 "Big groups refuse to burn cash, go slow on e-commerce")
Kishore Biyani, touted as India's retail king, likes to be matter-of-fact in whatever he does. If something does not work out, he simply shuts it and moves on, say people close to him. Last week, Biyani surprised many when he said he was planning to shut Big Bazaar Direct, the assisted ecommerce venture, soon.
Biyani said he tried ecommerce four times and each time found it unviable. His reason: Customer acquisition and delivery costs are unviable in ecommerce. "We are happy with old-fashioned physical retail. There are profits to be made. Our business (brick and mortar) has arrived. Theirs (ecommerce) is yet to arrive," he said. Biyani is not alone. Big corporate houses with online dreams have decided to go about the ecommerce play in a measured way, especially in the food segment. For instance, an executive at Mukesh Ambani's Reliance Retail told Business Standard the company's food and grocery e-portal, Reliance Fresh Direct, was still on pilot and that the company has opted for a "calibrated" path. The portal was launched towards the end of 2014 in Mumbai and has so far expanded only to Pune.
Even Tata-led Trent, which launched its food and grocery ecommerce venture my247market.com in 2015, has not gone beyond Mumbai and is still running on a pilot basis. The venture, run by Fiora Hypermarkets, an arm of Trent, was supposed to compete with the likes of bigbasket.com, a leading player in online food and grocery shopping.
An email sent to the Tatas did not elicit a response, but an executive said the company was looking at additional channels of distribution. "Otherwise, inventory and logistics costs can be very high."
In fact, Biyani debunked the common perception that ecommerce is a more viable business because of lower rental, staff and inventory costs. According to him, customer acquisition and fulfilment cost adds up to 50 per cent of the total expenditure of doing business online. In physical retail, that cost is just 25 per cent.
Even though Biyani is not talking about an immediate closure at this point, a senior executive at Future group said it was not possible to burn money for long. "Ecommerce firms have venture capital money to burn, but we just have the revenues from the business," the executive said, adding that for every rupee ecommerce firms make, they lose out Rs 2.80. Biyani had said earlier that for a single customer acquired in most of the transactions in ecommerce, social media firms get anything from Rs 800 to Rs 1,400. "It is not possible to make profits in such a scenario," Biyani concluded.
Damodar Mall, chief executive, grocery, Reliance Retail, too believes that "there is no need to wastefully burn money". According to Mall, there is no first-mover advantage in grocery ecommerce. "In every city, a lot of the value chain has to be built from scratch." Physical retailers must build their online presence by utilising the strength of the physical store network, Mall added.
An executive at Future recalled how the group relaunched its ecommerce venture Future Bazaar under the theme "battle" in 2010 where they have discounts higher than Flipkart. They soon realised it was not possible to make money by discounting products and delivering them too. They shut Future Bazaar after realising that they couldn't burn money in the business.
"We can open one Big Bazaar with Rs 1 crore and make sales of Rs 300 crore a year. Instead of making a loss of Rs 50 crore, we can open 50 Big Bazaars," he said. As for Big Bazaar Direct, delivery cost of 15 to 20 per cent per transaction was unviable, he pointed out. "If a product is a high value item, we can recover delivery charges. If it is just Rs 50 or Rs 100, we will lose money."
Sanjay Badhe, a Mumbai based consultant and former head of marketing at Aditya Birla Retail, believes that Indian retailers haven't integrated online and offline models and still consider online another channel of distribution. He said UK's Tesco runs an extremely successful ecommerce venture and uses stores as supply hubs. "They built the business step by step. They started with London and then took it to other cities. Probably, Tatas and Reliance are doing the same."
Devangshu Dutta, CEO of Third Eyesight, a consultancy firm, said many companies in India and globally looked at their online arms as too small or too resource-intensive, and not worthy of top management attention. "Even those companies that agree that online is a good addition to their portfolio may take it less seriously than they should," he said.
Meanwhile, there have been plenty of stories of failure in pureplay online space too. While Local Banya and Pepper Tap have shut their ventures, others such as Flipkart, Ola and Paytm have closed their online grocery services. On the other hand, Biyani may be looking at shutting Big Bazaar Direct, but his group is still working on an omni channel model. "We have had tie ups with Amazon and Snapdeal and an arrangement with Paytm also. All this is part of omni channel strategy," he said.
Even Reliance has come out with ecommerce platform Ajio.com, which is a curated fashion portal and an e -portal for footwear venture Footprints. The group plans to come up with portals across categories. In the latest annual report, RIL Chairman Mukesh Ambani said the company will create a differentiated 'omni-commerce' model for its retail business, by integrating infrastructure built by its telecom venture Jio and Reliance Retail. Among other big businesses wanting to compete with ecommerce majors such as Amazon and Flipkart, Tatas have come out with cliq.com, while Aditya Birla Group launched abof.com.
MEASURED STEPS
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Future Group has hit the e-commerce key 4 times so far
