Have you been ordering food online via Swiggy and Zomato or turned to cooking at home because of the increased delivery charges and platform fees? Also, are you going to buy the latest mobile phones and fashion online this time?
Turns out, there’s been a reversal of trend. Unlike the post-pandemic period, consumers in tier-II and tier-III towns have slowed down discretionary spending. E-commerce growth is coming from tier-I markets whose potential has been more or less exhausted already, a new report by Jefferies, following interaction with strategy consulting firm Redseer Consultants, has found.
“50% of the food delivery monthly tracked users (MTUs) are from high-income households in metro and tier-I markets, where the market potential has largely been exhausted. The pace of user additions has come off, also on account of the focus on profitability,” the Jefferies report said.
Its survey has found that long-term industry growth is expected to be 20%. It added that an increase in order frequencies will be a key driver for growth going forward as user additions take a back seat.
Also Read | India’s e-commerce losing momentum in the post-pandemic era, but the cart is going steady: Redseer
According to the report, among other categories of e-commerce mobiles and fashion have seen growth moderation, but beauty and personal care (BPC) and grocery have held up.
Abhijit Routray, Engagement Manager, at Redseer Strategy Consultants, told Jefferies that India's e-commerce growth has slowed down to single digits in the recent quarters, following a strong post-COVID growth period. “Tier 2+ geographies have been growing faster than metros till recently, but the trend has reversed recently as discretionary spends have come off in lower-tier cities,” the report highlights.
The report suggests India's e-commerce gross merchandise value (GMV) saw a 20x growth over the last decade and is expected to be at $65 billion by calendar year 2023, supported by strong user adoption.
However, there has been a slowdown over the past few quarters as GMV growth declined to single digits, with most key categories including fashion, mobiles, and electronics seeing a moderation, the report said.
“Macro headwinds and focus on profitability have weighed on, but broader consumption is picking up as the worst of inflation seems to be behind,” it added.
Another trend that the Jefferies report points out is that the overall internet-transactor base has been seeing healthy growth but the growth in the mature user base has remained sluggish in recent years. Mature users are frequent online transactors. They typically belong to high-income households (₹ 1 million per annum), a young working-age demographic with high digital maturity and graduate education, and are concentrated in metros and tier-1 cities.
Online businesses are realising that the mature user base is limited to 50 million customers currently, and therefore, they’re re-focusing on offline /omnichannel models to drive growth, which in turn is impacting e-commerce growth, the report said.
(Edited by : Amrita)
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