Social commerce the way to tap growing online buyers from smaller towns

Indian e-commerce was worth $83 bn in 2022, will likely grow to $185 bn in 2026, propelled by deeper internet penetration and digital payments

During last year's festive season sales, homegrown marketplace Meesho toppled e-commerce giant Amazon to become the second-largest player in order share, behind Flipkart. This came on the back of a huge tier-2 and beyond market that has largely remained untapped until recently.

According to a report by consulting firm Redseer, 64 per cent of festive season shoppers, or about 125 million customers, came from tier-2 and 3 cities. As many as 60 per cent of the orders Meesho received during this period were from tier-4 cities and beyond.

And it was not Meesho alone. About 45 per cent of Flipkart's customer demand came from tier-3 cities and beyond while Amazon said the number of sellers receiving orders from tier-2 and 3 cities on its platform jumped 21 per cent during the festive sale. These numbers have only grown since.

This surge in e-commerce is prompting online players to take their social commerce offerings to these cities. According to a Bain & Company report, social commerce has the potential to touch $16-20 billion by 2025.

To cater to this growing market, Flipkart launched Shopsy, a social commerce offering, in July 2021. The business, which offers value-focused products, now accounts for about 40 per cent of the Flipkart group's new customers.

“For Flipkart, the customer cohort from these regions is a very big strength. About 70 per cent of our business today comes from tier-2 and below cities. E-commerce in the country is growing and the bulk of new customers are coming from these markets,” Adarsh Menon, Senior Vice President and Head, New Businesses at Flipkart, told Business Standard.

Value e-commerce essentially refers to offering users quality merchandise at affordable prices. In most cases, the price range for such products is below Rs 1,000. Their average selling price on Shopsy is a little over Rs 200 and the platform has around 1.1 million sellers.

Shopsy had already hit 100 million users back in August last year, a milestone which it hoped to achieve by December this year. This was, however, no accident.

“When Shopsy started its journey, it got access to Flipkart’s complete selection of products, similar to a seed investment,” Menon revealed. “Shopsy has taken the technology capabilities that Flipkart has created over the last 15 years and built further upon that.”

The business has also piggybacked on the logistics infrastructure of Ekart – Flipkart’s logistics arm – using which it has access to deliveries across almost every pin code in the country. As a result, Shopsy has amassed over 150 million users today.

Many other e-commerce firms have been using social commerce to penetrate the smaller cities conundrum.

For instance, Snapdeal, which has seen its share of ups and downs, was one of the earliest to see the potential in these markets. The firm had pivoted its business model to cater to tier-2-plus regions in 2019.

“We are now building what we think is the long-term sustainable business for us,” Himanshu Chakrawati, CEO, Snapdeal Marketplace had said in an earlier interview.

Around 86 per cent of users on Snapdeal are from outside metropolitan cities, while almost 72 per cent are from beyond tier-2 cities. As many as 95 per cent of products listed on the platform are below Rs 1,000.

Snapdeal has also launched Stellaro, its house of brands for value-focused products, in August last year. Chakrawarti pointed out that the value lifestyle segment is an $8-billion-a-year market in the online segment and is predicted to grow at a CAGR of 39-40 per cent for the next five years. “We are seeing a huge growth and opportunity in this, especially with our brand promise,” he added.

“A large percentage of customers within the value segment are from tier 2 cities and beyond,” added Chakrawati, who joined Snapdeal in November of 2021. “The market is fairly nascent because, until recently, access to the internet was very difficult in these areas.”

Meesho is another player to have benefitted from this untapped market. “Meesho has been a very strong value play since the beginning. Our business model is built for accelerating the adoption of value commerce in the country,” said  Utkrishta Kumar, CXO (Business) at Meesho.

The company, which was conceived with the idea of catering to the small-town audience, owes 80 per cent of its user base to tier-2 and beyond. “Our mission statement is to democratise Internet commerce,” Kumar added.

Industry stakeholders believe that the e-commerce sector is moving towards ‘democratization’ going forward. The Open Network for Digital Commerce (ONDC), a non-profit company set up by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Government of India, is viewed as a ‘game-changer’ in this regard.

Snapdeal announced its full integration with ONDC last week, joining the likes of Meesho. The initial orders via ONDC, the company said, came from cities like Ajmer, Gurdaspur, Aligarh, Indore, Kakinada, and Amravati, among others, which showcases the untapped potential of these areas.

An email sent to Amazon on its social commerce foray did not elicit any response.

The Indian e-commerce market was worth $83 billion in 2022 and will likely grow to $185 billion in 2026, propelled by increasing internet penetration and digital payment transactions, according to a report by global financial technology solutions provider FIS.

Unified payments interface (UPI) recorded its biggest year-on-year (YoY) growth of 74.1 per cent by transaction volume in January 2023. This has helped e-commerce account-to-account (A2A) payments grow to $12 billion, up 53 per cent from 2021 to 2022. By 2026, these transactions are expected to grow by 195 per cent to $36 billion, while the e-commerce market size in the online space is expected to grow by 82 per cent.

Tier-2 and beyond cities are expected to be key drivers of this growth, as the majority of new e-commerce customers are coming in from these regions.

• Around 86 per cent of users on Snapdeal are from outside metropolitan cities, while almost 72 per cent are from beyond tier-2 cities.
• As many as 95 per cent of products listed on Snapdeal are below Rs 1,000.
• 80 per cent of Meesho’s user base is from tier 2 and beyond.
• Around 70 per cent of Flipkart’s customers come from tier 2 and below cities.
• The average selling price of products on Flipkart’s Shopsy is a little over Rs 200. The app has amassed over 150 million users today.