(Instructor Name)
Introduction
E-commerce is a growing industry worldwide, with volumes and turnover increasing at an average rate of 20 % for 2014 according to eMarketer (2014 a) of this, Asia Pacific region is likely to show the strongest growth, with a jump of over 40 per cent from $384 Billion in 2013 to $585 Billion in 2014. By 2018, the Asia Pacific region will be the leading driver of e-commerce, accounting for 33.4 per cent of the total ecommerce trade of $2.356 trillion in 2018 (eMarketer, 2014b). The key drivers for growth in the Asia pacific region have been the increasing access to the internet for its population. China leads the ecommerce growth in Asia with 63 per cent growth, followed by Indonesia with 45 per cent and India with 32 per cent. Given this rapid growth rate, it is important to study some of the success stories in the Asian e-commerce market to understand their business model, strategy and value proposition for consumers.
Two ecommerce ventures have been chosen, Redmart in Singapore and Flipkart in India. Redmart is an e-grocery while Flipkart is the Indian version of Amazon, selling everything from books to fashion and consumer electronics. While the dynamics of each are different, the two are representative of the largest shopping segments in ecommerce.
Redmart
The company is an online e-grocery retailer that allows customers to shop for grocery and daily essentials online and through their smartphone. It was set up in 2011 by Roger Egan, Vikram Rupani and Rajesh Lingappa, and has over 5000 products to choose from. The company has seen several rounds of funding and has recently raised $23 million in Series B funding from investors including Facebook co-founder Eduardo Saverin and Japan’s Softbank.
The company delivers groceries ordered by customers anywhere in Singapore within a two-hour timeframe. It uses technology to drive its automated warehousing facility and to drive data analytics of customer purchasing behavior. The company has 200 employees and recently set up a development center in Bangalore, India to drive the data analytics function and to enable the creation of better proprietary warehousing and logistics software technology.
The company works similar to brick-and-mortar retails chains, offering daily low prices on products. The advantage that customers have is that the brands can be delivered to customers at a much lower cost than traditional retailers, due to the lower cost of infrastructure. Retail stores have a significant cost overhead due to the retail space they have to lease for stores. On the other hand, Redmart can deliver directly to the customer from its warehouses, and by clubbing several orders together along a route, reduce the cost of home delivery for its customers. This makes the purchase much cheaper for the customer than going out to a retail store and buying groceries. Redmart also offers free delivery for customers ordering more than $75 worth of groceries, which is not very difficult for a family’s monthly grocery shopping.
The current grocery market in Singapore is estimated at an annual $6 billion, of which e-grocery makes up less than 1 per cent at present (Straits Times, 2014). However, this also means that the business has significant potential for growth, given the level of internet penetration in the island-state. Comparatively, online grocery retail penetration in the UK is around 10 to 15 per cent of the market. Currently, Redmart has been growing at an impressive rate, claiming a 20 per cent growth month on month. However, their sales figures are presently not published outside the company.
The company is a pioneer in its space in Singapore, but faces significant competition from the online retail divisions of brick and mortar supermarket chains like NTUC Fair Price and Cold Storage (Lee, 2014). These too have started their online stores and with their network of physical stores across the island, can offer delivery as a subset of their existing retail stores. Competition in the pure online space comes from fellow ecommerce pioneers Christopher Chong and his brother Karl. They have set up online grocery retailer GoFresh, after having exited their daily deals startup Beeconomic, which is today part of Groupon Singapore (Tay, 2014).
Redmart is using its recent investment funds generated to expand its facilities to a 100,000 sq. ft. facility which is temperature controlled, as it plans to offer fresh vegetables, fruit and meat products for its base of customers, currently at 45,000 customers, 75 per cent of whom are women in the age group of 25 to 44 years. The company’s core focus is on getting its technology right, so that it can then replicate the model in other cities. This is the primary reason for setting up the development center in Bangalore, India’s Silicon Valley of technology. The company has a significant amount of potential to grow, given that market penetration is less than 1 per cent, but competitors are now entering the scene and this will make the future a little more challenging. Its key strength however lies in the data analytics that it offers brands, allowing them to customize offers and promotions for customers, as well as get an insight into customer buying behavior, which is missing in the case of physical supermarkets. Supermarkets can only offer checkout information, but Redmart offers brands information on what kinds of brands the customer considered, what was bought and what was rejected. This kind of information is invaluable, and it has helped Redmart maintain its prices at a lower level than the brick and mortar supermarkets.
Roger Egan and Vikram Rupani, along with Rajesh Lingappa founded the company in 2011. Egan and Vikram met while doing their masters at INSEAD Asia campus and decided to join hands for this venture. While both have a background in finance, Egan has worked in insurance, setting up his own firm before coming to Singapore, while Vikram has a background in banking with JP Morgan and a history of setting up his own manufacturing plant in Bahrain before doing his Masters in Singapore. They along with Rajesh Lingappa set up the firm in 2011 from a small warehouse, initially doing the deliveries themselves. Today the company has over 200 employees and 16 trucks for deliveries.
Flipkart
Flipkart is India’s largest online retailer, with an annual sales volume of over $2.4 billion in 2013. The company has recently completed a round of funding for $1 billion, with a valuation of $7 billion. Tiger Global, Accel Partners and South Africa’s Naspers are among the prominent venture capital firms invested in the e-commerce retailer (Rai, 2014). Starting from books, like Amazon (on which it is modeled), Flipkart expanded its products portfolio to around 20 categories, including appliances, electronics, games and fashion. To build a quick entry into fashion and electronics it acquired niche ecommerce retailers Myntra and Letsbuy in 2014 and 2012 respectively (Fatima, 2014).
The company’s business model is that of a reseller, where various retail sellers can register with Flipkart and offer their products on the site. The responsibility of the front end and that of delivery lies with Flipkart. Flipkart also has a payment transaction platform, Payzippy, through which customers can register their debit or credit cards and make faster purchases. This makes the transaction process in-house as well for Flipkart. On this basis, the company has started moving to a marketplace model like Amazon, where some of the products are offered by Flipkart directly, while others are sold by retailers through e-stores on the Flipkart site. The logistics division of Flipkart (called Ekart) is responsible for deliveries. The company is now offering the platform to foreign brands as well (Pinkerton, 2014). The company has its own website as well as mobile application, and has a strong presence across most of the tier 2 and tier 3 cities in India, besides the major cities. Along with free delivery, customers also have the option of paying cash on delivery (COD) a model that works very well in India where the penetration of online payments is relatively low.
Flipkart today competes with most of the large retail chains across India, due to its wide range of product categories and free home delivery. Price discounts offered are substantially better than physical stores and the site ensures visibility through periodic big-ticket promotions. It recently held one in October, dubbed the Billion Sale Day, in which it reported revenues of over $100 million in a single day. However, the event caused the site to crash repeatedly and many customers complained of not getting the items they wanted, of cancellations hours after the purchase, and inflated discount claims (Rahul, 2014). This resulted in bad PR for the company and the founders ultimately sent an open email to all its customers apologizing for the glitches (Magotra, 2014).
With the consolidation in the e-commerce market in India, many niche segment online retailers are being bought out and merged with the bigger players. At present, the three largest players in the Indian e-commerce market are Flipkart, Amazon India (which launched in 2013) and Snapdeal. The last originally started out as a Groupon-style site that shifted over to direct e-retail, and is today valued at over $2 Billion. Due to its sheer size, Flipkart is in a position to retain its lead in the Indian e-commerce market, but faces stiff competition from Amazon, which perfected the model on which Flipkart works. With over 22 million registered users through its portal and mobile application, the company has a significant database that makes it impossible to ignore for any brand looking to launch in India.
Flipkart is the e-commerce venture of Sachin and Binny Bansal, started in Bangalore, India in 2007. The two founders are cousins and have previously worked in the technology development arm at Amazon. Their initial objective was to create a price comparison site between the various e-retailers, but in 2007, there were not enough online retail sites to support his kind of venture. So the founders went ahead and launched their own e-commerce portal. Starting from books, the site grew to cover more than 15 product categories and has acquired competing e-commerce retail sites like Myntra and Letsbuy to further enhance its growth in the Indian market. However, like Amazon, the company has yet to show a profit in its seven years of operations. In the face of increasing competition this may be the biggest challenge for the company in the long run.
Conclusion
While Redmart is in the early stages of its growth, it has a first mover advantage in the Singapore online grocery market. With barely 1 per cent penetration, the site can expand its presence significantly in the coming years. Its core advantage over brick and mortar rivals lies in its data analytics, and it is in a position to leverage this for significant future growth. For Flipkart, the advantage of being a first mover has translated to the tremendous size of its customer base, and this allows it to hold its position as the largest e-commerce retailer in India. However, given the challenge from both domestic competitors like Snapdeal and international e-commerce retailers like Amazon, Flipkart will have to work hard to achieve profitability that is essential for its success.
References
eMarketer (2014a) Worldwide Ecommerce Sales to Increase Nearly 20% in 2014, available online at http://www.emarketer.com/Article/Worldwide-Ecommerce-Sales-Increase-Nearly-20-2014/1011039#sthash.wjXT850s.dpufe last viewed on 19 November 2014
eMarketer(2014b) Global B2C Ecommerce Sales to Hit $1.5 Trillion This Year Driven by Growth in Emerging Markets, available online at http://www.emarketer.com/Article/Global-B2C-Ecommerce-Sales-Hit-15-Trillion-This-Year-Driven-by-Growth-Emerging-Markets/1010575#sthash.xI5NQ44K.dpuf last viewed on 19 November 2014
Fatima, F (2014) Flipkart-Myntra; From a Merger to an Acquisition. International Journal of Management and International Business Studies, Vol. 4, No. 1, pp. 71-84
Lee, T (2014) Singapore online grocery store RedMart gets $23M from star-studded investors, Tech in Asia, available online at https://www.techinasia.com/singapore-online-grocery-store-redmart-23m-starstudded-investors/ last viewed on 19 November 2014
Magotra, A (2014) Flipkart’s ‘heartfelt’ apology is too little, too late, Tech2 (online), available at http://tech.firstpost.com/news-analysis/flipkarts-heartfelt-apology-little-late-237012.html last viewed on 19 November 2014
Pinkerton, M (2013) International analysis: Flipkart goes head-to-head with Amazon in India, Retailweek, available online at http://www.retail-week.com/topics/international/international-analysis-flipkart-goes-head-to-head-with-amazon-in-india/5048212.article last viewed on 19 November 2014
Rahul R (2014) Analysing the Deal Behind Flipkart's Big Billion Day Sale. International Business Times, available online at http://www.ibtimes.co.uk/analysing-deal-behind-flipkarts-big-billion-day-sale-1468884 last viewed on 19 November 2014
Rai, S (2014) India's Flipkart Raises $1 Billion, Among The Largest In Single Funding Round In Global E-Commerce, Forbes, available online at http://www.forbes.com/sites/saritharai/2014/07/29/indias-flipkart-raises-1-billion-among-the-largest-in-single-funding-round-in-global-e-commerce/ last viewed on 19 November 2014
Straits Times (2014) Growing market for e-grocers in Singapore, available online at http://www.straitstimes.com/news/singapore/more-singapore-stories/story/growing-market-e-grocers-singapore-20140720 last viewed on 19 November 2014
Tay, D (2014) Two brothers take aim at Singapore’s online grocery industry with high quality food delivered to doorsteps, available online at https://www.techinasia.com/brothers-aim-singapores-online-grocery-industry-high-quality-food-delivered-doorsteps/ last viewed 19 November 2014
