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Wide range of marketing channels used; mobile yet to be leveraged
Mass-media advertising being deployed for brand building; social media effective in driving traffic
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E-tailing to outpace etravel
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Managed logistics to prevail
E-commerce specific logistic services emerging
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Consolidation unavoidable
Scale to drive profitability; companies entering multi-category retailing and launching self-owned brands
~USD 900 Bn worth retail sector by 2014 Current contribution of online sales: only 0.47%
USD 125-260 Bn
Indian e-commerce revenue projected to reach USD 125-260 Bn for the year 2024-25 Current revenue: USD 10 Bn
Growing Internet User Base ~376 Mn unique internet users by 2015 Current users: 120 Mn
No Increase 17%
Over 77% of the respondents shopped online at least once in 3 months Over 50% have shopped at least once in the last month
Over 83% of the respondents forecast an increase in online purchases Only 3.3% respondents do not intend to shop online
Over 68% respondents currently using or willing to use mobile for online transactions
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Source: Zinnov Primary Survey Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behavior towards e-commerce; the survey was conducted during June-July, 2012
90% 10%
2010
87% 13%
2011E
78% 22%
2012E
E-tailing growing tremendously; will account for ~50% of the e-commerce by 2015 CAGR of E-Tailing = 4x CAGR of online travel (2012E 2015E)
E-Tailing
Online Travel
More people more comfortable with buying books than travel tickets Electronics and Local Deals comparable
Source: Avendus Report; Morgan Stanley Research; Comscore; Zinnov Primary Survey Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012
required minimal infrastructure investment had a commoditized service offering, helping it take a lead over the latter zero lag time in order fulfillment built trust
Building Trust Discounts Trust built by extensive marketing Offering fraud-proof options, such as COD1 and easy returns Strategic Products Product categories, such as books and electronics, which dont require extensive touch and feel driving growth
Discounts driving
adoption
Key investments in logistics/ supply chain Well supported by 3rd party companies for pan-India coverage Logistics Infrastructure
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Source: Sequoia Capital, Zinnov Primary Research Note: 1Cash on Delivery; 2According to Sequoia Capital
VCs getting cautious after heavy investments last year industry expects consolidation
VC funding - Huge growth in Year 2011
Total Investments (USD Million) VC funding has witnessed a dip since November 2011, compared with the first 8 months of the year which saw heavy investments by VCs
Consolidation unavoidable
VCs are investing in e-commerce companies on the high risk-return probability and are betting on finding strategic partners at a later stage to acquire these companies, Srividya C G, Partner, Valuation Services Fear of missing the bus in a potentially huge market opportunity is causing a herd mentality among VCs. Around 3-4 players will emerge winners over the next few years, Alok Mittal, MD of VC firm Canaan Partners Flipkart and Myntra expected to gain 50% market share by 2014, India E-Retail Market, Companies Revenue Analysis & Forecast to 2015, Bharat Book Bureau
902 105
2009
111
2010 2011
Over 800% growth in VC funding from 2009 to 2011; market, then in its infancy, witnessed emergence of many start-ups
Recent Acquisitions Off-late, VCs have become extra-cautious while investing in the industry; have tightened money supply Consolidation unavoidable in the medium term; acquisitions already happening
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High cost of customer acquisition (~INR 1,500 for online acquisition), and small basket size hinder profitability Repeated purchases must to compensate acquisition spending
E-tailing involves heavy investments into supply-chain and warehouses Companies hold extensive inventory of up to 3 months in-order to get discounts from their suppliers
In-house logistics require up-front investments while third-parties are operationally expensive Typically, delivery costs 5-10% of the product value, higher for COD shipments
Focus on Growth
E-tailers burning cash to fuel growth; offering discounts deeper than their pockets and spending heavily on advertising and marketing
Warehousing and Shipping INR 150 Packaging INR 25 Payment Gateway/COD INR 35 Discount or Voucher INR 300
Selling Price 100% 100% 100% Cost of Item 60% 88% 65%
Indicates decrease in cost with increasing scale Indicates no effect of increasing scale
On increasing scale, companies can become profitable by reducing the cost of warehousing,
shipping, and packaging, per shipment Free Shipping 10% 2% 10% Inventory and Write-offs 4% 4% 2% Gross Margin -24% -13% -8%
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Packaging 1% 1% 1%
COD cost 8% 2% 4%
Warehousing 1% 1% 1%
Source: Sequoia Capital; News Articles Note: 1 Stock Keeping Unit, 2 Average Selling Point, 3 Cost of Goods Sold
Money Supply Tightened by VCs Turbulence in Eurozone effecting economic climate all across the world
USD 829 Mn invested in ecommerce from Jan to Oct 2011 Only USD 97 Mn in the between NovDec 2011
It has now become imperative that companies look at metrics they have till now ignored so they at least start chalking out a road to profitabilityPrashanth Prakash, Accel Partners
Source: News articles; primary Interviews with senior stakeholders of companies
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Self-owned Brands
E-tailers venturing into lucrative space of selling self-owned brands Myntra plans to sell its own brand of products by 2013 Launched by founders of exclusively.in, SherSingh retails products under its own label
Deals-only websites enter pure-play retailing SnapDeal started selling products after moving into pure-play retailing "We have seen that after expanding our offerings, the frequency of purchase has gone up significantly. Sandeep Komaravelly, VP Marketing, Snapdeal E-tailers acting as digital storefronts for suppliers who stock and ship Aaram Shop tied with local retailers to fulfill customer orders; revenues from ads Drop shipping: Under the model, e-tailers forward customer orders to their suppliers for a margin and offload shipment to them, thus saving logistics & warehousing costs In addition to bulk buying and bypassing intermediaries, companies actively buy off-season products for availing deep discounts We actively buy off-season goods, typically available at 30-50% discount compared with fresh stock Senior Manager Operations, Leading Indian E-tailer
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Opportunity Buying
Capital Expenditure
In-house logistics require heavy upfront investment Logistic networks of third-parties reach the farthest corners of the country Experience and expertise of specialist third-parties is hard to copy Easy to modify logistic strategy and switch partner with third-party logistics Financial & management resources needed to run in-house teams; additional operational risk assumed
Managed services are generally costlier; may change with industry growth
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Key functions including ATM installation and management, and IT solutions outsourced
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In-house logistics teams catering only to a few metros1 Poor Access Through In-house Teams Tier-2 onwards cities accessible almost exclusively by third parties2
Specialist e-commerce logistic companies, such as Delhivery, Chhotu, and Holisol, emerging
Existing logistic providers, such as DTDC, are creating separate arms for catering to ecommerce business
Note: 1Only exception is Flipkart which has in-house teams in about 27 cities; 2Most companies use India Post for accessing customers unreachable through private logistic players, such as 14 DTDC, Gati and Blue Dart | Source: Primary interviews with senior stakeholders of companies; Zinnov Analysis
High Willingness
Limited Penetration
Small screen (48.7% respondents) Slow internet (41% respondents) Unavailability of apps/mobile websites (31% respondents)
Reduces visibility and usability Deterrents to Low 3G penetration of 4% Mobile E-commerce Most retailers dont have mobile apps or mobile friendly websites
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Source: E-commerce consumer survey conducted by Zinnov Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012
Social Media
Heavy advertisement through social media by e-tailers such as Myntra, Valyoo Technologies and Jabong
Consumer Reviews
Specialized teams to monitor customer reviews for any negative posts Players approach the authors and try to address their issues Negative SEO techniques used to suppress unfavorable reviews
Source: Primary Interviews with senior stakeholders of companies; E-commerce consumer survey conducted by Zinnov Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012
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Leading e-tailers, such as Myntra, Jabong and Flipkart, using TVCs, print media and out-of-home promotion
Stakeholders believe mass media to be most effective for brand building Ads focused on building trust; highlight easy return policy, money back guarantee and COD Most companies deploy SEO and SEM techniques for traffic generation
63% respondents directly explored ecommerce sites to research about an online purchase; driven completely by brand recall
Online Marketing
However, online customer to e-commerce sites using search engines acquisition remains costly, with each 52% respondents use search engines while costing ~INR 1,500 researching about online purchases
Source: Primary Interviews with senior stakeholders of companies; E-commerce consumer survey conducted by Zinnov Notes: 1Zinnov conducted an online survey among 300 respondents to understand their behaviour towards e-commerce; the survey was conducted during June-July, 2012
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This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov