Power Pack

E-Commerce

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•Industry Overview :3

• E-Retail :8

•Sourcing and Stocking Model : 14

•Online Grocery : 17

•Online Ticketing : 27

•Financials and Profitability : 32

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 Industry Overview

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 E-commerce industry is expected to reach Rs. 5800 bn to Rs.
5900 bn by 2021-22.

OVERALL INDUSTRY SIZE

Source: Crisil Research

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 Online ticketing and E-Retail constitutes 99% of the industry
by value.

E-COMMERCE SEGMENTS

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Source: Industry, Company sources
 Share of online ticketing has come down while that of online
Retail / Marketplace has gone up.

SEGMENTAL CHANGE

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Source: Industry, Company sources
E-COMMERCE : GROWTH DRIVERS

•Increase in internet and smart phone penetration

• Better entrepreneurial ecosystem over the last decade.

•Easy funding to e-commerce companies

•Availability of wide variety of products online

•Cash on delivery

• Growth in smaller cities, semi-urban and rural areas

• Growth in the Sale of “Long-Tail” products.

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 Segmental Analysis : E- Retail

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 E-retail segment is expected to grew at CAGR of 28-33%
between 2018-19 and 2021-22.

ONLINE RETAIL: SIZE AND GROWTH

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Source: Crisil Research
 E-retail constitute only 2% of the overall retail in India.

SHARE OF E-RETAIL IN OVERALL RETAIL

2016-17

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 Even in 2021-22, e-retail penetration will be low across several
categories.

E-RETAIL PENETRATION

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 Share of categories sold online has significantly changed in the last
few years

SHARE OF CATEGORIES IN E-RETAILING

Product Categories Share in Revenues

2010-11 2019-20 2022-23

Electronics 70% 50-52 % 40-45%

Fashion (Apparels, 15% 30-35% 35 to 37%

Accessories, Shoes etc)

Books 10% 2-3 % 1-2%

Groceries Negligible 5 to7% 10 to 15%

Others (Jewellery, Furniture 5% 10-15% 8 to 10%

etc)

Source: Industry, Company sources

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 Profitability highest in lifestyle products; greater scale results
in better margins

ONLINE SEGMENT WISE GROSS MARGINS

Product Gross Margins

Categories (Percent)
Clothing, Shoes, 35 – 40%
Accessories,
Watches
Electronics 12-14%
Grocery 18 to 20%
General 20 to 22%
Merchandise
Books 10 to 15%

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 Online Retail: Sourcing and Stocking
Model

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 There are 3 business models in online retailing : Drop shipping
model, On-demand sourcing model, Stocking model.

Drop Shipping Model

•In this model, the retailer ties up with different manufacturers to display their
products on its website.
•After the customer places an order on the website, the retailer intimates the
•manufacturer/supplier for that product and the products are shipped by the
manufacturer.
•The online retailer does not incur any inventory holding costs.
On-demand Sourcing Model
•In the on-demand sourcing model, the retailer, on receiving an order from the
customer, gets the products from the manufacturer to its packaging center.
•Here, a quality check on the products is done and the products are packaged
uniformly and shipped to the customer.
Stocking Model
•In the stocking model, the retailer maintains warehouses and stocks all the products
displayed on its website.
•On receiving orders, the products are shipped immediately to the customer.

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BUSINESS MODELS IN ONLINE RETAILING

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 Online Grocery

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 Online grocery retail is expected to grow at 57-62% between
2018-19 to 2021-22 to reach $375bn.

ONLINE GROCERY : GROWTH TRENDS

Source: Crisil Research

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 Online grocery players followed either inventory based model
or hyper-local model.

ONLINE GROCERY : BUSINESS MODELS

Business Models

Inventory Based Hyper-Local

Model Model

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 Many players entered the grocery segment between 2012 to 2015
through hyper-local model.

TREND BETWEEN 2012 TO 2015

•Between 2012 to 2015, many players entered through the hyper-local due to:

•lower funding as compared to inventory-based model, as the players did

not own warehouses.

•the execution time is relatively low, as the orders were delivered from a

nearby store by partnering with a local kirana player.

•easy to scale operations geographically

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 MARGIN COMPARISON (ILLUSTRATION) : INVENTORY
MODEL VS HYPERLOCAL MODEL

INVENTORY MODEL HYPERLOCAL MODEL

•Average Customer Order Size: Rs. 500 •Average Customer Order Size: Rs. 250

• Gross Margin (20%): Rs. 100 • Gross Margin (5%): Rs. 12.50

• Inventory costs (5%): Rs. 25 • Inventory and Warehousing costs

• Warehousing and Overheads: (5%): (0%): Rs. 0

Rs. 25 •Overheads: (2%): Rs. 5

• Transportation cost per order: Rs. 20 • Transportation cost per order: Rs. 30

• Average Profit per order: Rs.30 • Average loss per order: Rs. 22.50

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 Apart from lower margins, hyper-local players also face the
problem of inventory tracking and quality.

DISADVANTAGES OF HYPER-LOCAL MODEL

• Lower Margins

• Do not have the ability like inventory based players to offer

attractive discounts.

•Limited product variety

•Lack of real-time inventory as they tied up with Kirana Stores

• Quality issues

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 Many Online grocers following hyper-local model closed down
in 2015-16.

2015-16 : PERIOD OF SHUTDOWN OF HYPER-LOCAL PLAYERS

Companies which closed down their

online grocery operations in 2016
•After a series of funding rounds
during 2012 to 2015, 2016 saw
many online grocery firms shutting
down their operations due to non
feasibility of the hyperlocal-based
model.

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 Big Basket, Grofers and Zopnow are the top 3 players in online
grocery segment.

TOP PLAYERS IN ONLINE GROCERY SEGMENT

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 BIG BASKET : OVERVIEW

• Largest player in the online grocery segment and operates in 25 cities.

• 75000 to 80000 orders day and customer base of 7 .3 million.
• More increased its revenues from Rs. 1197 crores in FY 2017 to Rs. 1606 crores in
2018
• The company managed to control it’s losses very well. Net Losses reduced from
Rs. 653 crores in FY17, from Rs 310 crores in FY18 (in terms of percentage of
sales , losses came down from 54.% to 19.3%.
• Received $ 300 mn funding from Alibaba in January 2018 and raised $150mn in
March 2019 from Alibaba, CDC and Mirae Asset. The company’s estimated
valuation was $2.3 bn in 2019

Source:
• https://inc42.com/buzz/bigbasket-controls-losses-by-53-revenue-rises-34-for-fy18/
• https://www.businesstoday.in/buzztop/buzztop-corporate/bigbasket-enters-unicorn-club-with-
150-million-funding-valued-at-228-billion/story/332191.html
• https://www.exchange4media.com/marketing-news/the-biggest-challenge-is-to-get-the-supply-
25chain-rightmarketing-headbigbasket-89507.html
 GROFERS TURNAROUND STORY

BAD SHAPE IN 2016

•Grofer’s started with Hyper-Local model

•In 2016, the company was in bad shape – making a loss of Rs. 7.2 crores
every month on a sale of Rs. 4.2 crores.
• It’s delivery costs was high , order size was low and the viability of the
business model was challenged.
•Company turned around after 2016 and Valuation was $425 mn in March
2019

Source:
• https://www.financialexpress.com/industry/after-rough-ride-grofers-takes-a-turn-for-
better-as-revenues-touch-rs-11-7-cr/738672/
• https://yourstory.com/2018/04/grofers-got-online-grocery-game-right-won-rs-400-
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crore-softbank/
 Segmental Analysis: Online Ticketing

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 Online ticketing growth is expected to double between
2018-19 and 2021-22.

ONLINE TICKETING: SIZE AND GROWTH

Source: Crisil Research

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 Share of airline ticketing is expected to come down while that
of Travel packages and Hotel bookings are expected to
increase.

ONLINE TICKETING: SEGMENTAL ANALYSIS

For example, MakeMyTrip, which

currently has 54% of business

coming from the hotel and travel

packages segment, plans to

increase the segment's contribution

to 70-75% in next 3-4 years.

Source: Industry, Company sources

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 Profitability highest in events ticketing, hotels and packages
sub-segments but airline ticketing is still the crowd puller.

PROFITABILITY OF ONLINE TICKETING SEGMENTS

Importance of Airline Ticketing
•Airline ticketing acts as the crowd
puller.
• It helps attract a large number of
visitors to their website.
•It helps them position themselves as an
end-to-end travel solutions provider.
•Therefore, airline ticketing will remain a
significant portion of their revenues

Source: Industry, Company sources

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 Industry consolidation will help in reducing the price wars and
improving the margins.

CONSOLIDATION
• Two major players in the travel industry, MakeMyTrip and Ibibo Group, have
merged and MakeMyTrip owns 100% of Ibibo Group.
• The combined entity holds a substantial market share (60% of the travel
industry)
• The industry now comprises three major players: MakeMyTrip, Cleartrip and
Yatra.
• All three players have strong promoters backing them and will be able to fend
off any pricing pressure from peers.
• Other recent acquisitions include – Yatra acquiring ATB (Corporate travel
service provider), Paytm acquiring Insider.in (event ticketing platform).
Yatra.com has partnered with OYO to increase its inventory of hotels, especially
in the budget hotels category.
• Consolidation in the industry is expected to ease pricing pressure and improve
profitability in the long-term.
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 E-COMMERCE : ROUTE
TO PROFITABILITY

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ROUTE TO PROFITABILITY

• Consolidation

• Focused Funding

• Private Labels

•Exclusive Launches

• Distribution Efficiencies

• Reducing the Discounts

•Increase non-COD sales

• Increasing Loyalty
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