Case Analysis on HUL mulls over E-Grocery Market

FMCG INDUSTRY IN INDIA E-COMMERCE IN INDIA 8.4 Million FMCG outlets for 1.26 Billion people worth US$37Billion Major players: HUL, AMUL, NESTLE, ITC, P&G and PEPSICO. Expected CAGR OF 14.7% for the period 2012-2020 Market size is US$16 billion in 2013 Expected to grow by 70% to $26 Billion dollars in 2014 Key Supporting Factors: Smart phones and internet penetration. Major players: EBay, Flipkart, Amazon India, Snap deal, Shop clues.

E-Grocery in India HUL market size of Grocery in India is $160 billion Largest FMCG company in India formed from merger of 3 prominent companies More than 35 brands in 20 categories of everyday products 18 of it brands featured in Nielsen Corporation list of 100 most trusted brands in India in 2012 Market Capitalization is around 1305.51 billion INR in financial year 2013/14 Revenue of Rs. 338 billion in 2016-17 E-Grocery in India market size of Grocery in India is $160 billion 67% of Indian retail sector is grocery business Organized grocery businesses is $12 billion Business market is growing at 30% CAGR and expected to be $17 billion by 2018 Two formats Grocery portal owned by companies Grocery portal owned by third parties

E-Grocery companies in India BigBasket Grew at 10% with average 400 orders a day with ticket size Rs.1000-1100 30% products are specific to a region(Regional suppliers) AaramShop Hybrid model Source of income: Advertising platform LocalBanya Warehouse for non-perishables and daily procurement for perishables ZopNow Offers more than 100 SKUs Fruits & Vegetables constitutes 50% revenue Big Bazaar Direct Franchisees to customers

Major players in Indian e-Commerce Industry Launch in July 2011 Revenues of Rs 3.5 billion in Mar 2014 Planned to achieve revenues Rs 10 billion by 2015 40000 merchants in Apr 2014 Planned to increase to 100000 by March 2015 Founded in 2007, started as a bookstore Expanded to electronics goods, apparel & other products Pioneer of Cash on Delivery as Indians were skeptical of using Credit/debit cards Revenues of Rs 11.8 billion in FY2012/13 476% growth than the previous year Launch in Feb 2010 Revenues of $1bn in 2013 Had 20000 vendors on the platform Featured wide variety of categories such as mobile phones, electronics, footwear etc. Connected with local merchants to provide discount sales Entered e-grocery field in 2015 World’s largest online marketspace Expanded its operation to India in 2004 2.1 million buyers across 4306 cities in 2015 Revenues of Rs 810 million in FY2012/13 60% growth than the previous year Launch in June 2013 Largest e-tailer in India Had to operate as a marketplace rather than a retailer because of Indian Laws Entered with e-grocery arena “Kirananow”

E- Commerce channels of FMCG Companies “ Influence of internet will impact $35 bn worth of FMCG sales in India” Google and Bain & Co. Dabur’s E- Commerce Platform First Indian FMCG to create online portal for its skincare product brand Interactive sections such as “ Ask our expert” Both online payment and COD option were available Physical store locator also available, for locating nearby stores

- Launched online store for home delivery of all its products Coke2Home (Hindustan Coca Cola Beverages ) - Launched online store for home delivery of all its products Minimum order was initially Rs. 300 The company wanted to explore other options of e commerce as well Marico - Entered through various e commerce portals, for: Prototyping new products Test market platforms Pre launched hair wax from Set Wet on these portals, 4- 6 weeks before the retail launch in 2014 Although online sales were negligible, considered as an excellent way to determine market response to new products Contemplated selling niche and high volume products, to reach markets with weak distribution network Ended up gaining 7-8% sales for niche products through e- commerce channels for niche brands

Evolving customer preferences Indian customers are becoming more demanding and value conscious Their habits are changing due to rising incomes, young population, more working women, expanding retail sector, urbanization Increase in internet penetration leads to greater number of online transactions Focus has shifted to convenience, which has broadened the scope of e tailing

Challenges of E grocery Supply chain complexities and low margins Inability to offer a tactile experience to customer Different regions had different preference Difficulty in inter city deliveries Issues related to the security of online transactions Attracting customers to e-tailing sites

Future Ready The five strategies of HUL Embrace Technology Commit to sustainable & Responsible growth Groom Future-ready talent & Capabilities Encourage Value-led & purpose-driven leadership Create an agile & inclusive work culture

Options Sales through e-Grocery companies like Big basket, Aaram Shop, etc. Sales through e-Commerce websites like Flip kart, Amazon, Snap deal , Shop Clues, etc. Establishment of Own e-commerce website for sales Go with existing retail outlets strategy 1 2 3 4

Evaluation of Options E-Grocery Companies Pros: Growing e-grocery purchase trend Customers here are bulk buyers No huge discount issues like in Flip kart Cons: Quick shut down of many startups Available only in Urban while huge market is rural E-Commerce Increasing internet usage Huge reach and good CAGR High chance of channel conflict Margin reduction due to huge discounts Bargaining power low Own E-Commerce website Can be used as test market for new product introductions Supporting preference of new generation customers High Set up cost & High competition Previous failure of Sangam direct Delivery model Customer preference for multiple brands Go with Existing Format Pros No extra cost involved Good retail Channel partner relationship Growing trend of online retail Competitors already having e-commerce websites Risk of popular E-grocers and E-commerce companies selling private labels

Recommendation Provide low selling SKUs to E-commerce companies with huge discount to clear stocks Create Own E-commerce website to use as test market for new products and creating awareness of brands. Future scope of becoming bulk selling to customers Conduct more campaigns and activities to improve relations with Physical retail outlet channel

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