E-commerce emerging as bigger retail channel

E-commerce could overtake organized trade for FMCG firms, say experts

New Delhi: E-commerce could grab a larger share of retail trade and possibly overtake organized trade for consumer packaged goods with consumers’ growing preference for online shopping, industry estimates and analysis suggest.

To be sure, physical modern trade retail, barring cash and carry, contributes 0-12% of sales for large fast-moving consumer goods (FMCG) firms, according to data shared by consulting firm Accenture India.

Over the last four quarters, the share of e-commerce has already touched 7-8% for some of the largest FMCG companies in India. In the next year or so, it can become bigger than organized modern trade on the back of growth accelerated by the impact of the covid-19 pandemic, said Anurag Gupta, managing director and lead, strategy and consulting, Accenture in India.

In India, large-format modern trade chains include Easyday, DMart, Spencer’s Retail, Big Bazaar and More, among others. However, the pandemic has tilted the scales in favour of neighbourhood stores and online deliveries as consumers prefer proximity and convenience while mobility remains restricted.

“Because consumers are moving online, e-commerce is growing at a very fast pace. As a result, what’s happening is that organized model trade as a channel, which was the second-largest channel after kiranas, has not been able to manage the disruption, that as a channel is now lagging,” said Gupta.

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

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

It helps that new models, such as hyperlocal deliveries, are emerging. “Till a couple of years ago e-commerce was the emerging trend, and now it is the hyperlocal model that’s coming up. The FMCG industry has always benefitted from such trends,” said Navin Tewari, chief executive officer of Capital Foods. For the maker of Ching’s Secret noodles and spices, modern trade registered over 50% growth in FY21, even when Future Retail Ltd was not fully operational, while e-commerce saw strong growth of over 300%. “In line with the core attribute of Capital Foods, we are all set to not only embrace but leverage this innovative trend as well,” said Tewari.

The industry has also seen consolidation with Reliance Retail Ventures Ltd buying retail assets of Future Group. Tata Digital acquired a majority stake in online grocer BigBasket.

Gupta said more consolidations or entry of newer players could be in the works that will result in the creation of an “omni-channel retail format”.

Data sourced from Bizom, a retail intelligence platform working with millions of kiranas, suggests that by the end of 2021 share of organized modern trade will be lower than the pre-pandemic times. Within modern trade, however, recovery will be led by standalone stores, while the share of organized modern trade is likely to be lower through the year.

Organized modern trade outlets are definitely seeing an even greater impact of the pandemic, said Akshay D’Souza, chief marketing officer, Bizom.

D’Souza said it could take two to three quarters for modern trade to return to growth. Meanwhile, Bizom expects the channel contribution from e-commerce—which grew to 4-5% of sales for FMCG companies in FY21 and is currently hovering at 8-12% levels—to settle at around 6% in the near future. “This will be at the cost of organized modern trade sales for the year,” said D’Souza.

Meanwhile, Parle Products estimates a slightly longer period for e-commerce to overtake or reach the same level as modern trade.

“Modern trade is facing severe challenge because of the pandemic due to restriction in hours and footfalls etc. Meanwhile, there is an increased tendency and consumer literacy toward more usage and adoption of e-commerce,” said Krishna Rao, senior category head, Parle Products.

For the maker of Parle-G biscuits, share of sales via e-commerce grew from 2% in March quarter of 2020 to 5.5—6% now. Share of modern trade rests at 6—8%.

“We expect e-commerce to grow really fast; maybe not in one year, but in a little over 1.5—2 years it is bound to be equal or maybe surpass modern trade,” he added.

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