The e-commerce market in India, worth over $100 Bn, underwent a lot of changes in 2023, with new entrants, the launch of the Open Network for Digital Commerce (ONDC), and the rise of omnichannel D2C brands.
Flipkart received a huge boost from Walmart’s $600 Mn investment as part of its $1 Bn round, while Amazon slowed down its spending and restructured its workforce in India.
MamaEarth became the first D2C brand in India to go public, attracting a lot of attention from investors with its 7.6 times oversubscribed IPO.
Reliance Industries and Tata Group, the two biggest conglomerates in India, are also revamping their strategies to capture a larger share of the online retail market, with a focus on expanding beyond the urban areas.
The government has also backed the ONDC to curb the influence of the big players in the fast-growing e-commerce sector. The year 2024 will see the impact of these developments.
The 8 Biggest Ecommerce Trends To Expect In 2024
Amazon-Flipkart Duopoly Likely To Weaken With Rise Of Meesho & Co
Amazon India and Flipkart, the two dominant players in the e-commerce market, have maintained their lead over 90% of the total GMV during the festive season in 2023, despite the regulatory challenges, the emergence of D2C brands and the entry of ONDC into the online retail space.
These giants are adapting to the new regulations and analysts expect them to keep their advantage in 2024, thanks to their early presence, large user base, and wide distribution network.
The only contender that can pose a threat to the duopoly is Meesho, the social commerce platform backed by SoftBank, which has shown remarkable growth in terms of monthly users. Analysts say that other players will not be able to make a significant dent in the e-commerce revenue share of Amazon and Flipkart.
According to Jefferies, an equity research firm, Meesho is outpacing the e-commerce industry growth rate in India. It reported that Meesho had 120 Mn MAUs on its platform in CY22 and added 100 Mn MAUs in the last two years, more than any other peer. Meesho performs well on all aspects of the online buying process, from app downloads to MAUs to MTUs.
Meesho’s success is attributed to its zero-commission model for sellers who offer unbranded products to low-income consumers. The Bengaluru-based e-commerce unicorn has secured 7% of the e-commerce market share in India.
The big question, however, is how these players will expand beyond the urban areas, which have been the main source of revenue so far. Meesho, JioMaart, and TataNeu will have to tap into the underserved markets, as a top e-commerce industry analyst suggested.
National E-commerce Policy Will Disrupt Best-Laid Plans
The e-commerce sector is awaiting the announcement and implementation of the long-awaited e-commerce policy after years of conflict between CAIT, the Indian Retailers’ Association, and the two leading marketplaces, Amazon and Flipkart.
According to sources, the e-commerce policy was delayed because both Amazon and Flipkart had several discussions with the Commerce Ministry, expressing their objections to the e-commerce consumer protection rules (2020).
The sources said that the policy will be based on the e-commerce consumer protection rules (2020) and will include strict compliance with local data storage, consumer interest, the anti-counterfeit policy of marketplaces, the ownership and linkage of sellers, and the prevention of predatory pricing, forced discounting and flash sales.
The e-commerce policy, as per various reports, will not undergo any further changes or public consultations.
Amazon and Flipkart are in a difficult situation as they are foreign-owned and have been accused of violating FDI and FEMA rules in the past. The upcoming e-commerce policy is likely to affect them the most, as they have both expanded their partnerships and collaborations with private-label brands in recent years.
They have also been accused of using the data of the best-selling products on their platforms to create their private labels. “It will be curious to see what the regulations will entail for advertising on e-commerce marketplaces, as that is where Flipkart and Amazon earn most of their revenues now,” Prem Bhatia, CEO of e-commerce tech company Graas
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ONDC Penetration To Grow
In 2023, ONDC launched a groundbreaking project to revolutionize the digital commerce and trade sector in India. ONDC started by challenging the food delivery market, but the open protocol is still in its early stages of development.
To compete in the online retail industry, ONDC needs to expand its network and invest in attracting sellers, raising awareness, and marketing its platform.
Some of the major players in the market, such as Snapdeal, ATS, BigBasket, PhonePe, Paytm, and Ola, have become part of the network, demonstrating its increasing influence and reputation.
ONDC will operate as a non-profit organization and may charge sellers a minimal fee in the future, but that is not expected to happen anytime soon. According to sources, the incentives may be reduced in the second half of 2024.
Sources also told us that the big e-commerce players have not joined ONDC, which raises doubts about the viability of the open protocol. Joshi replied, “That is a bigger question that Amazon and Flipkart should answer.”
Reliance, Tata’s Acquisition Appetite To Grow
The e-commerce industry has grown rapidly in the past few years, but it is still a fraction of the $1.5 Tn retail industry, where India’s largest conglomerates like Reliance Industries, Tata Group, and Aditya Birla Group have a clear advantage over the e-commerce players.
Reliance and Tata have a strong hold on the retail industry of India, and they have also developed JioMart, TataNeu, and other platforms.
According to industry sources, these conglomerates will grow further by transforming their thousands of offline stores into digital platforms, bringing their brands online, and making acquisitions.
While Amazon and Flipkart have been leading the online retail market in some regions, Reliance and Tata are introducing organized retail models that will be connected to their digital platforms.
Omnichannel Plays Will Dictate D2C Brand Success
The D2C ecosystem is losing its momentum. Yes, mostly.
The D2C brands took advantage of the low-interest rates worldwide, which helped them grow fast with VC funding. However, after the pandemic, the D2C startups realized that they needed an omnichannel strategy to reach offline customers and still rely on third-party marketplaces to sell online.
Data-driven insights will enable personalized experiences across channels, making personalization crucial. New technologies, such as AI and AR, will also improve the omnichannel performance of D2C brands.
Omnichannel integration boosts D2C success, as it makes the customer experience more seamless and simple across different platforms. D2C brands can use online platforms, social media, and retail stores as some of the channels to create a convenient customer journey, he added.
Graas’ Bhatia said that the D2C brands will have to reduce their marketing and advertising expenses in 2024 and wait for the capital to flow into the markets before they expand.
“I don’t think the D2C brands will have an easy time in the first few months of 2024. On the bright side, some of the Indian D2C brands with good products can look for new markets in Southeast Asia, the Middle East, and other regions,” Bhatia said.
D2C House Of Brands, Roll-Ups Will Begin To Fold
The rise and fall of Thrasio, the Amazon brands aggregator, may have some lessons for its Indian imitators.
The Indian ‘house of brands’ sector, which flourished in recent years, has largely fizzled out. Mensa Brands, Goat Brand Labs, Upscalio, and Globalbees quickly raised millions of dollars and bought many brands.
However, industry experts think these purchases were overpriced, and the fact that many ‘house of brand’ platforms took on venture debt, means they are now in a tough situation for long-term viability.
“Even the big funding rounds for the house of brands had a lot of debt involved and now the repayment costs have gone up which has hurt their growth potential,” an industry source said.
The next year will witness more consolidation and mergers in this area with players like TMRW backed by Aditya Birla, Wipro Consumer Care, or even Reliance taking over some of these startups.
Vertical E-commerce In For Consolidation
Vertical e-commerce marketplaces or category-specific online platforms have grown significantly in recent years with some of them like Nykaa and CarTrade becoming profitable and listed, while Reliance bought Urban Ladder.
This is happening when horizontal marketplaces like Amazon and Flipkart are still struggling to make profits despite having a large market share.
The FirstCry IPO that is coming soon will be a key indicator of how well vertical e-commerce marketplaces are doing in 2024, according to analysts.
Nykaa, Cartrade, or FirstCry will be the role models for vertical e-commerce in India. As they are listed companies, they will also have to focus on keeping their unit economics healthy, a market analyst said.
We have also witnessed Reliance acquiring Netmeds, Urban Ladder, and Tata acquiring 1MG, and CaratLane in the last few years.
Experts are also predicting that private vertical ecommerce marketplaces will get more funding and buyout offers in 2024, based on the success of the leaders in each category.
How Will B2B Marketplaces Fare?
B2B e-commerce has seen huge growth in the last five years, even though most of the attention in e-commerce is on marketplaces. However, market analysts say their growth will depend on how much capital they can access, as buying materials and running warehouses is very expensive.
Udaan, a B2B unicorn, raised a lot of money recently, but the reports said it was a combination of equity and debt that lowered its valuation. Udaan’s revenues also dropped a lot in FY23 as it tried to cut costs.
The smaller B2B e-commerce marketplaces are now facing the challenge of lowering the costs of buying and selling raw materials.
Also, expanding to markets outside India may be harder because of the political conflicts in the Middle East, Russia, and the US.
