E-commerce is becoming a larger retail channel

New Delhi: Industry estimates and analysis suggest that e-commerce could take over a larger share of retail and possibly overtake organized consumer packaged goods trade amid growing consumer preference for online shopping.

Data shared by consulting firm Accenture India shows that physical modern retail, excluding cash and transportation, accounts for 10-12% of the sales of large fast-moving consumer goods (FMCG) companies.

Over the last four quarters, the share of e-commerce for some of the largest FMCG companies in India has already reached 7-8%. It could become larger than organized modern trade in the next year or so as growth accelerated by the impact of the covid-19 pandemic, said Anurag Gupta, managing director and strategy and consulting leader at Accenture in India.

In India, large-scale modern trade networks include, among others: Easyday, DMart, Spencer’s Retail, Big Bazaar and More. However, the pandemic has tipped the scales in favor of convenience stores and online deliveries as consumers prefer proximity and convenience while mobility remains limited.

“As consumers move online, e-commerce is growing at a very rapid pace. As a result, the organized trading model as a channel, which was the second largest channel after kiranas, has not been able to cope with the disruptions which are now lagging behind as a channel,” Gupta said.

Gupta said that in a year or within a few quarters, “e-commerce could become larger than even organized modern commerce.” Accenture data showed that in the cosmetics category, e-commerce has already overtaken modern trade.

Last year, several large FMCG companies saw rapid growth in e-commerce. For Hindustan Unilever Ltd (HUL), e-commerce channels account for 5-6% of the company’s business, HUL’s top management said in an earnings call in April.

The emergence of new models such as hyperlocal delivery helps. “Just a few years ago, e-commerce was an emerging trend, now the hyperlocal model is emerging. The FMCG industry has always benefited from such trends,” said Navin Tewari, CEO, Capital Foods. In the case of noodle and spice maker Ching’s Secret, modern retail recorded over 50% growth in FY21 even when Future Retail Ltd was not fully operational, while e-commerce recorded strong growth of over 300%. “As a core characteristic of Capital Foods, we are all ready to not only adopt but also capitalize on this innovative trend,” Tewari said.

There has also been consolidation in the industry, with Reliance Retail Ventures Ltd purchasing the retail assets of Future Group. Tata Digital has acquired a majority stake in online grocery store BigBasket.

Gupta said there could be further consolidation or new players entering the market, leading to the creation of an “omnichannel retail format.”

Data from Bizom, a retail intelligence platform working with millions of kiranas, suggests that by the end of 2021, the share of organized modern trade will be lower than before the pandemic. In contrast, in modern trade, the recovery will be driven by free-standing stores, while the share of organized modern trade is likely to be lower throughout the year.

Organized modern retail outlets will definitely feel the impact of the pandemic even more, said Akshay D’Souza, chief marketing officer at Bizom.

D’Souza said it could take two to three quarters for modern trade to return to growth. Meanwhile, Bizom expects the share of e-commerce sales channels – which increased to 4-5% of FMCG companies’ sales in FY21 and currently hovers at 8-12% – to stabilize at around 6% in the near future. “This will be at the expense of the modern trade sale organized this year,” D’Souza said.

Meanwhile, Parle Products estimates that there will be a slightly longer period of time before e-commerce overtakes or reaches the level of modern commerce.

“Modern commerce is facing a major challenge due to the pandemic due to restrictions on working hours, occupancy, etc. Meanwhile, there is an increased trend and awareness among consumers towards greater use and adoption of e-commerce,” said Krishna Rao, senior category manager, Parle Products.

In the case of biscuit maker Parle-G, the share of sales through e-commerce has increased from 2% in March 2020 to 5.5-6% today. The share of modern trade is at the level of 6-8%.

“We expect e-commerce to grow really quickly; maybe not in a year, but in a little over 1.5-2 years it will certainly equal modern trade, or maybe exceed it,” he added.