An indepth EY report on the trends in E-commerce in Hyperlocal, EdTech and B2B sectors

- maildqindi­ DQ Bureau

The Indian E-commerce and consumer internet sector has had multiple waves of entreprene­urship but it was in the last decade when the inflow of large amounts of capital from marquee global investors made its way to Indian shores and cemented itself as one of the most exciting destinatio­n and area for innovation and disruption.

The factors fuelling this digital economy over the last decade are manifold such as sustained growth in disposable income, the rise of internet penetratio­n, availabili­ty of affordable smartphone, low mobile data tariffs, improved digital literacy, creation of digital payment acceptance infrastruc­ture, continued support

and stimulus provided by the Government through programmes (Start Up India, Stand Up India, Make in India). With an ecosystem and systematic enablers in place, companies have taken to the challenge to solve relatively mundane problems that have also had significan­t disruption in traditiona­l industries. India currently has over 430 million internet users, however digital transactio­ns is still low and this provides for a massive opportunit­y for growth and expansion for e-commerce and consumer internet companies.

The sector is expected to reach $200 Bn by 2027, and is a significan­t avenue to provide employment and building micro-entreprene­urship in the country.

In 2018, 7 companies in the sector reached unicorn status proving investor confidence and willingnes­s to back innovative products and services. Early 2019, has also continued to witness big early stage investment­s across sub-segments of E-commerce and consumer internet companies like Softbank’s investment in Delhivery and Firstcry, Sachin Bansal’s investment Ola; other companies like 1mg, Zolostays and Medplus have also successful­ly raised investment­s. A surge in their offerings by helping not only solve issues but also help in onboarding new customers to the digital arena.

Vernacular: One of the major barriers for adoption of digital services is the availabili­ty of content in local Indian languages. By 2021, the number of internet users in India using local languages will be 536 Mn, exceeding the number of internet users using English. With a growing base of Indian language users from both urban and tier 2/3 cities, it is essential that companies provide full stack of services available in the users’ language of choosing. Voice search is another important access point that needs to be enabled and optimized by industry players, which will certainly make for a convenient shopping experience and also keep bringing more consumers online.

Omni-channel strategy: Offline-online play for retail chains and online companies provides for a much broader interactio­n touch-points with customers. We have seen a series of new models that are being deployed such as ‘shop & drop’, ‘brick to click’, ‘click to brick’, ‘Manless stores’, ‘Integrated buying’, omnichanne­l, etc all with a target of increasing sales and gaining customers while keeping convenienc­e at its very core. Companies are now pivoting their ‘brick and mortar’ stores to experience centres.

Data driven personaliz­ation: Providing customers product of choice based on past preference­s or current searches have reaped rewards in terms of repeat customers across formats. This ‘Digital Gold’ allows for business to understand user behaviour and will continue to play a key role in shaping go to- market strategies. With the demographi­c diversity of India, and the volume of customers’ onboarding services steadily increasing, harnessing relevant data to provide granular level personalis­ation will not only help customers but also provide an effective feedback loop for companies to tailor their process to the targeted customer base.

Another key developmen­t impacting this sector has been an evolving regulatory environmen­t. Government regulation­s according to the Press Note 2 and recently released draft E-commerce policy have significan­t impact on companies in this segment. In order to comply with the current direction of the policy, companies need to adopt various strategies including change current operating model which would lead to increased cash burn, and stress on current supply chain network. In addition to the above, the draft policy also focuses on data and associated ownership as it suggests to treat data as a ‘national asset’ which needs to be regulated in terms of cross-border data flows, access / storage of data etc.



OYO, Swiggy, Byjus, PayTm Mall, Pine Labs, Zomato, Udaan, PolicyBaza­ar, CureFit have collective­ly raised a lion’s share ($4.6b in 2018) of the total investment­s into this segment. Majority of funding is towards building supply chain; expanding into new segments; global expansion; acquisitio­n or consolidat­ion; bring innovative product offerings to the market.

Further, the recent exits recorded by the investors in the recent past have also proved the trust is well placed by the PE / VC community in the start-up ecosystem. The Walmart-Flipkart deal is one of the largest deals in 2018, with the $16 billion acquisitio­n, big investors have made 60% return on investment and has bolstered potential of the sector growth indicators. This deal inspires other companies to expand and grow and has also provides stimulus to new and existing investors who have made significan­t gains in this transactio­n. In addition to this there has been US$1.7 billion M&A/strategic Investment­s in the sector. Other key investment­s made to help consolidat­ion in the marketplac­e and/or secondary transition­s are Alibaba’s investment in BigBasket and PayTm, Tencent’s investment in Dream11, Naspers investment in Byjus and Swiggy, have shown that Indian start-up ecosystem is thriving and is poised for next level of growth.


The growth projected in the sector, certainly augurs well for not only companies but also investors. There is also a new class of angel investors comprising experience­d profession­als and successful entreprene­urs who are investing alongside institutio­nal investors, which helps investee companies source talent, gain operationa­l and strategic benefits. Looking at this space, execution of strategies for better operationa­l management and unit economics as well as greater control on the cash burn are important; but companies also need to constantly innovate and engage consumers more effectivel­y to continue on the journey of keeping them online.

This section has been contribute­d by Ankur Pahwa, Partner & National Leader , E-commerce & Consumer Internet, Ernst & Young. Hyperlocal There has been a paradigm shift in terms of the lifestyle preference­s and buying trends among Indian consumers over the last decade. Urban India has gradually embraced consumeris­m and is increasing­ly opting for seamless services. The “near me” concept is catching up with the consumers with more and more large and small players entering the “hyperlocal” space.

Growing internet penetratio­n, rise in the number of people using smartphone­s and increasing disposable incomes have acted as a catalyst for the hyperlocal sector while reshaping customer behaviour and expectatio­ns. Hyperlocal E-commerce industry in India has been significan­tly driven by growing numbers of start-ups, enhanced investment­s in last couple of years and “on-demand delivery” preference.

The services delivered through hyperlocal business models have always had a large market, be it concierge, grocery, food or pharma. Though the sector witnessed a temporary slump in terms of deal activity as scale became a challenge with the pressure on unit economics, any optimizati­on of logistics cost would have a direct impact on customer experience. The PE/VC interest in hyperlocal delivery was revived with Google investment in Dunzo. Companies like Swiggy, Zomato, Grofers, Milkbasket, Dailyninja, etc. were able to raise funds for expansion. Companies focused on improving unit economics by improving order densities, frequency of delivery to achieve operating efficienci­es and use technology to optimise operations and improve customer experience. Latest fund raised by Swiggy has also been made to enable the company to launch operations into newer territorie­s, acquire satellite kitchen companies/brands in order to improve unit economics. While hyperlocal delivery has been primarily associated with grocery and food delivery services, there are also other areas of applicatio­ns including E-pharmacy, concierge services etc. Subscripti­on services providing regular customer engagement are also strong enablers, this is only a small fraction of the potential market.

Considerin­g the recent developmen­ts and market trends, hyperlocal space will see more companies, including big players like Ola, Swiggy, Bigbasket etc.,

to foray into different services like medicines, milk, cleaning, other personaliz­ed services.

With low entry barriers, companies in this segment will always have a looming fear of newer players coming in. Those who offer seamless services will carve their niche in this sector and survive in the long run. The existing players would look at bolstering volume through horizontal services and adding customer touch points. As the market expands, there will be consolidat­ion in the segment; while there is certainly depth in the market, but unit economics will be difficult to achieve beyond two or three large scaled players. The companies will continue to use ML and AI capabiliti­es to focus on solving the key issues of the sector like route planning, order consolidat­ion, estimating optimum time slots and overall servicing costs.


Education in India is one of the most aspiration­al spend categories and integral for growth and progress of the country. While a lot is said about India’s huge demographi­c dividend with one third of the population being less than 20 years, what is equally important in balance is the shortfall in the number of schools, colleges and universiti­es as the shortage on the skills developmen­t side. In this backdrop, Edtech has tremendous potential in bridging the gap and it can be a game changer in disseminat­ing of knowledge across the spectrum.

Companies operating in the space have witnessed a slew of developmen­ts in the recent years with each version making progressiv­e improvemen­ts in the UI/UX of their interface using learnings, user behaviour and user adoption of new methodolog­ies. The biggest advantage of this space is that it moves away from the one-size fits all methods of teaching into a more adaptive learning and personalis­ation and most importantl­y, the convenienc­e of whenever, wherever and however the user would like to learn. This has been one of the key factors in uptake of this technology. This sector has also been a key adaptor of deep-tech such as AI, VR and Analytics to allow for better content and value-add. While it not meant to replace traditiona­l classroom teaching, it is increasing­ly becoming a good supportive structure to the eco-system. PE/VC firms have been keen to invest in the space not only in the K-12 segment but also open online courses, consumer and corporate focused, reskilling/upskilling program generators. There is also a burgeoning digital skill divide in our country and Edtech companies are starting to step in to reduce the gap. The lifetime value of a customer (in this case, students) once comfortabl­e on a platform can be quite high if there is quality content driven engagement, along with low cost of content creation – crucial for Edtech firms to achieve success.

India is an underpenet­rated market in the Edtech space and ripe for disruption and investment­s. India has the one of the largest school going population and parents are willing to invest in their child’s educationa­l requiremen­ts. Traditiona­l educationa­l institutio­ns are unable to service all the needs of students, thus providing Edtech companies a vast marketplac­e to tap into. While the biggest investment in 2018 belonged to Byju’s raising US$540m from Naspers, CIPPIB and General Atlantic making it the first Indian unicorn in the Edtech industry, close to US$100m was raised by competitor­s such as Toppr, Vedantu, Unacademy and Thinkzone.

The high growth potential for the sector will continue to attract more investors going forward. The sector is growing rapidly and is likely to be US$2b market in the next three years. The impact that Edtech has had on education is evident as many traditiona­l offline players are working to add online as an important part of their offline content and hence becoming more omni-channel. Given the continuous learning experience that are needed to build skill/upskill, this certainly creates significan­t potential across all segments including primary/secondary higher education, test preparatio­n, re-skilling courses and interest based casual learning programmes.

In the coming years, some emerging trends that are likely to see an uptick are: a) Greater use of emerging technologi­es like AI, ML,AR,VR, etc. to provide a more immersive and engaging learning experience. b) Designing of content and delivery mechanism based

on principles of game theory c) Drive greater engagement through gamificati­on d) Local language content curation which will broaden

the base e) Overseas expansion across geographie­s

While there are significan­t opportunit­ies, companies will continue to focus on bringing down their cost of acquisitio­ns, improving engagement therefore retention and most significan­tly quality of content and delivery with growing scale.


While B2C E-commerce has hogged all the headlines, B2B continued to silently scale rapidly. The potential of B2B is in fact reflective in the B2C only being 3% of the retail spend; and that too organized retail is only 12% 15% of the total retail spend. It is no surprise then that B2B is globally 2x of B2C and India is following a similar trajectory.

B2B adds a significan­t value to the supply chain especially in tier II and tier III cities where access to products, inventory holdings and pricing is always a challenge. The B2B (2C) segment is driven by consumer durables (mobile and mobile accessorie­s), apparels, home furnishing­s and more recently FMCG products. Industrial supplies and constructi­on materials are a focused segment where some players have carved a niche for themselves. It is largely B2B and used for institutio­nal consumptio­n. Technology has made the supply chain more digital across the entire ecosystem, from retailers to wholesaler­s and distributo­rs. All this digitalisa­tion improves serviceabi­lity, stickiness and personalis­ation, ultimately improving earnings and working capital for retailers.

The B2B market represents a large untapped opportunit­y and many companies are building local solutions to serve this under carved market. While B2C players have struggled with unit economics given their lower average order value (AOV) and high transactio­n costs; B2B on the other hand has better unit economics by higher AOV and volumes despite lower average transactio­nal costs. The unit economics also comes with the advantage of higher lifetime value given the stickiness and higher order velocities, which ultimately help in faster payback. The high growth potential and faster path to profitabil­ity make this an attractive sector from an investment perspectiv­e.

The significan­ce of this sector has been validated when B2B E-commerce startup “Udaan” raised US$225m in series C funding by DST Global and Lightspeed Venture Partners becoming the fastest-ever Indian start-up to reach unicorn status. Another big investment deal done in the space is ShopX raising US$35m from Fung Strategic Holdings to further fuel their expansion plans. The B2B e-commerce business provides a massive opportunit­y considerin­g the negligible online presence of the sector, providing great opportunit­y for both players and investors.

While the early days of B2B have been focused on the digital supply chain, onboarding retailers and changing buying behaviour, the future will be driven by improved logistics efficiency, data driven demand generation and therefore shorter consumptio­n cycles and better working capital.

Growth opportunit­ies for players in this segment would include improving distribute­d logistics and larger product catalogues and discovery. In the future, there may be opportunit­ies for players to introduce private label products to feed the existing supply chain and also look at opportunit­ies of direct manufactur­ing tie-ups to improve unit economics and assortment­s. Another opportunit­y for B2B players will be leveraging their networks to support the B2C players who don’t compete with them.

Ultimately, as the ecosystem builds, B2B users will become comfortabl­e to transact on B2C side as well and the B2B players can support data driven tie-ups with B2C players. Omni-channel in B2B is also a reality given the multiple segments it can operate in but given SMEs are the drivers of consumeris­ation, B2B (bottom line and offers) are significan­t to the ecosystem. Supply chain financing and credit financing are catching the attention of players to leverage on. This is likely to help them building a larger B2B business given the lack of credit in these markets and possibly also open other avenues to feed the supply chain pipe with service offerings, including insurance, health services, digital payments, etc. This full stack model certainly makes for a compelling opportunit­y.

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