Rise Of Social Commerce Startups During Pandemic

In recent years, India has witnessed a massive spike in the usage of social commerce platforms like Meesho, Shop101, GlowRoad and Bulbul

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India’s social commerce sector has seen an upsurge in recent times, especially last year 2020 which was gripped by the frequent lockdowns announced by the government in the wake of the coronavirus pandemic. 

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The rise of social commerce startups was inevitable given the fact that the country’s smartphone users’ base coupled with free data offerings has played a pivotal role in boosting the social commerce sector.    

In recent years beginning from 2018, the country has witnessed a massive spike in the usage of social commerce platforms like Meesho, Shop101, GlowRoad and Bulbul. Indeed, the traditional e-commerce industry has mainly been dominated by Flipkart and Amazon India, however, theses startups are setting the fresh wave of digital commerce majorly targeting the next 500 million netiziens in Ties 2 and Tier 3 cities.

In fact, local social commerce startups in the country on-boarded more than 10 million resellers, and bagged $100 million in funding in the last 15 months, as per the industry statistics.

Top VCs such as Accel Partners, SAIF Partners, Omidyar Network, Naspers, Sequoia Capital, Kalaari Capital, CDH China, Korea Investment Partners, Go-Ventures, and even Facebook led equity deals in the sector in 2019. 

Pandemic Woes

At the onset of COVID-19, especially during the lockdown, all e-commerce companies had to grapple with short term halt in their business operations. Even subsequent opening up of essentials services, only meant peak online demand to be met through limited manpower and operations resources. 

Even supply chains of essentials were affected and even more so, in Tier 2-3 cities where there was a huge challenge in providing the basic necessities. Companies like ShopG took up this challenge by sourcing essentials from Tier-1 cities like Bangalore and delivering to smaller Tier 3 cities like Tumkur, Sira, Madhugiri, Kunigal etc, to address their household needs.

Ankur Arora, co-founder at ShopG, said customers with lower household income were more adversely affected, since many of them lost their source of income and with limited disposable income, they were finding it tough to make ends meet. 

“ShopG, through its community leader program empowered thousands of micro entrepreneurs, who had lost their livelihood, by providing them a digital platform with 1000+ great quality products of daily needs to serve their customers. In turn, they were able to grow their household income by 35-40% and their customers who belonged to the same social strata were able to save 10-15% on monthly groceries at the firm,” Ankur added.

The pandemic also took a toll at logistics platform as the movement of goods across the country crawled to nearly 0. Saahil Goel, CEO and co-founder at Shiprocket, said “We were down by about 95% of our pre-lockdown revenue and were losing money every day. New sales obviously took a big hit as merchants were worried about survival in the initial phase of the lockdown and not expansion.”

He said one of the key challenges in 2021 is going to be fulfilling the rising demand in Tier 2 and Tier 3 markets. The e-commerce and logistics industries are on their way towards improvisation and increased access to these remote areas by building more warehouses to provide better connectivity. D2C Brands have emerged significantly, hence, giving a push to Social Commerce like never before.

Factors That Contributed To The Rise

There have been numerous elements which have contributed to the dramatic rise of social commerce in India. Here are some of them:

(a) Rising smartphone dispersion and waning mobile internet costs have opened up a market of 400 million users in India’s Tier 2 and 3 cities and beyond.

(b) Proliferation and progression in payment gateways and e-wallets led by UPI.

(c) Unimpeded growth in social media usage and the rise of short-form video platforms such as TikTok, Instagram, and Snapchat, in particular among millennials.

(d) Availability of vernacular networks like ShareChat, Roposo, and many others.

Moreover, the coronavirus outbreak has also added an impetus to the social commerce business. People were prompted to stay indoors which enabled them to order groceries online. This, in a way, proved boon for various social commerce digital retailers. “Ever since the pandemic started, we have witnessed an escalation in the way social commerce is functioning. This is also because we have noticed a rise in the average monthly earnings of our resellers,” said Abhinav Jain, founder and CEO at Shop101.

He said the firm has also found that more people have now resorted to starting an online business as they consider it to be more profitable than any other online job. More so, with monthly earnings estimated in the range of Rs 25,000 to Rs 30,000 per month, this definitely seems like an option that is here to stay.

“Most of our resellers are from Tier 2 and Tier 3 cities and this is something we have seen not just now but even before the pandemic. They’ve managed to keep the same momentum in their sales, irrespective of the lockdown,” he added.

Challenges

The e-commerce sector became a $30 billion gross merchandise value (GMV) industry in India in the year 2020, per the Bain Report. However, despite this, less than 10% users of the estimated 700 million internet users in India actually transact online today.

The main reason behind the less people transact through digital is the trust factor. As the Anup Jain, managing partner at Orios Venture Partners, said most of the internet users based in Tier 3, 4 cities, prefer assisted buying from someone they trust like a local shop owner. 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.

He further said that these users while shopping online have low AOVs (less than Rs 250) given their limited household income in the range of 20-25K per month. This makes it impossible for Ecommerce 1.0 Players (like Amazon, Flipkart) to serve them given high CAC and supply chain cost.

Another reason which Anup highlighted that 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 put together, have led to a whole new dimension in e-comm emergence of social e-comm, to leverage this massive untapped business opportunity worth $450 billion.

How Business Can Be Evolved

Penetration of the internet is expected to grow further in Tier 2 and Tier 3 cities. By 2022, approximately 840 million people are going to have access to the internet. With more than 60% of the population likely to own smartphones, social commerce is going to be playing a very prominent role.

Social media will also play a significant role in helping businesses grow when in the social commerce sector. More businesses are now relying on social media to help them increase their reach and easily get more customers. Abhinav, said, “Shop101 has started a few private labels under Pure & Grace, AM PM Footwear etc. This has caught the attention of our resellers and thus their customers. That’s one way we have tried to evolve in the social commerce sector this year”.

Echoing a similar sentiment, Ankur said creating interactive and social shopping experiences online is a key to build the business. “In the physical world shopping is meant to be ‘interactive and fun’ and purchases are influenced by friends and family. A platform that is able to replicate and enhance this experience will win in the longer term,” he said.

He said from an offering perspective, today e-commerce is built on electronics, mobile, and other branded categories, which constitutes 70% of e-commerce. However, with social commerce business models, a plethora of small brands in long tail categories like food, fresh fashion and beauty.

Road Ahead

As per Bain’s report India’s social commerce sector will be double the size of the current e-commerce market within ten years. Social commerce is worth $1.5 to $2 billion GMV market today, and will likely hit $60 billion to $70 billion by 2030. However, at present in India, social commerce is largely driven by resellers who mostly sell apparels online, and have been early beneficiaries of this social commerce revolution. However, there is still a massive opportunity to create/empower the next set of millions of micro -entrepreneurs (community leaders) that cater to the household needs of customers.

“Social commerce in India is still at a nascent stage with huge potential for growth. The top 2 categories dominant in social commerce are fashion, household needs like food, personal care etc. However, if you look at the market size, ‘Household needs’ market of $650 billion is 8 times that of fashion at $80 billion, “said Anup Jain.

Going further, social commerce models in countries like China, with similar demographics as India, have demonstrated significant success in the household needs category for Tier 2, 3 users. In China, social commerce is already a $250 billion market, comprising nearly 12% of retail and has created 4 unicorns over the last 5 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 multibillion dollar company. Recent Unicorns, Xingsheng Youxuan’s and Beijing MissFresh, are online community buying platforms that enable groups within neighbourhoods to save money by aggregating orders of daily necessities.

Taking a cue from this, the social commerce sector in India can turn more robust in the coming years only if the right strategy is well in place.