully done is making both sellers and buyers realise that everything starting from brands / manufacturers, reliable warehousing and logistics, inventory management and payments solutions can be obtained on a single platform. Most of the players in the eB2B space have been able to plug major gaps in the retail chain and made the process of buying and selling seamless. Innovative ideas that address actual needs of sellers and buyers have proved an important factor in making eB2B successful. Efficiency of the entire supply chain is the key for a successful retail operation. eB2B players are constantly innovating, tweaking and bettering the tech to make retail operations smooth. During our research we came across many such examples of tools and processes players use to make operations run smoother. Innovation on the back of technology can be seen at every step of the operational model be it planning, buying, moving, selling as well as managing. India – E-B2B Retail Value Chain1 Note(s): 1. Selected companies have been included to substantiate the business models basis RedSeer analysis Source(s): RedSeer Analysis
  36. 36. 37 India eB2B Retailer Operational Model Manage Sell • Brand specific platform to enable them to sell directly to buyers and run highly targeted campaigns (Udaan,ShopX). • Retail as a service integrated with POS to enable mom & pop stores to perform efficiently (Jumbotail). • YARDSTICK app for efficient salesforce management (ShopX). Move • Established network of channel partners to ensure last-mile delivery (Amazon Business). • Charge commissions on every transaction, by connecting seller and buyer on a B2B retail platform. • B2B2C App digitizes last mile transaction between retailer & end-consumer (ShopX). Buy • Own their logistics fleet (Amazon Business, Big Basket, Udaan), and also tie- up with 3PL (Jumbotail, ShopX) for delivering goods to retailer. • Perform quality check of products at distribution centers (ShopX & Jumbotail). • Unbundled 3PL– All partners use the tech provided by platform (ShopX). Plan • Own their logistics fleet (Amazon Business, Big Basket, Udaan), and also tie- up with 3PL (Jumbotail, ShopX) for delivering goods to retailer. • Perform quality check of products at distribution centers (ShopX & Jumbotail). • Unbundled 3PL– All partners use the tech provided by platform (ShopX). • Analytical tools to ensure automatic inventory replenishment at retailers’ end (BigBasket). • Restock Inventory Tool for online sellers to help them manage their inventory levels (Amazon). One of the youngest and fastest growing unicorns in the country, Udaan, has positioned its revenue model around charging on add-on services such as credit and advertising, keeping the core service (product portfolio and logistics) cost low. Driven by solid tech and acute knowledge of on-ground bottlenecks in the retail space, ShopX has developed a unique just in time inventory (JIT) management system that boosts efficiency and reduces wastage of goods received. Not only that, it has created a B2B2C model which is enabled via its tech-based solution. Retailers working with ShopX are now selling offline as well as online and are becoming future ready. Another player trying to make a difference is Jumbotail, which has been working on transforming kirana shops into convenience shops. Thousands of kirana store owners rely on its robust in-house supply chain and logistics for procuring staples and FMCG. It provides tech driven solutions which effectively is “Retail as a Service” platform, that helps sellers with everything starting from point of sale solution to inventory management systems to help them modernise their stores. eB2B firms such as BigBasket have developed analytical tools that ensure automatic inventory replenishment at retailers’ end. Farm-to-fork model which is a factor in running a successful fresh produce business is being perfected by players such as Ninjacart who directly procure from farmers. Few of the largest logistics networks and delivery fleets are owned by companies such as Amazon Business, BigBasket and Udaan. Filling the gaps in the supply chain has also helped in coming up with varied revenue models. Some companies charge commissions on every transaction, by connecting seller and buyer on the B2B retail platform. Companies such as Udaan and ShopX enable brands to sell directly to buyers and run highly targeted campaigns.
  37. 37. 38 • Commissions charged on every transaction from buyers (0%-4%) • Credit provided to buyers at ~1.5-2% • Advertising revenue earned from sellers on per category basis Revenue Sources Delivery Network Vendor Distribution Centre / Hub Retailer / Wholesaler 3PL + Captive Udaan’s “secret sauce” for success Country’s one of the most successful and growing eB2B unicorn Udaan has in just three years managed to create a mix of captive and third party logistics partners, for an highly efficient last-mile delivery. It has helped it to reach out to a larger set of retailers across most pin-codes in the country. The marketplace has been designed keeping in mind small and medium businesses in the country. It has been over the years bringing traders, wholesalers and manufacturers on to a single platform. It has a network of 6,00,000 plus buyers and sellers across India which is one of the highest in the eB2B retail space. During our research, we found out that last year, Udaan picked up products from sellers across 80 to 100 cities and delivered it in 800 cities and towns across India. Its major product categories include fashion, electronics, mobile phones, food, grocery, beauty and personal care items. Udaan has three major revenue sources. Its commissions on every transaction from a buyer are around 0-4%. At a nominal rate of 1.5% - 2%, it gives credit to buyers. Listings or advertisements are also one of the main sources of income for the company, and is earned from sellers on per category basis. The company has started expanding its warehousing capabilities, and also launched a secure payments platform called UdaanPay. Thanks to the option of a personal and secure conversation in real-time in the multiple Indian regional languages, as well as the option of a user being able to directly negotiate the terms of credit with the seller, Udaan has been able to gain a massive following. It helps buyers and sellers expand their business through MyBiz, Feed, Share, Connections to grow market presence and creating brand interest. Also almost 75% of the logistics requirements are handled by the company in-house. Source(s): RedSeer Analysis
  38. 38. 39 • Commissions charged on every transaction from buyers (~3-4%) • One-time registration cost for buyers (~Rs. 1000) Delivery Network Revenue Sources Dist./WH Quality check & Aggregation Hub JIT sourcing, no inventory Managed 3PL ShopX is giving small retailers the power of technology to dream big For a small retailer in Bharat, expanding business beyond certain parameters is mostly an impossible dream. For them making compromises on sales and inadequate inventory is part of doing business. ShopX, since 2015 has been trying to change that. It has been helping these small retailers not only dream big, but is also making them come true. Extensive market research, understanding ground realities and being in constant touch with the market has helped the company create a host of solutions specific to small retailers. The company has given these small retailers access to premium brands, equipped them with robust POS systems, inventory management solutions, as well as given them access to online customers through its B2B2C app. The company that has for the last four years future proofing one small retailer at a time, now has more than 150,000+ retailers in its network from across the country and approximately six MN end customers. The company has created strong presence in the country, and is currently operating out of 440+ towns and cities. It has partnerships with 550 plus brands from more than 50 manufacturers. Other than the usual categories such as FMCG, electronics and mobile phones, it also provides value-added services such as digital payments and recharges, which act as additional revenue streams for its retailer partners. While it charges around 3-4% in dommissions from buyers, it also takes a one-time registration fees that costs around Rs 1,000. ShopX retailer app suite includes a Retailer app, as well as a consumer app, which the retailers can activate for selected consumers. The consumer app creates an interesting B2B2C play, as consumers can use this app for placing orders, but the demand fulfillment happens through local retailers. On top, ShopX Suvidha, is alending platform that gives credit interest free through a partnership network of banks and NBFCs. In addition, ShopX also offers tools such as Yardstick, which is a Salesforce management platform and SmartApp which simplifies retailer account for performance and order management. This comprehensive technology solution has resonated well with ShopX’s user base. Data Flow Source(s): RedSeer Analysis
  39. 39. 40 • Commissions charged on every transaction from sellers (~3%) • No registration charge/ commissions taken from buyers • Credit provided to buyers at ~1.5-2% • Mark up from Private labels Delivery Network Revenue Sources Miller/ Producer Brand Fulfillment Center Distributor Distributor Center / JIT Led Retailer / Wholesaler Jumbotail eases the mammoth task of connecting brands to Mom & Pop shops through it’s in-house supply chain Jumbotail which started operations in 2016 uses technology, data science and design as the three key levers for creating differentiation in the market and achieves competitive edge in the food and grocery segment. The company is present in Bengaluru, Mysuru, Tumkur and Hyderabad. It has a total of 2 fulfillment Centers and 8 Distribution Centers in Bengaluru and 1 fulfillment Center in Hyderabad. It charges commissions of around 3% on every transaction. The company offers Mom and Pop stores with wide range of high-quality staples, packaged foods, personal care and home care products from all the leading brands and staples producers. It also has its own set of private label brands. The firm also provides credit and working capital facility to the potential buyers from their lending partners. The key differentiator for Jumbotail is providing Mom and Pop stores and tuck shops ‘Retail as a Service’. It has fully integrated POS machines and softwares to run the store like modern convenience retail stores. In addition, Jumbotail also provides in-store analytics, loyalty programs and O2O services to drive retailer stickiness. Source(s): RedSeer Analysis
  40. 40. 41 • Commissions: General goods: ~4.5% Private label: ~6.5-7% • No registration charge taken from buyers Delivery Network Revenue Sources Dist./WH Warehouse Inventory storage Captive A fully integrated model, and strong inventory management, BigBasket has it all One of the first e-grocers in the country, BigBasket started its eB2B operations in early 2016. Over the years, it has established a strong network of over 27,000 retailers across the country. It is doing well in the top four metropolitan cities including Delhi NCR, Mumbai, Bengaluru and Hyderabad which make up for approximately 50% of its B2B GMV in FY19. Its main product categories are food, grocery and FMCG products which contribute to around 80% of its B2B GMV. HoReCa customers contributed another 10% of total annual GMV in FY19. BigBasket earns around 6.5-7% on private labels and approximately 4.5% from general goods in commissions. The company has set up large warehouses spanning over 25,000 square feet in 10 metros and Tier-I cities across India. It gives benefits to its retailers who are members on the platform and give an additional discount on basis of their order quantity. On the tech front it uses ‘Flexi’ app platform to process orders for bulk purchases by large retailers. Source(s): RedSeer Analysis
  41. 41. 42 Delivery Network Farmers Collection Center Fulfillment Center Distributor Retailer / Wholesaler • Commissions charged on every transaction from buyers (~18-27%) • One-time registration cost for buyers (Free) Revenue Sources Ninjacart slashes farmer’s biggest enemy, non-value adding middle-men Eliminating unnecessary middlemen, who fleece hapless farmers, has been one of the biggest achievements of Ninjacart. A service which started as a fresh produce supply chain operation in 2015 has now gained a network of 13,000 plus farmers. With major presence in Southern India, Ninjacart now runs operations in seven cities. It has at present around 60 collection centres for fresh produce from farmers across the country and almost half of those are in Karnataka. A champion of the farm-to-fork model, its primary customer base includes major retailers, malls and restaurants. Fresh produce is a high margin game, and Ninjacart on every transaction charges anywhere between 18% and 27% commission. Farmers are the real winners here as they get 20% more revenue than the existing market. They also ensure that farmers within 24 hours get payments for the supplies. Logistics of fresh produce need to be fast due to the limited shelf like, Ninjacart ensures delivery from farm to store happens within 12 hours. Source(s): RedSeer Analysis
  42. 42. 43 Low satisfaction Neutral High Satisfaction Product Product selection Fill rate/ SKU availability Pricing Prices Trade schemes availability Logistics Pin code coverage O2D times Logistics cost Credit options Credit period & duration Interest rate on credit 0 4 7 10 Player 1 Player 2 Player 3 All players are perceived to have their own strengths During our survey, we found out that respondents believe most of the eB2B players come with their own set of strengths and weaknesses. In general most of the respondents have shown high satisfaction levels with the services of these players. While some have a better product selection, others offer better competitive pricing and trade schemes. Logistics and reach is something most of the players are working on and are improving. Challenges w.r.t to sourcing channels for eB2B platforms % of respondents, N = 450 How satisfied are you with the following parameters relating to sourcing channels? (On a scale of 0-10) Over the years, the un-organized B2B market has created a lot of holes in the retail value chain. Pain points are a plenty for both the buyers and sellers in the retail value chain. For a single player to fill all these gaps is quite difficult. The country’s eB2B players need to address all these issues that are currently affecting buyers and sellers, to win in this complex but interesting market. Source(s): RedSeer Analysis
  43. 43. 44 Shorter credit period/ Difficult credit terms Geographic coverage (serviceable pin codes) Conflict Resolution Marketing support/ services End consumer behaviour/ analytics Listing process/ TAT It is not like eB2B players have been able to address all pain points. There are a few pain points which if addressed can make these platforms much more user friendly and attractive for Bharat. During our survey, buyers and sellers charted out few key pain points that eB2B players need to address. While credit is offered by a few eB2B firms, the terms and conditions attached to it are sometimes difficult. Currently, the biggest challenge with eB2B is around credit and logistics coverage. We operate on very thin margins and we need these companies, to help address inefficiencies in value chain so that we can sustain and expand. ~ Wholesaler of mobile accessories, Mysore For buyers and sellers, the needs and wants of an end user are still somewhat a mystery. They all look towards eB2B players who have the technology and the knowhow to crack this code, but are yet to get any answers. What we need from eB2B companies are better interface and understanding of the end customer. Right now, no one is offering that in a substantial way. ~ A snack brand owner In this fast paced world, no one including buyers and sellers like to be caught in long drawn verification processes for uploading and listing on eB2B platforms. Be it a tier-I seller or a small town Kirana shop owner, no one wants to be caught in ‘corporate red tape’. Although, the user interface support multiple languages products, companies need to make the process a bit more efficient. It takes too long for verification and uploading the listing of products on the platform. ~ Kirana shop owner from Ujjain, Madhya Pradesh
  44. 44. 45 4 “The Path to Profitability”!
  45. 45. 46 1 Focus on ‘Buyer Stickiness’! • Driven by a margin sensitive play, ‘Buyer’ engagement is critically im- portant in this market to enhance CLV (Customer Lifetime Value). • The same can be increased through acting as a one stop shop for all the Buyer needs and addressing the key pain points. 2 ‘Seller Stickiness’ is equally important! • Strong relationship with sellers (in- cluding brands) could open up new monetization streams, and ability to extract better margins. • The same could be achieved by offering a mix of services such as new product launches, data insights, in-store marketing, etc. 3 Stay Lean i.e. Asset Light, & Create Technologically scalable SCM! • Since CAC is relatively high, asset intensity in operations is a fundamen- tal lever for driving margins efficiency & profitability. • The SCM technology platform should be able to integrate with all partners across the supply chain, to keep tight control on O2D, quality control, inven- tory management and delivery expe- rience. • In addition, the SCM capabilities should be scalable enough to support category expansion/ diversification. 4 Innovate and Monetize! • Multi category play rather than uni-category. • Focus on Bharat, the future retail spend key driver. • Innovate on other monetization levers (e.g. in app advertisements, financial services etc.). • Enable integration with other chan- nels to create a win-win. Four key levers will drive Indian eB2B players’ ‘Path to Profitability’! Source(s): RedSeer Analysis
  46. 46. 47 Acting as a one stop shop to address ‘Buyer’ pain points, and a bouquet of handpicked services will drive ‘Buyer Stickiness’ Lever 1 1. Act as ‘One stop shop’ for addressing all key pain points: The greatest service a buyer can get from any eB2B player is finding a single window for addressing all their grievances and pain points. If any platform is able to prove to a buyer, that they can not only take care of their business needs but also help them face problems and handhold them through crisis, that eB2B player can get an ally for life. » Product availability and quality » Delivery times » Pricing » Minimum order quantity requirements » Credit availability » Inventory management » Vendor reliability » Conflict resolution • Incentivize buyers for ordering through the platforms through loyalty programs. • Incentivization should also be done at the end consumer level, to create pull and added revenue for the listed buyers. • Incentivization can be done basis buyer rating, which could be an outcome of volume and value of transactions during a period, timely payments, and buyers’ adherence to performance KPIs 2. Drive loyalty programs Once the goal of addressing the pain points is achieved, it is all about driving in a bunch of services including having a rewarding loyalty program as well as value added services to drive buyer engagement. 3. Provide ‘Timely conflict resolution’ It is much more important for a digital entity to provide a personal touch to buyers. At no point they should feel stranded and left alone to fend for themselves in case of any problem during their retail journey. Timely conflict resolution is extremely important. • Buyer should only be speaking to one dedicated helpline, irrespective of the different stakehold- ers involved e.g. irrespective of working with 3PL at the backend, eB2B platform should be able to resolve any conflicts related to O2D buyer should not need to speak to the 3PL. • TAT levels should be defined for the various categories of conflicts along with escalation mech- anism, they should be communicated to the buyers effectively, and thereafter they should be adhered to. 4. In addition, provide VAS to buyers to drive engagement. Buyer relevant value added services (VAS) help to further drive engagement. An eB2B player should provide brand support as needed as well as give personalized feed to buyers driven by their transaction profiling. Indicative examples include: • Brand support should be provided as needed. • Personalized feed to buyers driven by their transaction profiling. • Additional revenue streams for the buyers as possible e.g. providing popular services such as ticketing or bill payments for consumers on the eB2B platforms through retailers. • Innovative B2B2C play such as Consumer ordering online, but demand fulfillment through local retailer etc. Source(s): RedSeer Analysis
  47. 47. 48 We believe that better seller partnerships can help in increasing margins. Key data insights and leveraging the network between brands, distribution, retailers and finally customers will further boost seller stickiness. Also targeted advertisements in allied retail stores, as well as in app advertisements will further boost seller margins, thereby increasing the stickiness further. 1. General Distribution Margins Direct procurement, distribution and favorable terms from brands can lift margins similar to Cash & Carry levels of 7-9%. 3. In-store Marketing Targeted advertisements in allied retail stores could generate additional streams of revenue up to 0.4%. 2. Data Insights Leveraging the network – i.e. brands-distribution- retailers-customers, eB2B players could leverage insights and commoditize data for additional revenue up to 0.8%. 4. In-App Advertisements Targeted advertisements on apps could generate another potential revenue of up to 0.8%. Great ‘Seller’ relationships, with better margins help in ‘Seller Stickiness’ Potential margins of 7-11% with direct brand relationships 0.3-0.8% 0.6-0.8% 0.1-0.4% 7-9% General margin Data Insights In-app adv. In-store marketing 8-11% Total As a brand, our core focus is always on brand building and manufacturing. Once volumes from eB2B grow, we can even look at direct distribution. They can potentially help us with data and insights on network including retailers and customers. eB2C companies already share insights with us. eB2B could follow the same path. ~Packaged Foods Manufacturer Lever 2 Source(s): RedSeer Analysis
  48. 48. 49 Asset Light technology led models are relatively efficient on contribution margins compared to other eB2B models Inventory based – Assisted Inventory based – Tech Led Asset Light Technology Led Marketplace Revenue from sales commissions (as a% of GMV) 4.0% 4.0% 3.0% Net revenue from VAS (as a% of GMV) 1.0% 0.5% 1% Net Revenue (as a% of GMV) 5.0% 4.5% 4.0% Less: Logistics & Inventory handling costs (5.5%) (4.5%) (0.9%) Less: Marketing costs(discount) (3.5%) (2.0%) (4.0%) Contribution margin -4.0% -2.0% -0.9% Indian eB2B Unit Economics – Models Comparison1 Lesser manpower requirements, no added costs on purchasing and maintaining inventory all help to keep the burn rate of asset light models much lower than that of an inventory based one. It should therefore come as no surprise that contributions are the highest when it comes to the asset light technology led marketplaces, vs. some of the other eB2B business models. Low High Contribution Margins Lever 3 Note(s): 1. The numbers used here are indicative estimates basis our research, and can vary for different players. Source(s): RedSeer Analysis
  49. 49. 50 For any digital commerce company the next level of growth and expansion is set to come from Bharat. Internet penetration, rising literacy, a young population, cheaper smartphones are all helping in creating a whole new set of online consumers who want experience and use all sorts of ecommerce services. Tapping into this market for an eB2B player is extremely important. Set sights on Bharat and innovate for them 1. Must focus on Bharat – the retail spend driver in coming years! Tier-wise split by online customers %, MN Users Tier-II+ (Bharat) Tier-I Metro CY16 75 CY17 90 CY18 118 CY19 135 CY22F 250 36% 19% 45% 41% 19% 40% 47% 19% 34% 50% 15% 35% 60% 13% 27% 1. Volume: Helps in achieving scale. 2. Value: Efficient margins management through multiple categories presence. 3. High utilisation rates. 4. Creates a network effect. Example Case Study in the next page 2. Efficient multi category play rather than single category focus! Ideally, a player catering to Bharat needs to cover all bases and create multiple category offerings. Global giant Alibaba.com is a perfect example of creating a one stop shop solution for all ecommerce needs. 3. Innovate on other “Monetisation” levers! Equally important for an eB2B player is to come up with different monetisation plans. 1. Financial services, facilitate digital transactions 2. In app advertisements 3. Enabling targeted product launches for brands 4. Ability to run trade schemes and in-store marketing for brands 5. Data insights for both buyers and sellers 6. Integrate with other channels such as cash & carry or eB2C to sell through. 7. Ability to launch private labels 4. Drive tech led innovation on the demand and supply side to create a win- win Demand Side 1. Digital demand generation 2. Technology led targeting through localized marketing as well as vernacular support Supply Side 1. Technology led efficiencies to ensure smooth flow of the goods across the supply chain with assured O2Ds and higher fill rates. Lever 4
  50. 50. 51 Alibaba’s exemplary growth in this market is driven by its continued focus on the 4 key levers Must focus on Rural areas and greater China – the key retail spend driver Efficient multi-category play » 150 MN registered members globally. » High reach in rural areas and greater China. » Horizontal focus. » Led expansion into categories organically starting with fast moving standardized products i.e. electronics and accessories and then gradually everything else as agile supply chain capabilities were developed. • Overall EBITDA Margin of around 18% as of year 2019. • ~0.3 Mn Active Enquiries per day. Multiple monetization levers through value added services 1. Alimama - Marketing and Advertising Services 2. Aliyun - Cloud Computing & Data Management to handle traffic 3. Trade Manager - Enables real time negotiations 4. CreditDirect - Buyer and Seller Credit Reporting Platform 5. Alipay - Online Payment Platform without Transaction Fees 6. Taobao - Free Registration and Commission Free Transactions Asset lean tech led value chain 1. Asset Light Business Model – Virtual Inventory and No Company Owned Warehouses. 2. Third Party Logistics Structure – Avoids High Operating Margins. 3. In-house Tech led supply chain management system for monitoring of operations and creating efficient supply chain. Addressing pain points, building a true one stop shop solution, providing the technology to help smaller businesses become sustainable for years to come, could be the chain that joins all aspects of eB2B retail seamlessly.
  51. 51. 52 » Retail Value Chain » Margin Structure » Seller Pain Points » eB2B perspective » Future Outlook » Channel Breakdown » Growth Rates » Competition understanding » Buyer Pain Points » User Experience In Depth Interviews (IDIs): Coverage We spoke to ~1250 retailers & 40+ merchants pan India to map their pain points and digital appetite to identify the use case (Current/Potential) of eB2B retail Survey Coverage N = 1248 By User Type eB2B Non- User eB2B User 63% 37% By Merchant Type Sellers Buyers 24% 76% By Class < USD 40K per month turnover > USD 40K per month turnover Class B,C,D Class A 79% 21% By City Bharat (Tier 3+ Cities) Tier-1 & 2 Metro 19% 52% 29% 40 IDIs Methodology
  52. 52. 53 Glossary (1/2) Definitions and Classifications Segment Definition Cities Metros Top eight cities by population in India are considered as metro cit- ies for the purpose of this study: Ahmedabad, Bengaluru, Chennai, Delhi/ NCR, Hyderabad, Kolkata, Mumbai, and Pune Tier 1 cities Tier 1 cities are non-metro cities with population of more than 1 MN Tier 2 cities Tier 2 cities are cities with population between half a MN to 1 MN Bharat Bharat refers to Tier 3+ cities/ villages with population of less than half a MN Retail Channels Un-organized Retailing Un-organized retailing refers to the traditional formats of low-cost retailing (including unbranded products) and sourcing through un-organized distribution (non-company led) channels .g. small wholesalers, Mom and pop Stores, Kirana Stores eB2B Retail Online platforms that facilitates the trade between Seller (Brands, distributors, wholesalers) and the buyers (retailers, wholesalers) across geographic locations Brand/ Distributor Led Brand led distribution channel mostly for branded products. It also includes supply to modern retail formats such as Exclusive Busi- ness Outlets (EBOs) and Large Format Retail (LFR) Cash and Carry Large store outlets providing multiple product categories for retail- ers Retail Stores Category A Merchants with monthly GMV> USD1 40K Category B/C/D Merchants with monthly GMV< USD1 40K Note(s): 1. 1 USD = INR 70
  53. 53. 54 Glossary (2/2) Product Category Definitions Product Category Definition FMCG & Grocery Includes Food based FMCG, Non-Food FMCG, Staples, Grocery and Home Care etc. Apparel & Accessories Includes Clothing, Bags, Belts, Wallets etc. Footwear Includes Men, Women and Kids Footwear Mobile Includes Smartphone and Feature Phone Consumer Durables Includes AC, Refrigerator, TV, Washing Machine, Kitchen Appliances, Laptop/ Desktop, Gaming Consoles, Air Cooler, DTH, UPS/ Inverter, Stabilizers, Heaters, Fans, Lighting, Vacuum Cleaners etc.) Jewellery & Watches Includes Gold, Diamond, Silver jewellery, Gems and Watches Beauty & Personal Care Includes Hair Care, Skin Care, Oral Care, Bath & Shower, Makeup & Cosmetics, Fragrances & Deo, Men’s Grooming and others Furniture & Furnishing Includes Furniture, Home Décor and Home Textile Pharmacy Includes medicines and related healthcare products Others Includes Toys, Sports, Alcoholic Beverage & Tobacco, Stationery, Luggage etc.
  54. 54. 55 Report Authors from RedSeer Anil Kumar, Founder and CEO Anil Kumar is the founder of Redseer Consulting. He has been part of engagements in Internet, Private Equity, Retail CPG and Healthcare among others. He specializes in growth and investment strategies. Anil is a believer of the data-driven approach in solving business problems. His consulting approach leverages Data IP, sector expertise and the client’s core hypotheses. He holds a B.Tech from IIT-Delhi. He can be reached at anil@redseer.com Abhishek Chauhan, Associate Partner Abhishek heads the Consulting and Diligence practice at Redseer for the Indian Market. He brings in ~13 years of strategy and consulting experience in Technology, Telecom, Insurance / Insure tech, Automotive and Consumer Internet Sectors, both in Indian as well as Global markets. He can be reached at abhishek@redseer.com Abhishek Gupta Senior Consultant Abhishek has served clients in Retail, Government, Education, ICT, Fintech, and Healthcare. He brings storing project experience in business growth strategy, market entry, due diligence, organization restructuring, public policy, and debt restructuring. He is an MBA from Indian Institute of Management (IIM) – Indore, India (2016) with exchange at École supérieure de commerce (ESC) de Clermont – Graduate School of Management. He can be reached at abhishek.g@redseer.com Vijay Kumar Associate Consultant Vijay has worked for several clients in industries such as Retail, E-commerce, Government and Healthcare. He brings in projects experience in domains such as due diligence, go-to market strategy, growth strategy and market research (across Indian and MENA regions). He is an MBA from Indian Institute of Management (IIM) – Udaipur, India (2016) and is CFA Level 1 certified. He can be reached at vijayk@redseer.com
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