Year in Review: Indian Consumer Internet Industry in 2016

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Information about Year in Review: Indian Consumer Internet Industry in 2016

Published on December 30, 2016

Author: RedSeer

Source: slideshare.net

1. New Delhi I Bangalore I Mumbai I New-York I Dubai Year in Review: Indian Consumer Internet Industry in 2016

2. | 2 Consumer Internet Industry Review Sector Wise Report Card Agenda

3. The Indian Consumer Internet Market is expected to grow to USD 65 BN by 2017 with OTAs stocking up ~30% of the market share Source- RedSeer Analysis Notes - F-Forecasted 21 35 45 65 2014 2015 2016 2017 (F) Indian Consumer Internet Market (in USD BN) 66% 29% 44% • The Indian Consumer Internet sector saw a moderate annual growth of ~29% in 2016 compared to ~66% in 2015 • It is forecasted to keep up its growth momentum and become a USD 65 BN industry by 2017, growing at a rate of ~44% YoY 30% 70% Consumer Internet Market Share (by GMV) Online Travel Agents Rest • Online Travel Agents (OTAs) account for ~30% of the market share in the Indian Consumer Internet Market • While the remaining 70% is distributed among 20 sub-verticals including Horizontal e-tailing, Fashion, Furniture, 3PL, Grocery, Hotel, Food Tech, Cab Aggregators, Ed Tech, Alternative Lending and so on

4. While Consumer Internet sector saw a moderate growth of ~29% in CY’16, the investments in this industry saw a significant decline as compared to CY’15 0.3 0.71 0.31 0.3 2.5 3.5 1.5 12 Funding (in USD BN CY’16) 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.3 0.3 0.9 Furniture 3 PL Hotel Food Tech Grocery Ed Tech Alternative Lending Fashion Cab Aggregators E-tailing (Horizontals) -40% -67% +10% +400% +100% -33% -50% -50% -67% -50% Sector Performance (in USD BN CY’16) N.A. N.A. +20% +200% +17% +19% +127% +35% +21% +47% Future Outlook (w.r.t overall CI sector) Notes: 1-Annualized on the number of units per day Source- RedSeer Analysis Represents performance in comparison with CY’15 Moderately PositiveHigh Growth Positivexx%

5. | 5 Consumer Internet Industry Review Sector Wise Report Card Agenda

6. Horizontal E-tailing Horizontal e-tailing took a dip in 2016 compared to the growth shown by this sector in 2015. There were multiple challenges faced by players, from reeling under change of government regulations to less circular trading and disinterest from investors. The slow- growth sector also influenced other sub-verticals of CI, and impacted the overall Indian Consumer Internet Industry. It is still expected to regain its growth momentum and show much positive growth than the CI base rate in 2017 Tipping Points Horizontal E-tailing has shown slower growth than expected last year. Key reasons being: • Heavy focus on bottom line • Tightening of leash on circular trading • DIPP regulations • Demonetization • Limited Funding Future Outlook Sector is expected to grow at a higher than CI base rate, due to: • The power of online only • Private Labels • Focus on new markets • Focus on improving customer experience • E-tailing converting retail-only shoppers (sic Oct Sales) • Grocery Focus • Adoption of premium membership (like Amazon Prime) 0.9 $ bn. 12 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

7. Cab Aggregators Along with the horizontal e-tailing, cab aggregator is the largest disruptor of the online consumer internet market. This is also the industry which has seen the fastest impact on the way consumers choose between online and offline options. In the large cities, 30% of the cab market has already moved online. Discounting the last quarter of the year, this industry has shown 10-11% growth rate month on month Tipping Points The sector has shown massive growth due to increase in customer base and following reasons – • Share/Pool cabs • Go and Micro • Regulatory tussles Future Outlook The competitors would be able to innovate on delivery models, brining the average fare close to the bus fare, the sector is expected to see another year of explosive growth. Some of the expected trends – • On-boarding smaller cities • Adoption of share/pool for faster and cheaper options • Fares for shuttle and bike taxis equivalent to bus 0.3 $ bn. 1.5 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

8. Fashion Fashion accounts for ~20-25% of the Indian e-tailing business, which is the second largest behind only Mobile and Large goods. But as per revenue share, it is the biggest contributor. Globally, fashion is the leading contributor in GMV as well. In India, the industry saw a lot of interesting events Tipping Points Fashion had a moderate growth in 2016, following moves re- shaped the sector – • Players Consolidation (Flipkart acquires Jabong) • Rise of niche verticals • Private labels • The Amazon Push • Omni-channels Future Outlook We expect this to be one of the fastest growing online sectors in 2017. This will be backed by following key levers: • Improved customized selection & category specific focus • Better delivery performance across smaller towns • Customer analytics • The second wave effect – Customers buying electronics online will be comfortable purchasing fashion 0.3 $ bn. 3.5 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

9. Alternative Lending Alternative lending is trying to disrupt the way India borrows, and the very ability of many to borrow. With as high as 75% of the SME loan not being fulfilled, alternative lending on the back of sharp analytics and quick disbursal, is expected to disrupt the lending industry. These are the initial days for the industry but the early signs are promising Tipping Points Alternative Lending saw good traction in 2016 – • License distribution to a bigger player groups • Investor support • Customer Analytics Future Outlook This sector is expected to experience high growth as – • E-tailing and other emerging markets will drive adoption • Expansion to the new geographies • Products being market fit, addressing challenges of traditional lending 0.2 $ bn. N.A. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

10. Ed Tech Disruptive online Education models arrived a bit late for the consumer internet party, but this year has been a significant year for the ed-tech sector, also reflected in the quantum of funding received by the industry. The Education industry faces the challenge of finding paying customers and hence the conversion rate is low. But those already investing in this sector online are able to provide a significant high life time value and stickiness as customer Tipping Points • Immergence of the targeted business models • Expansion of customer base and increase in paying customers • Hardware-content play Future Outlook • Market is expected to grow on the back of low base effect • Rise in custom and targeted content • Customers willing to spend larger sum 0.2 $ bn. 2.5 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

11. Online Grocery While accounting for a smaller share of the overall CI industry, the grocery is the biggest spend in the offline category. And the growth journey of overall e-tailing market banks heavily on the uptake of this category (along with Fashion). Grocery has shown very promising start, with a high AoV and higher repeat customer base, the life time value of customers in Grocery market is one of the highest. The effect of Private labels also ensures that grocery companies have one of the best unit economics in the market Tipping Points • Rise of the leaders – Big Basket leads the way • Private labels • 2 hours’ delivery Future Outlook This would be one of the top-performing categories in 2017 – • Focus on Horizontal players’ entry • Expansion to newer cities • More value choice due to increased private labels • Impact of demonetization and digital wallet push • The second wave effect – Customers purchasing electronics will be comfortable in buying grocery online 0.2 $ bn. 0.3 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

12. Food Tech Few internet verticals saw the roller coaster ride as seen by the food tech industry last year. The whole value chain got disrupted, challenges by unit economics, scalability and finally the dust is settling. With restaurants realizing that Food-tech can be a strong channel for acquiring and retaining customers, they are more forthcoming on adding to the revenue stack of such companies. This coupled with customers paying convenience charges, see the sector moving towards viability. Also, the increase in adaptability of the internet kitchen, which has a high margin on food ensures good volumes. The other debate which needs to settle is on the owned vs. 3rd party delivery, as the customer experience is heavily tied with the delivery performance Tipping Points • High Mortality of Food tech startups • Juggling Delivery models • In major cities, participating restaurants get 20% orders online Future Outlook Will be ahead of the overall CI industry growth rate – • Better unit economics • High repeat orders • Restaurant and customer adding to revenue share 0.1 $ bn. 0.3 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

13. Hotel Aggregators In the Indian context, finding a reliable hotel at non-5 star rates has been a big challenge for business and leisure travelers. This is due to highly unorganized sector and patchy regulations on defining the status of hotels. Domestic travel in India is also growing very fast, something which is here to stay. With this background the Hotel Aggregators have been able to fill the gap existing in the market. Companies are looking to standardize the customer experience across different value chains, which bodes well for the sector when compared with the offline hotels Tipping Points • Fast growing Homestay market comes online • Closure of some (Zo rooms), better for others (Oyo rooms grew faster than expected) • Emergence of leaders – Treebo and Fabhotels Future Outlook Riding on the increased number of properties and better NPS than offline players, this market has a lot of headroom for growth – • Fast growing properties • Much higher NPS • Easy discoverability with clear differentiation from offline hotels • Growth in Domestic travel 0.1 $ bn. N.A. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

14. Third Party Logistics This year has not been the best of the years for the 3PL players. This is largely due to sluggish growth of the overall e-tailing market and, captive share of deliveries increasing significantly. At 60-65% of the orders being shipped through the captive arms, there was a limited head way for the sector Tipping Points • Limited growth in the e-tailing market • Focus on Captive arms • Faltering giants (Go-Javas goes down) • Hyper-local players making the reverse pick-up market competitive Future Outlook This will be the hyper growth sector in 2017, levers which will drive the growth – • E-tailing expected to grow fast leading to more shipments • Low AoV categories to grow faster, further increasing the shipments • Smaller cities to account for the significant portion of growth. Markets where captives are not strong, hence higher wallet share • Captive Share to stabilize. 0.1 $ bn. 0.7 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

15. Furniture This is one of the most underperforming categories in the internet space. The sector faces many challenges like customers preferring in-person experience before buying any furniture, which takes away the strong value proposition of the e-tailing market. And when the e-tailers move to omni-channel the cost of the real estate, logistics start resembling more of an offline player. The other challenge faced by the industry is around the mix of products being pushed by e-tailers vs. the products bought. While the furniture story has been sailing on very high AOVs, customers end up buying more of side tables and smaller items, further impacting the business model Tipping Points • Faltering Giants (Fabfurnish collapses) • High burn, due to slower than expected growth and low AoV Future Outlook • Furniture vertical market might not see much aggressive growth; will trail the CI industry growth rate • Horizontals would be playing more crucial role • Lower AoV, standard products would sell more 0.1 $ bn. 0.3 $ bn. Source- RedSeer Analysis Moderately PositiveHigh Growth Positivexx xxFunding in CY’16 Performance in CY’16

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