1. Editorial: Discounting e-commerce

Editorial: Discounting e-commerce

Discount-led sales lead to investors getting cautious

By: | Updated: January 13, 2016 1:28 AM

With demand not quite living up to expectations and the dollar infusions now coming in smaller doses, e-commerce enterprises are starting to slow down. In the past month alone, we have seen hyperlocal Grofers pull out of nine cities while restaurant search-and-delivery firm Zomato announced on Monday it was shutting shop in four. Both businesses are pruning their operations in the smaller cities, suggesting that while consumers in metros are making the most of such services, those in Tier-II or Tier-III cities aren’t too convinced of their utility. Food-ordering and delivery, in particular, doesn’t seem to have caught the consumer’s fancy—a clutch of these businesses, albeit very small ones, such as TinyOwl and Spoonjoy, have been compelled to discontinue services. The hyperlocal space, though, holds out far greater promise since the addressable opportunity is estimated at close to $50 billion. Online grocery store Bigbasket, for instance, hopes to post revenues of $2 billion by FY18 and break even by then. The presence of giants such as Amazon, which proposes to run a hybrid inventory-cum-delivery model, and deep-pocked players like Reliance Fresh Direct will test the staying power of smaller players.

At an industry level, it is becoming harder to visualise which players will survive, though customer visits do give us some insights. And with horizontal players—Flipkart, Snapdeal, Paytm—moving into spaces occupied by niche players, the competition is rising. So, Paytm, which was a pure-wallet player, is now a marketplace and wants to offer services for bookings at restaurants and movie theatres. Every bank and every e-retailer or aggregator now has its own wallet, which puts stand-alone wallets under pressure. Indeed, going by the number of ventures in the e-commerce space, entry barriers are very low. In such a competitive environment, customer acquisition seems to be a permanent cost because buyers seem to be driven by discounts alone. Coaxing customers to transact can be an expensive proposition, and while investors continue to bet big on the Indian internet space, investors are not as forthcoming as they were a year back. A key trend over the past year has been that horizontals have attracted less money than verticals. But that could just as well reverse if investors were to find niche businesses aren’t doing as well as they might have hoped. Most CEOs claim they are focussed on building the top line and are confident profits will follow in a few years. It will be interesting to see how much time financiers will allow them to break even; in the meanwhile, they might be more willing to write out cheques if they find customers are being weaned off discounts.

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