A study undertaken by Google
and Bain & Company has projected that over 5% of FMCG
sales (currently only 0.3%) will come from e-commerce
by 2020. The questions is whether this is an achievable number for India, where only 8% of retail outlets are in the organized sector – or what you call modern trade – one of the lowest in the world .
A study by Kantar
WorldPanel has projected that as much as 5% of FMCG
sales globally will happen though e commerce by 2016. So can’t we achieve the same percentage four years later?
The answer whether this number projected by Bain can be achieved or even exceeded is to be found elsewhere. One is the strategy that e-commerce
companies wish to follow to woo customers. They have a choice – to connect to customers who today buy their FMCG
stuff from small kirana shops across the country who are part of the unorganized retail. Or they can stick to targeting the urban middle class who prefer to go to shopping malls to buy their products and are the early adopters of e-commerce
in the hope that as organized retail grows, which it will, their numbers will also go up. The speed of e-commerce
conversion will only happen if they crack the former.
The second challenge will be the proliferation of smart phones – there is no other way to reach the mass customer base if s/he does not have a device with data through which he orders online. E-commerce
companies can do very little except hope that the data revolution happens.
The good news is that e-commerce
companies do not have to worry about the low penetration of organized retail in the country as an impediment to the growth of e-commerce.
Global experience clearly shows that there is no direct linkage between the success of e-commerce
adoption of customers to how advanced or how big organized retail is in that country.
So, for instance, South Korea leads the world in terms of adoption of e- commerce for FMCG
products – it is as high as 10.2 per cent by Kantar.
Yet organized retail is only around 15- 20% of total retail space. However while Germany
organized retail has a penetration of over 85%, e-commerce
share of sales in FMCG
products is only 0.8%, only 50 basis points more than India’s. In China, while organized retail is already 20% of overall retail, e-commerce
share of FMCG
sales is 0.9% but growing rapidly.
What is more important is not the maturity of the organized retail business, but the availability of smart phones and its penetration. The success of e commerce in South Korea is primarily because it has the highest level of smartphone
penetration in the world of over 80 per cent. China’s commerce is on the road to huge growth because smart phone penetration has hit 70%. In Germany, on the other hand, smartphone
penetration is still only 50%. And in Brazil, e-commerce’s share of FMCG
is as low as 0.1% because smart phone penetration at 29% is low.
suffers from a similar challenge. According to industry estimates, smartphone
penetration is as low as 10%, surely something which explains why e-commerce
in general and especially FMCG
products sales (where rural India
constitutes for a large percentage of sales) have not really taken off. However there are varying estimates about a dramatic change – Ericsson predicts penetration to go up by 40% by 2020 and even Bain-Google
say that there will be over 650 million people who will be online, and at least one third of them will shop online. If the dramatic increase in smartphone
penetration happens, there is no reason that Bain’s target can’t be achieved.