Does this make you wonder why?
Most of the users are based in Tier III and IV cities, prefer assisted buying from someone they trust like a local shop owners. However, enabled by lowest ever data tariffs, these customers spend 2-3 hours a day on social platforms like Whatsapp, Facebook etc. This is being leveraged by resellers, micro entrepreneurs to influence those within their social network making them more receptive to online shopping.
These users while shopping online have low AOVs (less than Rs 250) given their limited household income in the range of 20,000-25,000 per month. This makes it impossible for ecommerce 1.0 players (like Amazon and Flipkart) to serve them given high CAC and supply chain cost.
Traditional e-commerce is built on electronics, mobile, and other branded categories, which these users typically can’t afford. However, the e-commerce 2.0 business models are trying to get a plethora of small brands in long tail categories like food, fashion, beauty and personal care, discovered to customers.
All these factors have led to the emergence of social commerce, to leverage this untapped business opportunity worth $450 billion.
I believe there are a few “Flipkarts” of social commerce in the making. As per Bain’s report, “India’s social commerce sector will be double the size of the current e-commerce market within ten years. It is worth $1.5 to $2 billion GMV market today, and will likely hit $60 billion to $70 billion by 2030.”
Future outlook of social commerce in India
Social commerce in India is still at a nascent stage with huge potential for growth. The top two categories dominant in this sector are fashion and household needs like food, personal care etc. However, if you look at the market size, ‘household needs’ market of $650 billion, is eight times that of fashion at $80 billion.
The average monthly spend of a Tier III and IV customer with a household income of Rs 25-30K per month is Rs 5000 on ‘household needs’ vs Rs 500 on apparels and fashion.
Hence the ‘holy grail’ lies in the household needs category like food and other daily needs for customers. Even though, this category has lower margins. The code to crack this lies in an innovative platform that empowers millions of micro entrepreneurs, combines the thrust of online social networks, to provide high quality affordable small branded products to customers. This will establish a scalable distribution network for a sustainable business model which controls CAC and supply chain cost.
The global outlook
Social commerce models in countries like China with similar demographics as India, have demonstrated significant success in the household needs category for Tier III and IV users. In China, social commerce is already a $250 billion market, comprising nearly 12% of retail and has created four unicorns over the last five years with more than 20 funded companies. Largest chunk is focusing on the household needs category. The likes of Pinduoduo that get friends and family to buy as a group in order to get great bargains is already a multi-billion dollar company. Recent Unicorns, Xingsheng Youxuan’s and Beijing MissFresh, are online community buying platforms that enable groups within neighborhoods to save money by aggregating orders of daily necessities.
Currently in India, social commerce is driven by resellers who mostly sell apparels online, and have been early beneficiaries of this revolution. However there is still a huge opportunity to create and empower the next set of micro-entrepreneurs (community leaders) who cater to the household needs.
These community leaders would hail from the same social strata as their customers, be able instill trust and serve them at zero customer acquisition cost and more efficient supply chain. In turn, they will not only grow their household income, but also augment their social status within the community. In addition, thousands of small brands that offer good quality products but have limited distribution reach in the traditional retail channels as well as low margins to advertise, can be made available and aware to customers via community leaders at great bargains.
We believe that India is at the cusp of a social commerce revolution and these community leaders will be pivotal in establishing an efficient and convenient community social commerce system for the next 500 million internet users.
(The writer is the Co-founder of ShopG)