Cover Story on E-com - Business India

7/26/2019 Cover Story on E-com - Business India

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BUSINESS INDIA uTHE MAGAZINE OF THE CORPORATE WORLDCover Feature

All this would have beenirrelevant trivia aGoogle search with anattitude if it hadnt beenfor the fact that both Flip-

kart and Amazon have been waxingeloquent on the range of their offer-ings and the ease of purchase. SaysAmit Agarwal, Amazon India vice-president and country manager: We

have more than 17 million productsand 9,000+ sellers.

Thats true as it goes. But some ofthese products are from the Interna-tional list. This means they cost somuch more. A 1,000-piece Ravens-burger jigsaw costs `2,378. At Flip-kart, the same item is available forless than `1,000. Why should I goto Amazon.in, says a customer. IfI were prepared to pay that much, Iwould have gone to Amazon.com along time ago. Flipkart should not

pat itself on the back too soon; someof its vendors refuse to deliver thejigsaw to Navi Mumbai, as thoughit were the dark side of the moon.Customer satisfaction is at the top ofeverybodys mind, but a wee bit weakon the ground.

Yet both Amazon and Flipkartnow have money to burn. In a recentround, Flipkart raised $1 billion toaugment the $360 million it pickedup last year (see chart). A day later,Amazon responded with a $2 billion

investment plan.After our first year in business,

the response from customers andsmall and medium-sized businessesin India has far surpassed our expec-tations, said Jeff Bezos, founderand CEOof Amazon.com, in a pressrelease. We see huge potential in theIndian economy and for the growthof e-commerce. With this additionalinvestment of $2 billion, our teamcan continue to think big, inno-vate, and raise the bar for customers

in India. At the current scale andgrowth rates, India is on track to beour fastest country ever to a billiondollars in gross sales. Says MaheshMurthy, managing partner of Seed-fund: Flipkart said check and Ama-zon said checkmate. Adds AshishKashyap, founder and CEOof the Ibi-boGroup: But this is more than one-upmanship.

But why are hardnosed business-men and investors pouring moneyinto India, which is still regarded as a

treacherous territory for e-commerce?Flipkart has stopped delivery of con-signments of more than `10,000 toUttar Pradesh because people orderjust for fun and refuse to pay upunder the cash-on-delivery (COD)system which is practically uniqueto India. So Noida, which hostsmultinationals like IBM and Dell,joins Navi Mumbai in the delivery

eWars

Flipkart$1 billion

E-TAILING SET FOR THE

BIG LEAGUE

Source: Nomura

20182013

E-TailingDigital advertisingTravel

8

19

0.5 1.7

2

23($ billion)

If you search Flipkart forAmazon, you will get severalcategories Kindle cases (not theKindle itself, of course), books(Amazonia: thats about the river;Jeff Bezos and the Age of Amazon:thats about the founder and CEO)and even a HOKOflip cover.

If you search Amazon.in forFlipkart, you will get severalcategories Flipkart mobiles

(which turns out to be notFlipkart but flip cover), Flipkartkitchen (ArtWorld Retro lp recordwall clock; dont ask why, buttheres art in common) andFlipcart.com (Mercury GoosperryFlip Diary Case).

Amazon.com is not muchbetter. A search for FlipkartIndia throws up Fat Cat 11.5 gTexas Hold em Poker Chip Set

500 Chips.


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BUSINESS INDIA uTHE MAGAZINE OF THE CORPORATE WORLD Cover Feature

doghouse. Amazon is also trying outa COD system and has a pilot proj-ect with India Post. Thats good forthe postmen, regarded as the mostendangered profession in the worldtoday. But how Amazon will copewith government employees, whoare amongst the most unionised inthe country remains to be seen.

Amazon is here because India isthe last big market left. According to

a Nomura report, The macro outlookfor Indias Internet sector couldntbe more exciting: two-thirds of thepopulation younger than 35 yearsFrom $10 billion in 2013, e-com-merce is expected to touch $43 bil-lion in the next five years. This willbe largely driven by online retail (seechart).

India is the next frontier of e-tail-ing growth and it is not surprising

that global players and investors areeyeing this opportunity seriously,says Pragya Singh associate vice-president (retail) at the Delhi-basedmanagement consultancy firm Tech-nopak. The recent announcementsby Flipkart and Amazon are a reaffir-mation of their confidence in Indiase-tailing market potential and bodeswell for the overall space. Adds Nit-ish Asthana, general manager, First

Amazon$2 billion


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Data, a global payments processingcompany: These investments are avote of confidence for the e-tailingindustry. Elaborates Sanjay Tripa-thy, senior executive vice-president& head (marketing, product, digi-tal and e-commerce) HDFCLife: The

valuations and investment figuresmean that the established players inthis space are ready to bet big on thegrowth story.

Although e-tailing is still a smallcontributor to retail, accounting foronly 0.4 per cent of the overall mar-ket, it is on a rapid growth trajec-tory, says Singh. It is projected thatthe $2.3 billion e-tailing market in2014 will reach 3 per cent of Indianretail -- $32 billion -- by 2020.

Internet penetration in India is

just 17 per cent against 40 per centin China, 78 per cent in the US and80 per cent in Japan. Its a differ-ent story when you look at absolutenumbers. Today China is No 1 with550 million users; the US is No 2 with245 million. By December this year,India is projected to overtake the USand take up the second slot.

Consider another metric. InChina, consumers spent $300 bil-lion online last year. The spendingin India is a small fraction of that.With so much money being pouredin, growth in online sales is likely tobeat projections.

We expect the onlinemarketplace format ofthe industry to bene-fit immensely, result-

ing in an overall industry growth of45-55 per cent CAGR (compoundedannual growth rate) during 2013-14to 2016-17, says CRISIL Researchdirector Ajay Srinivasan. Consum-ers too can expect better bargains asboth Flipkart and Amazon jostle forleadership position.

Amazon is making clear to inter-national investors that they intendto be leaders in India, says NirenShah, managing director of NorwestVenture Partners India. Amazondidnt have a very good experiencein China. My sense is that they werenot aggressive enough. In India, theydont want to lose the market to

Flipkart or someone else. I think itsgoing to be a two-horse race. In theshort term, both these companies aregoing to spend a lot of money pro-

viding discountsSo consumers are going to win.

But in the next six-eight months,this arms race is going to stop.

Somewhere along the way, sanityis going to prevail.

Right now a lot of e-com-merce growth is being driven bydiscounts.

You have raised a lot of

money. What is it going

to be used for?

Our main focus will be to

build and strengthen the

overall e-commerce ecosys-

tem in India. It is expected

that there will be more thanhalf a billion Internet users in

the country in the next four

to five years. This means that

a lot of commerce and shop-

ping will move online. We

want to enable lakhs of sell-

ers and entrepreneurs to get

online. For doing that, we will

have to solve a lot of prob-

lems in the ecosystem around

logistics, payments, packag-

ing, cataloguing and so on.

We will invest in build-

ing technology platforms

which will enable sellers to

sell online. We will also focus

on expanding our categories

over the next 18 month andwill continue to expand the

supply chain base. We wish

to take Flipkart to the next

level by pioneering technol-

ogy and supply-chain innova-

tions that will change the face

of online shopping and one

day make us one of the big-

gest Indian companies on the

global map.

What will be the impacton you of the $2 bil-

lion that Amazon is

investing?

Wireless Internet penetration

and e-commerce in India are

growing rapidly and there

are several entrepreneurs

with promising ideas who

need capital. Investors have

identified this potential and

are willing to make big bets

on organisations with great

concepts. As outside inves-tors look to deploy capital in

India, we are confident that as

a local entrepreneurial com-

pany Flipkart has the advan-

tage of being on the ground

and better connected to the

market we serve.

You are competing with

a $75 billion global

giant. What are theadvantages you can

leverage?

We are not thinking about

competition. Our focus is on

creating the best online shop-

ping experience for customers

and we follow our own stan-

dards of business excellence.

We are looking at invest-

ments in technology that will

help us scale up the business,

create a world-class supply-

chain and payment ecosys-tem along with a superlative

talent pool and, of course, in

category expansion and seller

enablement. Our move to

delight the customer begins

with a clean, fast and engag-

ing user-interface and ends

with smooth last-mile deliver-

ies. That is what we want to

concentrate on right now.

Local entrepreneurs have an advantage

Flipkart cofounder and CEOSachin Bansalis confidentof taking on the worlds largest e-tailer. In an interviewwith Meenu Shekar, he says being a local player,Flipkart understands the market better. Edited excerpts

THE CURRENT LEADERS

The Indian e-commerce market isdominated by travel(%)

Note: Total market size $10 billion plus. Source: Nomura

Travel

71

E-tailing16

Financial services

6

Classifieds

5

Others

2


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A cynical Mahesh Murthy doesntbelieve it will be a two-horse race atall. What Amazon did was quite

unprecedented, he says. The firststatement they made were not buy-ing Flipkart and are not interestedin buying Flipkart was a huge bigblow. Flipkart has two potential exits one, somebody buys the companyor, two, they go public. The possiblepool of companies that can buy Flip-kart is shrinking. eBay has a stake in

Snapdeal, so they wont buy. Possibleoptions are Alibaba (China),or Rakuten (Japan). Butwhy would they wantto take on Amazon?

It (Flipkart) was builtto flip and flipping will

get harder and harder.Flipkart cant go pub-

lic in India because its bal-ance sheet is in tatters. Sothe only option is NASDAQ.But other Indian compa-nies who went to NASDAG like MakeMyTrip and Red-iff didnt have to com-pete with companies like Amazon.The only slim path they have is toout-execute Amazon. But they donthave the DNA. The guys who are run-

ning Amazon in India are veteransof Amazon. The guys who are run-ning Flipkart India already draw `20crore salaries, so they dont have avested stake. Retorts Sachin Bansal,cofounder and CEO of Flipkart: Asoutside investors look to deploy cap-ital in India, we are confident thatas a local entrepreneurial company

Flipkart has the advantage of beingon the ground and better connectedto the market we serve We are notthinking about competition.

But there is bound to be skir-mishing. For consumers,this is the best of times,says K. Ganesh, serial entre-

preneur and promoter of BigBas-ket, Portea Medical and TutorVista.Great deals; great service. For entre-preneurs, theres great motivation,not just getting great valuations

How do you see the

potential of the Indian

e-commerce market?

The e-commerce growthstory in the past few years has

been driven by an Internet-

savvy crowd. An immense

opportunity is waiting to be

tapped in tier 1 and tier 2

markets and the trends one

sees in online shopping, like

shopping through mobile

phones, will come from

these cities in the future.

We will also see world class

practices in supply-chain

coming to India. Imple-mentation of best prac-

tices in areas like inventory

management, warehous-

ing, and logistics within the

e-commerce industry, while

building more technologi-

cal solutions to enable some

of these areas, is a given.

Mobile commerce will be

the focus area for most

online shopping companies

this year. Increased smart

phone penetration means

a greater section of our tar-get audience is accessing our

sites through their Internet-

enabled mobile phones.

How much of your busi-

ness is m-commerce?

Currently, nearly half of our

sales are being driven by

mobile.

The governments pol-

icy on FDIin e-commerce

is not yet settled. Howis this hampering the

industry?

The government understands

the needs of the country and

therefore is in the best posi-

tion to decide what is right

for the country.

What are the problems

peculiar to the Indian

market?

India is home to lakhs of small

and medium entrepreneurs

who have a rich catalogueand expertise at building

great products that deserve

to be showcased on a larger

platform. These sellers often

have a limited footfall and

geographical presence. That

is something that bothers

us and thats the reason we

have been tying up with var-

ious organisations that help

in enabling SMEs improve

their living standards and

scale their businesses.

Are you likely to go in

for more mergers and

acquisitions?

We are always looking for

exciting opportunities. We

are actively looking at acqui-

sitions across areas like sup-

ply-chain, technology and

seller enablement.

THE MONEYSPINNERS

How the e-tailing buck is divided (%)

Total does not add up to 100 because of rounding.Source: Nomura; figures relate to 2012

Computers

25

Mobiles

19Cameras

14

Apparel

21

Appliances

8

Jewellery,Personal,Health

4

Homefurnishings

3

Others

5


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but also competing with the big-gies of the world. Hopefully, somewill chuck their suited and bootedcorporate jobs, give up the five-starperks and business class travel andstart becoming an employer ratherthan an employee. For the common

man, there will be more employ-ment opportunities; most new jobscome from startups. For investors,its great confidence-building. Itspurs them to bet more on India andIndias consumptions story and thelarge middle class and their spend-ing power which has been muchtalked about but not translated intoreality. The policy paralysis, the ret-rograde steps like retrospective taxand angel tax notwithstanding, thelarge money inflow into the Indian

startup sector will boost their faithand confidence.

IbiboGroups Kashyap has aslightly different take. First, theseinvestments will go into building alarger consumer market for product

Your CEOJeff Bezos has

recently announced a $2

billion investment for

Amazon in India. What

will this be used for?

Our mission in India is to

build the countrys most cus-

tomer-centric company. Our

strategy is focused aroundthree key pillars of customer

experience offering our cus-

tomers the largest selection,

reducing costs for our sell-

ers so that they can offer low

prices to our customers, and

offering customers fast and

reliable delivery and a con-

venient payment and mobile

experience. These three pil-

lars have been the integral

part of our strategy over the

past one year that we have

been in India and they con-

tinue to be our areas of focus

and investments.

What is the potential

you see in the Indian

e-commerce market?Our $2 billion investment is

a signal of the very exciting,

never-seen-before growth

rates and also a confirmation

of the opportunity we see

ahead of us. It is early days for

e-commerce worldwide and

also in India but the poten-

tial is massive. Customers do

more of what they find con-

venient. Thats human nature.

When they get more choice

at cheaper prices and deliv-

ered conveniently, they will

do more of it. This is how thewhole world is evolving and

India will evolve in the same

direction. India has a large

population and the organised

retail landscape is not very

mature. This probably makes

the opportunity here even

bigger.

What are some problems

that are peculiar to

the Indian e-commerce

industry?Like customers the world

over, customers here value

selection, low prices and con-

venience and that is a huge

simplifier because Amazons

global strategy is to focus

on these three pillars. But

the execution of this strat-

egy does differ, For exam-

ple, sellers in India are new to

online and the ecosystem is

not mature. Hence more tools

and training and capabilities

need to be built. So, we have

invested in helping sellers

get online. These are initia-

tives we dont need to do in

other, more developed geog-raphies. Similarly, to reduce

cost structures for sellers we

have introduced Fulfilment

by Amazon, a service which

brings together sellers, ware-

housing, logistics and cus-

tomer service. To make these

different pieces work together

is harder in India. Guarantee-

ing time-bound delivery is a

huge challenge. The digital

payment structure is not as

evolved here as in other mar-kets. You have to build a lot of

process and technology inno-

vations to overcome these

execution challenges which

you dont need to do in more

developed, geographies.

Given these challenges,

do local players have an

advantage over global

players? Or do global

The potential is massiveIndia is the fastest growing market for Amazon globallyand on track to be the fastest-ever in the history of theglobal e-tailer to hit $1 billion in gross merchandise sale.

In a conversation with Meenu Shekar, Amit Agarwal, vice-president and country manager of Amazon India, talksabout what it takes to succeed here. Edited excerpts

MONEY TO BURN

Top 10 PE/VC investments in the e-commerce space (in the last 12 months)

Source : Venture Intelligence

Company Investors Amount($ million) Date

Flipkart Tiger Global, Iconiq Capital, DST Global, others 210 May 2014

Flipkart Tiger Global, Accel India, Iconiq Capital, others 200 Jul 2013

Flipkart Morgan Stanley, Tiger Global, Dragoneer Investment Group, Vulcan Capital, others 160 Oct 2013

Snapdeal.com Kalaari Capital, Intel Capital, Nexus Ventures, Bessemer, Saama Capital, others 134 Feb 2014

Snapdeal.com Temasek, PremjInvest, others 100 May 2014

Myntra Kalaari Capital, Tiger Global, IDG Ventures (I), Accel India, PremjiInvest, others 50 Feb 2014

Jabong.com CDC Group 28 Jan 2014

UrbanLadder.com SAIF, Kalaari Capital, Steadview 21 Jul 2014

Cardekho Sequoia Capital India 15 Nov 2013

FirstCry SAIF, IDG Ventures India, Vertex 15 Jan 2014

rs

2

2

1

x 1


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e-commerce. Second, these invest-ments will create a healthy ecosys-tem on the supply side and will giverise to lots of entrepreneurs on themanufacturing and trading side.Third, these investments will cre-ate a big startup ecosystem that will

breed on platforms such as Amazonand Flipkart. Fourth, this also meansthat verticals and niche e-commercecategory startups can potentially getexits. All this will create an ecosys-tem network effect.

We believe that the funding/investments will be utilised toimprove logistics and infrastructurefacilities, primarily in Tier II and IIIcities, as well as to augment technol-ogy to improve the customer experi-ence, says Ajay Srinivasan, director

of CRISILResearch. The Tier II andIII cities account for 50-60 per centof the current revenues of lead-ing e-commerce players. In futurealso, these will be the main growthengines. Furthermore, the pace of

consolidation is likely to accelerate assmaller players find it progressivelydifficult to withstand the competi-tion from large players.

Further consolidation may hap-

pen, says Singh of Technopak.Smaller players in mass merchantspace will need to evaluate and deter-mine on which aspects they willcontinue to compete and how. Spe-ciality players who are differentiated

and high-potential will continue toinspire funding and gain tractionin the market. Some of them maybecome attractive acquisition targetsfor mass merchants. There is alsoopportunity for such players to part-ner with mass merchants.

The biggest threat, of course,is to the companies that arecompeting head on withAmazon and Flipkart. Snap-

deal, which is expected to reach $1 bil-lion in sales this year, recently raised$100 million from a consortium ofinvestors, including Wipro chair-man Azim Premji, Singapore-basedTemasek Holdings and Hong Kong-based Myriad Asset Management. Ear-lier this year, eBay had raised its stake

in the company with the infusion ofanother $133 million.

Snapdeal has the parentage tokeep the wolf from the door. Accord-ing to VCCircle, it has also asked itsfinancial advisor Credit Suisse to

players have an edge

because of their deep

pockets and experience?

I dont think local or global

players have any advantage

over each other. It is not

about working skills-forward

but working customer-back-

wards. It is all about under-

standing and delivering on

customer needs by learningthe required skills, develop-

ing the required products and

innovating where needed.

Thats what Amazons culture

is all about. An innovation in

India like EasyShip (for deliv-

ery) is an example of some-

thing that we could have only

built customer-backwards.

If we had thought of simply

bringing in what we do well

elsewhere, we would not have

got the traction that we havegot here. And just money

doesnt solve problems. Sim-

ilarly, just because you hap-

pen to be a local player

doesnt make you any more

suitable to solve it. You need

a very customer-obsessed cul-

ture, the ability to innovate

and think long term. I think

it is these elements, which

are important to succeed and

not whether you are a local or

global player.

The government policy

on FDIin e-commerce is

still not very clear. How

does this hamper theindustry?

We have always maintained

that FDI is good for the eco-

system. Today, we are making

it easy for sellers of any size to

sell on our platform but there

is a large segment of manufac-

turers that sellers are unable

to buy from because of work-

ing capital constraints. FDIwill

allow a company like Amazon

to source directly from these

small manufacturers. If we cando that, consumers will get

more choice. This will result

in sellers getting more traffic,

increased sales, and ability to

lower the prices and attract

more customers. The whole

flywheel will move very effec-

tively. By limiting the ability

to source directly from manu-

facturers you are blocking the

flywheel.

BIGGER DEALS

PE/VC investments in the e-commerce space

Amount ($ million) No. of deals

Source: Nomura

201220132014 YTD

658

553

311

23 36 49


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scout for $300 million from privateequity investors. But there are otherswho are wondering if they can keeptheir perch while the big boys clash.

I see three categories in e-com-merce, says Ganesh. He defines themas horizontal e-commerce sections

and categories that can easily be justanother tab on Amazon or Flipkart.These will be heavily challenged andstruggle for relevance and existence.Most of them will shut down or getmerged at distress terms (a euphe-mism for being shut down). Theseare the sites for baby products, fash-ion apparel, electronics etc. Verti-cal e-commerce domain-specific,with their own brand, manufactur-ing or full integration. These will bestrong and continue to grow in the

domain. They are potential targets foracquisition at good valuations. Exam-ples include online grocers (see box),and online jewellery and furniture.Finally, niche e-commerce. They will

do well as online acceptance increasesand people switch to buying onlinereadily. The challenge will be scalabil-ity of the business model. Examples

are community-based e-commercewith high engagement and involve-ment like pets (dogspot.in) and spir-ituality (onlineprasad.com).

We are always looking for

exciting opportunities, says Bansal.We are actively looking at acquisi-tions across areas like supply-chain,technology and seller enablement.

The biggest imponderable in thisentire mix is the growth of mobilecommerce. We have invested a

lot in mobile experience and todaymore than 35 per cent of our traf-fic comes from mobile devices, saysAgarwal. Recently, we have addeda feature with which customers canadd to their cart right from Twitteritself. Says Bansal: Mobile com-merce will be the focus area for mostonline shopping companies thisyear. Increased smartphone pene-tration means a greater section ofour target audience is accessing oursites through their Internet-enabled

mobile phones. Currently, nearlyhalf of our sales are being driven bymobile.

I feel the current share of m-com-merce is anywhere between 20-40

The large investment Ama-zon is making in India hasgot one sector of the e-com-

merce market a shade appre-

hensive. Online grocers, mostof whom are just about get-

ting their act together, are

wondering whether the retail

giant will unleash its own

offering Amazon Fresh in

India (see also page 27).

They neednt worry

overmuch.

Amazon

Fresh too is

in its salad

days. It was

beta tested in Seat-tle in 2007 and has now ven-

tured into California. While it

is getting to know its onions,

players like Google Shopping

Express and Instacart (which

are into delivery from neigh-

bourhood stores and do not

stock the items) are also tread-

ing with caution.

What everybody regards

as the main reason for worry

is the example of Webvan, an

online grocer. In 1999, the

company raised $375 million

in an initial public offer (apart

from money from angels andVCs). It expanded too fast and

went bankrupt in 2001. Inci-

dentally, founder Louis Bor-

ders (also cofounder of the

Borders bookstore chain

which applied for Chapter

11 bankruptcy

protection in

2011) is setting

up another

online gro-

cer, yet unnamed.

Webvan, meanwhile, is nowowned by Amazon.

The story of Webvan does

not seem to have deterred

Indian entrants in the busi-

ness. There are more than a

dozen net grocers who have

sprung up, following differ-

ent business model. Some

are advertising in print and

TV and targeting neighbour-

hoods with flyers. They are

generating a lot of noise.

There is only one princi-

pal player - BigBasket.com,

says K. Ganesh, serial entre-

preneur and promoter ofBigBasket, Portea Medi-

cal and TutorVista. The

others are one city;

they have limited cap-

ital and are strug-

gling to scale.

Several play-

ers have raised

money, how-

ever (see chart).

The activity

in this domain is

in line with thegeneral adoption

of online shopping,

says Nitish Asthana,

general manager at

First Data, a major

in electronic pay-

ments. As consumers

get more comfortable shop-

ping online, they are moving

to newer categories where

good value is being delivered.

Consumers with busy lifestyles

are opting for online grocers,

and when their experience is

good, they spread the word.

We believe that the key point

is the quality and range of

products being offered at an

attractive price and withoutthe customer having to step

out the door.

Food is the larg-

est retail market, says

Ganesh. It accounts

for more than 70

per cent of sales

in the countrys

$500 billion retail

business. Ganesh

gives some other

reasons. Physi-

cal retail is handi-capped in grocery

- high rents, high

shrinkage and high

inventory costs. Second,

customers love the ser-

vice. Finally, there are

high entry barriers as it is

the most difficult-to-execute

category.

The entry barrier depends

on the model you follow. The

Veggies make the cut

THE BUY BRIGADERecent acquisitions

Source: Technopak

Buyer Target

Flipkart Myntra

Babyoye Hoopos

Tradus BuyThePriceZovi Inkfruit

BookAdda KoolSkooloo a Koo oo


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per cent depending on the categorythe player is operating in, says Tri-pathy of HDFC Life. Fast-movingservices like ticketing have a higherm-commerce share compared toother categories. Having said that, Iforesee this percentage to go beyond

50 per cent in the near future oncethe players enhance the purchaseexperience via mobile devices. AddsAsthana of First Data: Product andprice research and final purchaseoften cut across mobile phone andin-store activity. Soon this will trans-late to payment transactions beingdone on mobile.

I

ndians have taken to smartphones. They have trickleddown to rural areas. These are

very often those rejected bycity dwellers; the millennium gen-eration needs to change their phonethe moment a new model is out. Theinventory of such phones in villages

is something that nobody has accu-rate estimates on. Butjust as the mobilecatalysed communica-tion, the smartphonewill catalyse commerce.And e-commerce in

particular will be thegainer.

But, at the end of theday, is it an equal battle?Flipkart reached a valua-tion of $7 billion after itslatest round of fund rais-ing. Amazon, a listed com-pany, has a valuation of$140 billion. It has been liv-ing in a rarefied world wherenumbers dont seem mat- terto investors. Its price/earnings ratio

has at times crossed 3,000, when themarket as a whole is an acceptable18. But Amazon is taking a knockat last. The shares fell 10 per cent asthe company forecast flat revenues

for the net quarter and a loss thatmight be as high as $455 million.

Meanwhile, Alibaba, which enjoys

a monopoly in China, is pawing theground for a New York listing. Ana-lysts estimate it could be valued at$100 billion. Alibaba is already sourc-ing from India, from the very sort of

Delhi-based AaramShop is a

facilitator. It takes orders from

customers and arranges for

delivery from the nearest

kirana shop.

You need an

inventory-led

model, saysGanesh. Some

of the smaller

players buy from

large stores and sup-

ply the goods to customers.

This is not scalable.

The Mumbai-based EkStop

Shop is an e-commerce,

phone-commerce and call-

centre retailer specialising

in home deliveries. It is clear

about where its

mission lies: to winthe trust of consum-

ers. Its not just gro-

ceries; EkStop also

provides house-

hold supplies, per-

sonal care, baby

care and health

care products and

stationery. It has

spread its wings to

neighbouring areas

Navi Mumbai and Thane.

Our sales are growing

at 20-30 per cent a month,

says Sumat Chopra,

cofounder & CEO, EkStop.

From January this year alone,

they have tripled. Thats also

reflected in the employee

numbers. When EkStop

flagged off in 2011, there

were only four employees.

Now there are 220. Like Big-

Basket, EkStop believes in an

inventory-based model.

We have a bunch of 15

investors who have been very

helpful, says Chopra. A recent

addition to that roster is Ron-

nie Screwvala, whose invest-ment arm Unilazer Ventures

- has picked up a 25 per cent

stake in the company.

Another Mumbai-based

player is LocalBanya. It

started in May 2012 and

claims a range of more than

8,000 products. Today, we

offer you all categories rang-

ing from fruits, vegetables,

exotic vegetables, groceries,

personal care, household

detergents, kitchen ware,

OTC, breakfast, snacks and

still counting. You will also

find niche product like bagels

and shor sharaba.

The most successful

examples of online grocer-ies are to be found in the

UK, where ocado.com is the

largest online food retailer in

the world. Its revenues have

crossed $1.3 billion and it

has a market cap of $3 bil-

lion. Another big boy is Yiha-

odian in China. Walmart has

a 51 per cent stake in the

company.

Are these really online

businesses? It is

not just homedelivery but

home delivery

the same day.

This is, in a way,

a hybrid model,

says Ganesh. It

is more brick than

other e-commerce

businesses and

more click than

physical retail.Source : Venture Intelligence

Company Investors Amount ($ million) Date

Ekstop Jungle Ventures NA Jun 2012

Ekstop Unilazer Ventures NA Jan 2014

BigBasket Ascent Capital 7 Feb 2012

BigBasket Ascent Capital 3 Oct 2013

ZopNow Accel India, Qualcomm Ventures, others 2 Jun 2012

HOT POTATOESList of PE deals in the grocery e-tailers space


9/9

u44u

AUGUST 4 -17 2014


small and medium enterprises Ama-zon and Flipkart are talking about.It also entered the US this March.An Indian entry can be expectedafter the IPO goes through. Flipkarthas a market share of less than 5 percent (Alibaba has 85 per cent of the

Chinese e-commerce market). In rev-enue terms, Alibaba stands at $270billion, Amazon S74.5 billion andFlipkart $1 billion.

Bansal is unfazed. An immenseopportunity is waiting to be tapped,he says. Agarwal agrees: It is very

early days in India for ecommerce. Itis not even Day 1. By Day 2, hope-fully, they will get their jigsaw pric-ing right and accept that Noida andVashi are parts of India.

U P A R T H A S A R A T H I S W A M I ,

M E E N U S H E K A R A N D M A N S I M E H T A

When a start-up goesto a top managementschool to recruit, the pro-

moter is selling a dream and

a four-letter word - ESOP.The real dream is that the

Employee Stock Option Plan

will become valuable when

the start-up clicks and finds a

buyer. Which freshly-minted

MBAdoesnt hope that he will

be a millionaire by 30, to take

up an encore career as angel,

sugar daddy or even a serial

entrepreneur?

This is why so much atten-

tion is being focussed on

redBus the posterboy ofe-commerce in India. In June

2013, the ticketing portal

was sold to the IbiboGroup

for Rs800 crore. This was the

largest deal of its kind and

was regarded as the coming

of age of the Internet entre-

preneur in India.

The trouble is that except-

ing a few people, nobody

at redBus came within sniff-

ing distance of the money.

Founder and CEO Phanin-dra Sama made a killing. The

rank and file was left wonder-

ing if their ESOPs were just so

much bumf. Not that every-

body had ESOPs, but every-

body did have expectations.

Some senior people walked

out; juniors felt they had

been taken for a ride.

One would have presumed

that the ESOPfiasco at redBus

was dead and buried. But in

mid-July, financial newspaperMint came out with a report

titled: The redBus sale: A

cautionary tale. How the sale

of the successful bus ticketing

startup to Ibibo created a rift

among its cofounders, senior

executives and staff.

The recent article aboutredBus ESOPs seems more

malicious than material, says

Ashish Kashyap, founder &

CEO,IbiboGroup. Ibibo is part

of Naspers, a South African

multimedia company. The

event is more than one yearold. We have had a sound

management team for the

past one year, a new CEOand

another 650 people in the

company doing their stuff

and working hard

to create a robust

ecosystem.

Sama was not

available for com-

ment; he did not

respond to e-mails

and his phone wasswitched off. redBus

appears to have disowned

him. Phanindra Sama is no

longer associated with red-

Bus, says new CEO Prakash

Sangam. He has completely

exited and moved on.

So, what was the problem

with the ESOPs? It turns out

that very few people actually

had them. We as buyers met

all obligations, says Kashyap.

Folks who had vested ESOPswere paid in full and the folks

who vested ESOPs later have

also been paid. We gave

IbiboGroup ESOPs to these

people. That is plus plus.

Then there were a large num-

ber who never had ESOPs; a

large number has been issuedIbiboGroup ESOPs.

From our point of view,

ESOPs are an internal mat-

ter of the company, says

Mahesh Murthy, managing

partner of Seedfund, one of

the earliest investors in red-

Bus. Every company has a

different ESOP culture. As far

as the norms we had sub-

scribed to when we invested,

every one of them was fully

met. When it comes to howdifferent employees were

treated within the company,

those are things that are com-

pletely outside our purview.

There are a bunch of peo-

ple who probably felt they

should have got more. But

it is not for us to comment.

As investors, we encourage

broader ESOP pools. But we

leave that to the discretion of

the promoters; thats clearly

the management teams bai-

liwick. Kashyap sums up:Out of the 650 employees,

(there were) two disgruntled

folks. Thats about it.

But werent people

unhappy that they didnt get

part of the Ibibo largesse?

Perhaps. But people dont

feel the same any more,

says Kashyap. Those with

negative feelings have been

out since the past one year.Sangam says its business as

usual. Recently, redBus hit

the milestone of clocking

30 million seats sold since

inception. Adds Kashyap:

redBus is the largest online

bus ticketing platform in

India. When we acquired

redBus, it was 4x the size of

the nearest competitor. We

are now easily 10x.

The redBus story high-

lights an issue that is goingto increasingly occupy cen-

trestage as more start-

ups find buyers. People

in India dont understand

equity, says Sumat Chopra,

cofounder & CEO, EkStop,

an online grocer. At EkStop,

only a handful of

people have ESOPs.

Most employ-

ees would prefer

a 5 per cent increase in sal-

ary rather than ESOPs. Buthe agrees that at redBus, the

vesting schedules were prob-

ably unfavourable.

Chopra, who was with

Goldman Sachs in New York

before he turned entrepre-

neur, is an expert on ESOPs.

He says that he has started

an education programme for

his staff. As an industry, we

have to educate our people,

he says. It wont be easy hold-

ing classes on underwateroptions, accelerated vesting

and cliffs. Too many people

will fall off midway.

Employees in the red?

Cover Story on E-com - Business India

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