Food E-Commerce – Disruption or Disaster?

Food E-Commerce – Disruption or Disaster?

There has always been a dichotomy – does Technology make us better (more productive) or lazier? The jury is still out. 

Ever since Uber Eats launched in Chennai a year back, I have been a big fan of this ordering service. While food delivery has been around for many years now, it was with the advent of funded Start-ups in Bangalore half a decade back that this mode of reaching customers became more mainstream. Restaurants of all sizes started tapping on these small companies run by 20 somethings usually which would pick up food and deliver to the doorsteps of customers. During my decade long stay in Bangalore, almost every second weekend, we would visit a restaurant and atleast once a month would be a house-party at a friend or friends’ friend place. Invariably, the food wouldn’t reach on time and it would be served in basic plastic containers (and sometimes in aluminium foils) – mostly cold. The Microwave (another retail revolution) at every Bangalorean’s home (almost) was just a saving grace. Cut to 2014, start-ups were delivering food packets all day and night and through the midnight in some cases, what with same households making multiple orders in a span of 3 hours, perhaps for starters, main course and even deserts and ice-cream. Business was good, everyone thought.

Until restaurants started feeling the pinch. Companies like Swiggy and Foodpanda who were charging low single digit commission from eateries slowly increased their rates which was hurting the restaurants. Over time, the eateries had no option but to increase their Menu prices, exclusively for online purchases. Customers, as always are smarter than we think. So, they started making their choices wisely. Which saw a slump in orders for the Startups as well as Restaurants. Valuations dipped, so did re-Investments. This was a vicious cycle. Many restaurants (a lot of them start-ups too) went out of business because of this rigged phenomenon. However, thanks to a slowing economy and poor offtake of the over all economy, amongst other things impacing our day today lives such as Demonitisation, GST, hike in Cinema Ticket Prices, Mall Parking Charges and so on, consumer visits to retail centres reduced and there was an indirect positive impact in food e-commerce. Things are back now to some extent, with many restaurants reporting as much as over 25% of their business coming through the digital platforms, of course with higher prices (to consumers). 

Cut to 2017, Uber launched Uber Eats, a digital ordering platform akin to their cab hailing service. Just like how Uber Cabs were charging below their cost of operations, Food delivery was unbelievably cheaper. To increase “stickiness” – a word abused by E-Commerce companies for a decade, Uber started with Zero delivery charges for the first few weeks, so consumers experienced their world class (sic) delivery service. No doubt, App downloads swelled and today perhaps has more active users than other platforms, thanks to their EDLP akin to Wal-Mart & Sears: Everyday Low Prices on Food items. Quite literally. In fact, for ardent users of Uber Eats, the App is actually a discovery App. Every time they open the App, there is a new addition of a restaurant and wonderful prices, mostly predatory. And of course, some of the previous names (of restaurants) would be missing for obvious reasons.

When I experienced one such surprise last month, a flask of Tea and 3 Samosas were offered at half the price by Uber Eats with a Rs. 10 delivery fee. Today when I ordered, it was offered at 33% discount. I still ordered because it was absolute VFM. I guess in a few days, they would straighten up the prices but the Delivery Fee would remain low, thereby retaining the customers. I only wonder how long this party would last. Needless, there is abundance PE Money lying out there. But is this whole food e-commerce really helping the ecosystem? Are restaurants only to focus on their delivery business and if yes, why run restaurants at all? Perhaps, dark kitchens would do. And for Start-Ups, well Uber is not one, how long would Entrepreneurs keep the engine going with deep discounts? A number of eateries who aren’t offering the food online are already impacted. What happens next? Very soon, I plan to order on Uber Eats sitting in the lobby of a Mall, so I get the food at a lower price! Would be interesting to see how this works. 

SS EOSS 2018 is a full house

After a long time, I went shopping. Once again, of course during EOSS popularly known as End of Season Sale which usually occurs twice a year after each season is over (SS – Spring Summer & AW - Autumn Winter). I recall, during my days at Benetton in 2004, there were not more than 3-4 weeks of EOSS, which would begin right after Valentine’s Day (late-Feb) & just before Ganesh Chathurthi (July). There would be a frenzy among Customers to get the best merchandise at lower prices during this time and the EOSS was a great crowd puller. A number of first time customers would turn up at the stores, those who’ve otherwise not been the Brand’s patrons earlier. They would engage with the Brand, the Staff, take Trials and purchase. If they liked what they wore, they would come back and buy again, even at full prices. Therefore, EOSS was a great tool to induce first time buyers (of a Brand).

Things started changing slowly, especially between 2006-2012 during the Retail explosion pan-India with over 300 Malls opening simultaneously across the country. What was supposed to work “for” the Retailers and Brands worked “against” them. Let me give a perspective;

Let’s say, Brand A had 3 -5 stores per Metro (around 2006) and a small presence in 1-2 Department stores. Circa 2012, the same Brand had a dozen or more stores plus larger counters at various Department stores in the city. Add to this, so many International, Domestic & Regional Brands started exploding the retail scenario in the country with total shopping space quadrupling every two years. 

All of a sudden, customers had too much choice, and at better price points. If a (Male) Customer had 4 brands to choose for Formalwear earlier, there were atleast 20+ brands in the same space now. Similarly, for casualwear & sportswear while new categories like fitness & lounge wear were created.

Meanwhile, the Bansals were building E-Commerce websites which offered clothes and accessories at half the price (like books!) and they called it disruption. It was indeed, that Customers could shop from their desks or sofas – just that a few Brand Managers got it all wrong. While pushing unsold merchandise to e-commerce (at discounts), thanks to a general slowdown in Retail Sales, even fresh Merchandise were being sold at lower prices than at stores. Mall Owners were gasping, feeling high and dry with footfalls barely hitting the precincts during the weekdays and largely window shopping over the weekends. Everyone was talking E-Commerce. So many Brands built their own websites while most of them who wanted an online presence aligned with E-commerce Marketplaces like Myntra & Jabong, as well as horizontal players like Flipkart & Amazon. 

As an ecosystem, we (Retailers) pampered Customers to shop online, return if they didn’t like what they bought, get a 100% refund if they deemed fit and encouraged them with a variety of discounts. This became a daily habit and more Brand Managers were getting intrigued with this incredible opportunity. All along, many Retailers missed meeting Customer Expectations at the Retail Outlets. Customer Engagement was negligible, Customer Service levels were dropping and the Staff were getting impatient not being able to earn more, thanks to a fall in their Incentives which was directly linked to lower Sales, thanks to fewer footfalls. The cookie crumbled. Many Brands shrunk their operations, some exited less important markets and a few downed their shutters. 

It’s been reasonably slow the last 4 seasons for most Retailers. However, I saw something incredible last weekend at one of India’s largest Department Stores. Customers were patiently waiting in a long queue to bill their products which took an average 20 mins during peak hours. Add to this, they have already spent quite some time trying out their outfits at the mobile trial rooms set-up. I was convinced, Customers haven’t shunned Offline Retail. They will come back to the stores when they see “value” for what they buy coupled with fantastic / personalised service. Ofcourse they are here for discounts right now, but then, the same discount is available on their Mobile Apps. So why did they come? Think.

Is Consumer Loyalty Dead?

Commencing this weekend (23 June), almost all Fashion Brands in India will go on EOSS – End of Season Sale, a biennial activity that has been witnessing a higher share of annual sales. When I used to work for Benetton as Area Manager in 2004, things were different. There used to be EOSS Twice a year followed by the “seasons” as they are called, viz., “Spring Summer (SS)” and “Autumn Winter (AW)”. EOSS would usually start after Valentine’s Day in the hope that shoppers would still shop at full price for the big day to impress their dear ones. And the next EOSS would occur after Schools and Colleges have reopened, just ahead of the Festival season that usually begins from August onwards. Slowly, things started changing, rather realigning to Global trends. Many international brands had to match their Global Fashion Calendar and the year-end Christmas Sales, so the EOSS was pushed to December & January and accordingly the next EOSS moved earlier to end-June. And that’s the current trend now.

From Apparel Department Stores to Mono Brands, almost all Brands try to exhaust their Stocks during the EOSS. Interestingly, 15 years back, EOSS was restricted to a little less than 3-4 weeks. However, now it has moved to 6-8 weeks. There are many reasons that could be attributed to this;

• There is limited seasonality these days, in a sense Customers shop all through the year compared to “Occasion-based Shopping” such as for festivals, wedding season, special occasions etc. So, while the lean periods through the year have more or less flattened, the demand spread has also evened out
• Ever since the 2008 Economic Crash worldwide, Customers have become wary of spending high on products which would eventually be available at a lower price in a few weeks (sic). While India saw a boom in Mall culture between 2009-2014, the sheer number of Brands and their availability all through the year have been a cake for the Customers with easier accessibility 365 days
• While I am not a big fan of “E-Commerce killed Offline” theory, it is a fact that there has been a reasonable impact for fashion brands, especially. This is mainly because the unsold Inventory were pushed to their digital vertical by Brands to liquidate the stocks and over time, the likes of Jabong and Myntra have become more of “Factory Outlets” where discounted Merchandise are available, always. It is no wonder that the share of products which are on Full Price on such Ecommerce Marketplaces is relatively low compared to those on Discounts. Actually, this is applicable for all categories
• Department Stores offer a larger “Discount Pie” compared to the Mono Brands, given that most of them operate on a “Buy and Sell” model with no stock returns to the Brands. Therefore, in an effort to reduce the impact of their exposure to unsold Inventory, Department Stores offer aggressive discounts & promotions to ensure they clear old stocks as much as possible. 

So, with all the above factors taken in to account, I wonder at times, is there “Brand Loyalty” left anymore especially for the Fashion Brands?

When was the last time, You – the Reader of this Article, bought the same Brand of Apparel or Footwear or Watch or Sunglasses? Are you wearing now the same Brand that you wore yesterday? If two Brands are offering similar discounts during EOSS (or even at full price), would you buy a particular Brand? If so, then why?

So, the responses could be very subjective and suits each one of our needs. 

Honestly, I do not see Consumers clinging on to any particular Brand and I attribute it to two reasons – variety offered by over Top 500 Indian and International Brands (and Labels) across products categories from Perfumes to Casual wear, formal shoes, running shoes and beyond. 

Are you rewarding your Loyal Customers just with just Loyalty Points, Sale Previews and price-offs? Is this going to be sustainable at all in the long term? 

How would you retain them for longer – LTV as they say, Life Time Value (sic)?