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India's eCommerce growth drivers - why big cities are not in focus

India's eCommerce business was the hardest hit due to the lockdowns caused by the Covid-19 pandemic during April and May. However, a new...

India's eCommerce business was the hardest hit due to the lockdowns caused by the Covid-19 pandemic during April and May. However, a new study predicts that in the next five years the country will add more than 200 million new online shoppers. And, players like Jio Platforms are all set to take on existing players Amazon and Walmart-owned Flipkart for a share in this lucrative market.  

What's unique about the growth prospects is the expectation that these new shoppers will come from tier-2 cities and small towns, says a research paper released by Bain & Company, the Boston-based management consulting firm. 

India's retail market, pegged at $850 billion and the fourth largest in the world, is largely unorganized at present. However, spurred by cheap mobile data, could enable nearly 1 billion internet users by 2030 who would form the backbone of the e-retail revolution, the study says. 

The eCommerce revolution would be further spurred by growing online spending and supply-side innovations such as vernacular-based user interfaces and voice and visual search, says the report prepared in collaboration with Walmart-owned Flipkart, India's largest eCommerce player which holds 39% of the market share. 

"The Indian e-retail market is primed to reach nearly 300 million to 350 million shoppers over the next five years, propelling the online gross merchandise value to between $100 billion and $200 billion by 2025," the report says. 

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Fashion categories and smartphones will play a major role in acquiring new customers, who will get convenient access to an assortment of products across all geographies and income segments. For sellers, including mom-and-pop shops, artisans, and traders, it will provide easy access to a large base of customers, keeping the stores open 24x7. 

Currently eCommerce forms barely 3.5% of India's total retail market and future growth would be driven by drop in internet data rates, growing ratio of Millennials in the overall population mix and high digital reach of categories such as smartphones, accessories, and electronics. 

As part of the research, Bains & Company proffered their analysis and insights into the nuances of India's online shopping behavior, which is presented below:  

Insights into India's online shopping habits

  • Nine minutes is all you have: Over the past year, consumer engagement with online platforms has increased, but a potential shopper spends less than nine minutes per visit on an e-retail platform.
  • Pictures speak louder than words: One in two visitors browse the image gallery, and only 1 in 15 click the detailed product description. Brands and sellers should invest in images and videos as well as pithy, high-impact product highlights.
  • Product discovery on e-retail platforms: Consumers are increasingly opting for e-retail platforms for product searches—nearly one in three in India and almost two in three in the US.
  • Vernacular searches are gaining popularity: For example, “parda” was one of the top three searches in curtains.
  • Browse, browse, browse: Online shoppers browse more than 20 product pages before making a purchase. For some categories, such as mobile phones and women’s ethnic wear, consumers browse about 50 to 60 product pages before making a purchase.
  • Different horses, different courses: Search attributes and preferences vary significantly across categories and consumers. Online shopping data provides interesting insights into specific product preferences of Indian shoppers at a granular level.

Bains & Company says that online platforms in India would innovate to onboard the next hundred million shoppers over the 12-24 months ahead. The new wave of digital natives would have different needs and interact differently compared with the current set of online shoppers. 

The report lists out some trends that it believes would be visible over the coming months: 

Some trends for the future

  • Voice and vernacular: The Indian vernacular language Internet user base, which is expected to reach more than 500 million users by 2021. This is more than double the 200 million for the English-speaking Internet user base the country. This new crowd prefers voice search and vernacular-based user interfaces. 
  • Visual and video: Video content consumption in tier-2 and smaller cities in India grew more than four times over just the past year. Visual search tools, live-streaming sessions, influencer videos and the like  are gaining significant traction.
  • Social shopping: For the next wave of online customers, peers and communities will play a much larger role in influencing purchase decisions than they do for the current online shopping base. Over the past five years, we have seen more than 50 private equity and venture capital deals in India focussed on social commerce. 
  • Digital ecosystems: As e-retail evolves, platforms will increase their number of consumer touch points to gain greater customer mindshare. Top e-retail companies have started to develop ecosystems that combine their core e-retail business with sticky customer services, such as video streaming, gaming, booking and payments, in a single platform or application. 

Not only has e-retail broken go-to-market barriers for new brands but it has also helped traditional brands accelerate new product launches. Digitally born brands have scaled rapidly and are being built more efficiently. 

Large incumbents have also leveraged the online channel to launch multiple online-first brands, get real-time customer feedback and use those learnings to improve the effectiveness of their national offline launches, says the report, a PDF version of which can be downloaded right here



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