NEW DELHI: Grocery brands, which see one of the highest discounting online inviting the wrath of the trader lobby, have raised the red flag on the revised ecommerce rules that seek to stop cashback and deep discounting on marketplaces, fearing that they will slow down growth, especially in urban centres.
“Cashback and deep discounting are the two biggest attractions for consumers shopping on ecommerce. With that likely to be compromised from February 1, growth will be impacted,” said Mayank Shah, category head of Parle Products, India’s second-largest biscuits maker.
“Even if companies like Amazon or BigBasket start offering alternatives to cashback — for example, movie ticket vouchers or flight booking discounts — it constrains consumers and doesn’t have the same draw as a flat cashback in consumers’ wallet.”
Ecommerce contributes close to 2% of the country’s Rs 3.4-lakh crore fast-moving consumer goods business, up from 0.4% in 2016, and is almost entirely accounted for by urban markets.
The segment’s share is expected to widen to 11% by 2030, riding on a rapidly growing internet economy, according to market research firm Nielsen.
“We do see some short-term risk of disruption, especially if sellers who are our immediate customers are impacted,” said Godrej Consumer Products business head-India (ecommerce) Robert Menzies.
Online Shopping Gathers Pace
“We envisage growth in ecommerce in the medium-to-long term to be driven by improved consumer experience and the opportunity for more targeted innovation, rather than by discounting,” said Menzies.
Companies said the situation is fluid and will depend on how ecommerce platforms adjust to the new rules, which come into effect on February 1. The commerce and industry ministry on December 26 issued a revised set of guidelines on foreign direct investment in ecommerce, which includes disallowing them from exercising ownership or control over inventory and curbing a vendor’s purchases from a marketplace entity or its group companies to not more than 25%. Ecommerce platforms are also restricted from entering into exclusive merchandise deals.
“While ecommerce is small and less than 2% of our business now, it has been growing at a fast pace. Growth in this channel would get impacted, at least in the short term, if discounting and cashback are clamped down,” said Sunil Duggal, chief executive officer of Dabur, which makes Vatika shampoos and Real juices.
While ecommerce companies have been criticised for predatory pricing, FMCG firms said online marketplaces need to find innovative and sustainable ways to continue discounting and attracting consumers.
“Deep discounting is one part of the ecommerce model — what also needs to be done is innovation in promotions and pack sizes for the model to be sustainable,” said Saugata Gupta, CEO of Marico, the maker of Saffola edible oils.
A report released by Nielsen last month said the share of ecommerce in overall FMCG retail sales has tripled in India over the past two years on the back of growing consumer trust and confidence in online buying.
The report said globally, online grocery purchasing is up 15% in the past two years, leading to an estimated $70 billion additional sales in online FMCG.
The report, titled ‘Connected Commerce,’ said packaged grocery was among the fast movers in the ecommerce channel, with 40% of the respondents saying they had made a purchase.
“From tracking the ecommerce evolution in pioneering countries like South Korea, where online sales now account for a staggering 20% of the total FMCG sector, we know that consumers follow a certain pattern of online shopping behaviour,” Nielsen South Asia executive director (retail measurement services) Sameer Shukla said in the report.
It added that consumers are more willing to purchase packaged and fresh groceries online if offered certain purchasing options and quality assurances.