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In India, e-commerce has been a focus area for the past three years, driven by the COVID-19 pandemic. In 2021, e-commerce penetration increased further to 4% due to the second wave of infections, leading to more consumers relying on e-commerce for shopping, particularly in tier 2 cities. Brands and retailers have invested in direct to consumer models and partnerships with third party delivery companies to better adapt to the restrictions. The pandemic has also led to an increase in online demand for niche categories such as groceries and consumer health, with new players entering the market in the last couple of years.
Despite the growth, its overall contribution to retail sales remains low, indicating potential for further growth. The ongoing COVID-19 pandemic and resulting third wave of infections will continue to drive consumers to online shopping, potentially making it a long-term habit. India is expected to see one of the strongest increases in e-commerce value sales in the Asia Pacific region in the next five years. However, last-mile connectivity issues have hindered the expansion of e-commerce in India, and companies are looking to integrate online and offline channels to overcome these challenges. As the market expands, competition is expected to increase as more brands and retailers enter the online space, particularly in niche categories such as food and drinks, apparel and footwear, and consumer health.
Also, apart from the physical infrastructure of e-commerce, the user experience is also becoming an intense battleground for players. Numerous e-commerce firms are striving to provide a smooth, effortless customer journey, employing various technologies to accomplish this. Some businesses, for instance, are adopting AI-powered instruments like chatbots, which are increasingly mimicking human behavior and have become a crucial element in the design of customer-focused experiences. Utilizing technology-based systems such as Augmented Reality (AR) and Virtual Reality (VR) contributes to making e-shopping more engaging and informative. The application of AI, facilitated by technology and data tracking, enables the use of vast resources to tailor product recommendations for each person.
Additionally, e-commerce companies are investigating various methods to simplify the product search process for customers. As such, they are implementing voice-activated search functions, which streamline the product search process. Moreover, considering the smaller proportion of English speakers compared to non-English speakers in India, particularly in rural regions, multiple local languages are being incorporated to further improve the user experience. For instance, the e-commerce firm Meesho has incorporated eight local languages to broaden its reach. Flipkart has also seen a surge in its usage in Tier 3 cities due to its implementation of local languages.
As the Indian consumers prefer diverse methods for settling their orders, companies are increasingly investing in a range of payment options online. Hence, e-commerce are offering a multitude of payment alternatives to their customers, with digital wallets and deferred payment options gaining substantial popularity. The convenience associated with wallets and UPI is driving their increased usage. The ‘Buy Now Pay Later’ (BNPL) scheme is an emerging trend, fueled by the rapid proliferation of fintech companies. This option is particularly favored by Gen Z consumers, young Millennials, and first-time credit borrowers, who are often underserved or overlooked by conventional banking institutions.
Flipkart is currently the leading player in the Indian e-commerce market, followed by Amazon. However, local companies such as Tata Retail and Reliance are expected to increase their market share in the next five years. The Indian government has launched the Open Network for Digital Commerce (ONDC) to support small sellers, which aims to be available nationwide by the end of 2022 and could potentially challenge the dominance of larger players. Large e-commerce companies are also seeking to join the ONDC network. In August, Microsoft announced plans to launch a shopping app on the ONDC. The ONDC was created in response to concerns from small retailers about perceived unfair competition from large online players.
In the past two years, Indian e-commerce company Flipkart (acquired by Walmart in 2018) has made strategic investments to expand its presence in the apparel and footwear market. During the COVID-19 pandemic, several specialist retailers in these categories faced financial challenges, which Flipkart took advantage of by acquiring stakes in companies such as Aditya Birla Fashion & Retail and Arvind Lifestyle Brands. In 2021, Flipkart acquired a 7.8% stake in Aditya Birla Fashion & Retail, worth INR15 billion, and in 2020, invested INR2.6 billion in a minority stake of Arvind Youth Brands, a subsidiary of Arvind Lifestyle Brands that owns the Flying Machine brand.
Amazon is also a very active player in the country. Data from Euromonitor shows that Amazon’s share in the online retail sector has impressively grown from 28.6% in 2018 to 45.4% in 2022. Together, Amazon and Walmart (which also operates under the Myntra brand) dominate the e-commerce landscape, accounting for over 80% of all e-commerce sales.
It is expected that there will be continued consolidation in the retail, e-commerce, and technology sectors through mergers, acquisitions and partnerships. As an example, Reliance is planning to invest in the fast grocery delivery and household and personal care sectors in 2022, building on its previous investments in companies such as Dunzo, a rapid-delivery player. This trend of consolidation is likely to continue as companies look to expand their offerings and strengthen their market position.
However, since the Indian market is relatively underdeveloped, how the competition will go depend on several factors such as the localization efforts by these brands or whether or not the government will intervene the private market.
Strong Growth in Social Commerce: The pandemic has led to increased time spent on social media platforms. To capitalize on this, companies in the social commerce arena are incorporating cutting-edge technology, short videos, and user-generated content to enhance user engagement. E-commerce firms are launching live video platforms where content creators can display products and interact with users. As the potential of e-commerce in India remains largely untapped, the country is poised to become a lucrative growth market, with e-commerce sales expected to see a notable surge in the Asia Pacific region over the forecast period.
Strengthening The Last Mile: there is a trend towards the growth of organized retail stores over non-organized stores such as kirana stores. Consumers prioritize a hygienic shopping environment and packaged items, which benefits organized retailing. Organized retailers are also offering lucrative offers, discounts, and loyalty programs, driving the growth of organized retail in India. Industry leaders are reflecting this trend in their expansion plans, with companies such as Reliance, Tata Group-backed BigBasket, D-Mart, and Nykaa planning for aggressive expansion throughout India. Leading retailers are also partnering with local kirana stores to expand their networks and last-mile deliveries, which benefits both parties by increasing business for the kirana stores and providing more distribution centers for the e-commerce players.
Rise of Hyperlocal Delivery: In 2021, the integration of online and offline channels to enable hyperlocal delivery became a popular business model among retailers, particularly in the grocery, electronics, appliances, and pharmacy sectors. Retailers such as Apollo Pharmacy, JioMart, Reliance Digital, and Tata Croma benefited from this model by allowing customers to order products online and delivering them from the closest retail outlet, using their existing network of stores. This approach is expected to become more widespread in the future as it meets customer demands for fast delivery and retailers’ need to sell their inventory.
Also, As consumers pivot from seeking value to prioritizing convenience, there’s a growing preference for frequent, smaller purchases instead of infrequent, bulk buying. This shift has pushed both existing and emerging players, such as Blinkit, Zepto, Swiggy Instamart, Dunzo, Amazon, and Flipkart, to expand into the hyperlocal market. As the e-commerce sector continues to penetrate beyond Tier 1 cities, last-mile connectivity and integration of online and offline retail are expected to address logistical challenges. Traditional grocery retailers with their extensive networks could play a pivotal role in this expansion, especially in the food and drinks sector.
Subscription-Based Business Models: More and more digital consumers are moving away from one-off purchases and embracing subscription-based models. As the forecast period progresses, this trend is anticipated to amplify. E-commerce companies are finding subscriptions advantageous for user acquisition and encouraging repeat visits. Giants such as Netflix and Country Delight are leading the way in adopting subscription models to foster enduring customer relationships and ensure steady revenue streams. The ease of setting up recurring payments through digital wallets is further accelerating this trend.
In India, There are about 3% of people use credit cards, and 32.7% of people use debit cards. While there are 2.9% of people purchase on the internet, there is only 5.3% of people with online banking accounts.
For E-Commerce Customers in IndiaWhat are the major driving factors to purchasing online?
There is 643.9 million consumer goods e-commerce users in India, and they spend total of around 83.41 billion USD dollars in 2021. That makes a per capita spending on consumer goods e-commerce of around 130 USD. Also, in those e-commerce users, about 75.4% of them purchase through their mobile phone.
Our consumer research practice tracks what customers spend and how they make decisions across major economies in the world.
