udaan, JioMart could disrupt $100 billion B2B e-commerce market in ten years: Jefferies


Business-to-business (e-B2B) e-commerce is expected to reach $100 billion over the next decade, and players such as Reliance’s udaan and JioMart are set to disrupt this space, according to a report from major investment bank Jefferies.

India’s distribution channel for commodities, FMCGs (fast moving consumer goods), and pharmaceuticals uses a multi-tiered structure that connects producers and consumers. Fragmented distribution gives strong bargaining power to brand owners in general.



“But the landscape could change as technology B2B players (JioMart, udaan) emerge,” the Jefferies report said. “Assuming a CAGR (compound annual growth rate) of 40%, e-B2B could reach $100 billion over the next decade, although penetration would still be 5%. Scale is key of the unitary economy.

Udaan and JioMart (Reliance Retail) are competing with players such as Amazon, Flipkart and Walmart-owned Tata to tap into the booming B2B e-commerce market in the country. udaan and Reliance Retail are dominant players in the e-B2B category, accounting for the bulk of the market, according to the Jefferies report.

He said the logistics of an e-B2B business model are quite unique compared to those used by B2C e-merchants such as Flipkart and Amazon. Staples and FMCG are the most important categories for e-B2B, given their relevance to a kirana store and the limited penetration of organized retail. Supply chain requirements are also different as retailers tend to order with higher frequency (once a week or more) and expect next day delivery or one day lead time. . Given this lead time and high tonnage, fulfillment networks need to be very localized and close to the end-demand market, to ensure that the distance traveled is as optimal as possible.

The Jefferies report indicates that udaan has established strong logistics capabilities, including more than 50 distribution centers, 350 branches and 10 million square feet of warehousing space. Its supply chain can deliver approximately 8,000 MT (metric tons) of product per day, and the company has overnight delivery capabilities in over 1,500 cities.

“In fact, in terms of the volume of products moved daily, udaan’s throughput is 4-5 times that of leading B2C e-merchants, despite lower GMV (gross merchandise value).

udaan has also developed strong credit delivery capabilities on all fronts. This has now enabled him to offer credits to over 160,000 kiranas.

Currently, there is a multi-level B2B with a parallel distribution system by producers and a fragmented buyer base, resulting in a lack of scale. There are smaller, dispersed intermediaries (distributors and wholesalers) that are highly dependent on producers.

However, the distribution system has undergone rapid changes due to technology. The Jefferies report indicates that players like udaan and Reliance Retail have taken a multi-category and comprehensive approach. Other players such as Ninjacart (fresh), Jumbotail (food and consumer goods) and Pharmeasy (drugstore) have a vertical orientation.

“Udaan garnered over 50% market share while Reliance is about a quarter share, in our view,” the Jefferies report said. “From a measly 1%, valued at $3-4 billion, we see e-B2B grow to $100 billion over the next decade.”

The report indicates that the current B2B (business to business) commerce in India is a highly fragmented and complex structure. Consumer demand is dispersed as more than 60% of India’s population lives in rural areas spread across the country. Even in urban areas, the population is dispersed in more than 5,000 municipalities. Moreover, the top 10 cities of India represent only 7% of the total population.

Additionally, B2C retail in India remains highly disorganized with stand-alone mom-and-pop stores accounting for around 85-90% of the market. The rest comes from modern commerce and e-commerce. Organized retail penetration varies widely by category – up to 60% in consumer durables, electronics and cell phones and less than 5% in food and groceries . Considering the nature of B2C retail, India is home to nearly 15-20 million mom-and-pop stores and has one of the highest retail densities in the world. This again increases the usefulness of middlemen as the need for mass breaking is high.

The Jefferies report indicates that adoption of the technology is quite limited for family retailers. This leads to inefficiencies in inventory planning and can lead to obsolescence and out-of-stock risks.

In addition, several major consumer categories in India are characterized by the presence of unorganized (unbranded) supply-side players. For example, in basic products (cereals, pulses and edible oil), more than 80% of the products sold are unbranded. About 70% of fashion industry revenue comes from unbranded clothing. The share of unorganized or unbranded foods is a little less than 20-25% in packaged foods. This means that there are many smaller manufacturers operating in a specific category or region and at a lower scale. Now, with the distribution strength of platforms such as udaan and JioMart, these regional players can also gain access to national distribution.

According to consultancy firm Redseer, the overall Indian retail market was valued at $900 billion. About $170 billion is retained by the retailer as distribution margins. The remaining $700-750 billion is the size of the B2B commerce market. FMCG and groceries make up the biggest slice of this pie with a market size of around $450-500 billion. In terms of channels, more than 70% of global B2B commerce is currently dominated by unorganized merchants and wholesalers, according to Redseer.

“Within organized B2B, e-B2B is likely to be the business model of choice for most players to drive adoption and growth,” the Jefferies report said. “This is already evident in the fact that retailers such as Reliance Retail have shifted their focus from cash-and-carry to e-B2B.”

Covid-19 and subsequent lockdowns have also caused substantial disruption to the unorganized B2B supply chain. At the same time, kiranas saw an increase in demand as the modern trading channel was not fully functional. With traditional distribution supply uneven, the Jefferies report says Kirana outlets have been forced to look for new avenues to source merchandise. “This accelerated the pace of e-B2B adoption in a major way,” the report said.

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