India’s retail system needs more Udaan-like models for the unorganised market

• Retailers can be served better by multi-category platforms as they seek competitive rates, says Redseer report.
  
• Multi-category platforms like Udaan have gained market share to reach 55-60% of the retailer-led eB2B market.
  
• India’s eB2B market is projected to grow from $5-6 billion in 2022 to $90-$100 billion by 2030.
  

India’s vast retail system comprises a variety of sizes – from the local general stores or kiranas to the organised big players. This whole system is supported by a large, haphazard and unorganised system of wholesalers largely. However, in order to grow to its true potential, the retail system will have to bank on organised electronic business-to-business (eB2B) players going forward, according to a report by advisory firm Redseer.

The rationale for the argument is that India is a potential $950 billion retail market and thus will do better if served by multi-category platforms, which in turn will smoothen processes for the front end player. Multi-category platforms offer products across groceries - both staples and FMCG, electronics and accessories, general merchandise, fashion, and others.

Current picture

As per the Redseer report, there are few such big eB2B platforms which have a pan-India play currently. Most are eB2B platforms that operate in fewer categories or verticals and access regional and national levels.

“Over the last few months, many of these vertical platforms have been struggling, and across categories have shown limited growth/ been flat or declined due to challenging unit economics and prevailing macro-economic conditions, while multi-category platforms like Udaan have gained market share to reach 55-60% of the retailer-led eB2B market,” said Mrigank Gutgutia, partner at Redseer. Udaan is a B2B trade platform, designed specifically for small and medium businesses.

Why multicategory platforms?

Retailers are dogged by many issues that come with an unorganised market, and there is a case for new-age eB2B platforms that can solve these issues.

“The fragmented market puts retailers at a disadvantage procuring from traditional channels owing to price opacity, slow/no deliveries, stockouts, and inconsistent product quality, among other challenges,” says a Redseer report.

Retailers who decide to take their business online from the traditional channels, seek competitive rates across categories, and might have to resort to multiple B2B suppliers.

“For instance, a retailer might procure rice from a particular eB2B platform and choose a different one for detergent. Unless the same platform can offer both at competitive rates, the retailer would buy from different platforms based on their margins,” Redseer said.

Enabling this competitiveness requires cross-leveraging capabilities and costs, and multi-category first-party (1P) platforms with inventory-based models have a distinct advantage, the consulting firm says. While grocery and staples provide them with volumes, discretionary items might be able to drive margins — both which are needed to be in this large market.

Growth path and way forward

According to Redseer, India’s eB2B market is projected to grow at a compound annual growth rate or CAGR of 40-45% – i.e. from $5-6 billion in 2022 to $90-$100 billion by 2030.

“Growth in this market will be led by deepening penetration among retailers across categories and geographies, and a higher wallet share for eB2B platforms. Retailers will get habituated and reap the benefits offered by these platforms, such as cheaper procurement, faster deliveries, higher fill rates, and consistency in product quality,” said Mrigank.