Blog Chain 5 : Why electrical retail distribution – a real opportunity

I have believed for a while now, online technology is like the gold rush of the 1840’s. Technology has opened up an entire new industry within every industry and beyond, globally. 

Where artificial intelligence will take us is something most of us cannot fathom however technology and internet has already given the world, the ability to communicate, account, organise, scale a whole new meaning. It has given accessibility a whole new meaning.

When we think of E-commerce, what comes to mind? (other than the names of Flipkart and Amazon) Order anytime, anywhere, get great prices and pay as you prefer. What started as books getting delivered now extends to even a coffee being delivered to your doorstep. It has given access to shopping, reservations, services and various other needs and conveniences for our day to day life a whole new meaning.

Still e-commerce accounts for just about 3% of market share.

Of course being a newer industry, it has a long way to go, growing in double digits, and that shows in the valuations of current e-commerce start-ups.

But offline retail is also here to stay.

Electrical Stores, as discussed, in the blog on verticalised retail distribution, are the 4th doppelgänger of the famous four pillars of hyper local retail distribution in India.

Electrical shops in fact, present especially strong reasons for their continuation.

Specific reasons, for the need of electricals retail shops:

  • A home or business owner(end-user) will be paying for & using the product, but the person purchasing from the shop is an electrician. Hence a purchase without either of the two being involved is unlikely, which in turn reduces the benefits of online ordering.

Since 2 separate individuals are part of the buying decision, it is difficult for either one to buy it online simply in their own time.

  • Technical requirements are, difficult to understand for an end user, due to a lack of electrical knowledge and multiple variables.
  • Safety precautions are critical here as a wrong product or quality can be extremely dangerous in this segment
  • Authenticity and product reliability are critical and which are difficult to control in large online markets unless they have a deep vertical focus.
  •  Currently the usual way the Indian economy works, the installers (electricians) usuallymake the purchase on the day of the requirement for installation and not in advance which an online purchase might require.
  •  Electricians purchases are usually on credit, from their local store and they require flexibility on payments and other nuances, which only a smaller personally managed retail store owner can provide.

Some pertinent learnings & insights, in the electricals space.

(Basis decades of on-ground experience)

  • Generally, a large percentage of sales in India are via the local retail shop networks, and these will continue as discussed above and in the previous blog hence there is a large opportunity in the distribution of electricals to retailers, an under-served, un-organised segment.
  • Due to the Indian economy formalisation in recent years, margins have become very tight, with consolidation of various stakeholders needed for survival.
  • Not removal, not replacement, but consolidation. Consolidation of offerings, brands, technology, supply chain.
  • Electrical manufacturers are realising at the huge potentialof retail distribution, and trying to solve issues of distribution, man-power dependancy/inefficiencies and communication to reach and better serve the smaller localities.
  • Manufacturers often face losses due to failed product / scheme launches, which are a result of, unorganised and inefficient distribution and communication.

Companies that are looking at organised distribution and are working on harnessing the scale and opportunity of retail distribution are seeing their valuations multiply.

  • Individual brand / manufacturer offerings make it difficult for retailers to co-ordinate with multiple suppliers, maximise scheme benefits and manage 100s of SKUs separately for all the brands they stock.
  • Electrical manufacturers need organised distributors, the electricals space due to being one of the oldest industries with smaller local players, lacks the same.

This is where the opportunity lies to offer a unified sales and distribution channel to lakhs of retailers and distributors optimising the channel and improving man-power efficiencies.

We believe organised electrical retail distribution, presents a massive opportunity, based on in-depth domain knowledge, and one that will survive and thrivein future.

Hence our foray into electricals, the backbone of progress since, while daily consumables, medicines, books, electronics, groceries and appliances could increasingly shift to online purchases,the electrical retail store is here to stay.

Acknowledging Brijnandan Mundhra as contributor to this chain of Blogs.

Retail sales are 10% of the Indian GDP. Why many, including Reliance is betting big on this space.

Quick recap:

Blog Chain 1 (Pun intended) : A new world was created by the famous Mr. Edison. While new age technologies in focus include Blockchain, Electric Vehicles, AI and more, going un-noticed is the un-organised, understated, under-discussed industry : the critical backbone of progress, the electrical industry.

Blog Chain 2 :India, The world’s largest democracy with population, potential, and progress. Behind every initiative for development, is electrical power, that runs all things that signify progress.

Blog Chain 3 :B2B Distribution models, the role of technology and its potential future.

Continuing to… Blog Chain 4

Retail sales are 10% of the Indian GDP. Why many including Reliance is betting big on this space.

Ref : : Govt. Of India Initiative

Introduction The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-largest global destination in the retail space.

Market Size India’s retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle class and increased digital connectivity. Online retail sales are forecasted to grow at the rate of 31 per cent year-on-year to reach US$ 32.70 billion in 2018.

India is expected to become the world’s fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various agencies have high expectations about growth of Indian e-commerce markets.

Road Ahead E-commerce is expanding steadily in the country. Customers have the ever increasing choice of products at the lowest rates. E-commerce is probably creating the biggest revolution in the retail industry, and this trend would continue in the years to come. India’s e-commerce industry is forecasted to reach US$ 53 billion by 2018. Retailers should leverage the digital retail channels (e-commerce), which would enable them to spend less money on real estate while reaching out to more customers in tier-2 and tier-3 cities.

 It is projected that by 2021 traditional retail will hold a major share of 75 per cent, organised retail share will reach 18 per cent and e-commerce retail share will reach 7 per cent of the total retail market.

 Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes, favourable demographics, entry of foreign players, and increasing urbanisation.

Ref : Wikipedia……. While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include: Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods.[42]

A number of merger and acquisitions have begun in Indian retail market. PWC estimates the multi-brand retail market to grow to $220 billion by 2020.[43]

Reasons for retail shops in every locality:

  • Large diverse population, with distinct customer preferences varying by location, requiring localised customisation
  • Complex eco-system and infrastructure requiring deep local knowledge and presence to successfully serve needs.
  • Hyper local and instant availability, needs and benefits

Verticalised Retail

We strongly believe in the sustainability and potential for unit economics (also real scale), with a vertical focus in B2B.

There are many start-ups that are sector agnostic and looking at all B2B distribution from Electronics, FMCG, Garments etc. (and getting sky high valuations due to this), and in theory everything is possible, but practically we think its very difficult.

The main verticalised retail segments below, are those that have a recurring requirement, have hyper local needs including same day, same hour delivery preferences, with a presence in every 1km of area inhabited. Segments with a presence in e-commerce, but with a continuing and growing need for retailers.

We have not gone into detail for other verticals like garment, paint, other boutique shops, as the need for these to be hyper local is potentially not as critical.

Kirana, FMCG Shops : For day to day home consumable needs including food, drinks, toiletries etc. FMCG brands are large, often global players and hence distribution is organised comparatively. Further these can easily be bought online, as usually a store does not give additional information, product expertise or product experience, besides packaging that might prove as an incentive for a purchaser.

Reliance with an estimate of 5 million shops by 2021, Natures Basket, BigBasket and more are looking at the FMCG space.

Chemists, Pharmacies : For medical requirements and also toiletries. Pharma, since is handled by large companies, also has begun its journey to using technology for organisation. This is easily ordered online as brands and medicines are easily identified, ones that require prescriptions are seeing different trials for solutions and this does not require a touch and feel experience store.

Netmeds is doing well in reliable distribution and franchise of Pharma. Companies like Practo – will enable Pharma companies to solve the prescription issue.

Electronics and Appliance Shops : Electronics as a new industry, is substantially more organised. These include shops offering home appliances like mixers, toasters, ovens to now electronic shops selling mobile phones and accessories. Often also easily bought online and optimised by the larger e-commerce players. Retail shop becomes more of experience store and not necessarily a purchase store as end – users can buy this from websites directly.

Paytm, Amazon and many others offer a great experience to service the needs of electronics purchasers.

What is the other vertical you see everywhere? What do you need in your house as regularly and with same day fulfilment requirements?

Your local electrical store,
and why it is here to stay.

Electricals & Tool Shops : These shops cover various electrical requirements including electrical wires and cables, communication cables, switch-gearjunction boxes, fans, lighting and more. Often these shops also sell hand tools as these shops are frequented by electricians and are a parallel sell, for needs during home building, renovation or fixing/maintenance.

Electrical Stores are the 4th doppelgänger of the famous four pillars of retail distribution in India, one of the largest of the 8 core infra industries and present strong reasoning on why they will survive and thrive in future, not only as an experience store.

Our insights in this space and plan with coming up in the next blog..

Note: We have not gone into detail for other verticals like garments, paint, other boutique shops, as the need for these to be hyper local is potentially not as critical.