Leading global professional services firm, Alvarez & Marsal (A&M) India and CII Institute of Logistics, released a white paper titled ‘Enabling the Next Wave of E-commerce in India Through Supply Chain Innovation’. The paper notes how different e-commerce categories are expected to witness differential growth in the next five years with evolving operating models and the implications for logistics service providers.
The Indian e-commerce landscape has grown manifold over the last decade, accounting for less than US$ 1 billion in 2010, to more than US$ 30 billion in 2019. This is a result of access to goods country-wide, made possible by the growth in capacity and network of logistics companies. However, the market is still at just ~three percent penetration as of 2019, far lesser compared to mature markets like the U.S. (~15 percent) and China (~20 percent), creating growth potential in India, ~ six percent by 2024.
E-commerce retail categories are expected to witness growth due to increasing set of suppliers selling online, the growing selection online at rates competitive with brick and mortar retail, and changing consumer buying habits enabled by well-funded vertical e-commerce players.
The rise of online fresh groceries, led by the two leading incumbents, which had a combined market share of ~70 percent in CY19, along with growing numbers of prepared food delivery companies entering this space could propel category growth by five times in the next five years.
Manish Saigal, Managing Director, Alvarez & Marsal India said, “While bulk of e-commerce volumes come from top 30 cities, more than 60 percent of e-commerce volumes are likely to come from Tier II and III cities in the next five years. It is an imperative for e-commerce businesses to build their seller base and delivery reach in smaller towns. A study of different operating models helps us evaluate the ecosystem and the expansion requirements for e-commerce companies to level up in times of high demand. These insights underpin our expertise to maximize value for clients through actionable results.”
Sudeep Mehrotra, Senior Director, Alvarez & Marsal India said, “The last five years in India have been about e-commerce channel becoming a mainstream channel (as important as traditional and organized retail) for companies to design their sales strategy. The next five years will be about these four models (covered in the report) gaining meaningful value share in the ecommerce delivery market size. For logistics industry incumbents and investors these ideas offer the next wave of growth”
Operating models for e-commerce will evolve depending on various factors including customer requirements and changing buying behaviors and the availability of appropriate technology and logistics partners. The next wave of anticipated online retail growth drivers for categories such as fast-moving consumer goods (FMCG), groceries and apparel will be through social media, chat engines and artificial intelligence (AI) bots.
Some of the key evolving models for e-commerce include, order to store for apparel; dark store for FMCG/ grocery and meat/pharmaceuticals; store to customer deliveries for FMCG grocery and omnichannel presence for retailers.
To ensure these models function seamlessly, e-commerce companies will need to work with of technology and logistics partners that can deliver across all stages of the customer journey as well as service level agreements (SLAs).