Ecommerce: Unchecked Giants?

In mid-August, a D2C spices brand Zoff, based out of Raipur, Chhattisgarh, announced it had secured Rs 40 crore from JM Financial Private Equity through the JM Financial India Growth Fund III. The investment will support the launch of new products and the expansion into new categories, including ready-to-cook items, condiments, cooking pastes and seasoning kits. Established in 2018, the company now plans to improve its offline distribution network by leveraging general trade, modern trade channels and other retail outlets, having done well so far in tier-1 cities, supported by ecommerce and later quick-commerce led sales since 2020.

“Whatever we are today, it is because of ecommerce and quick commerce,” Akash Agrawal, co-founder at Zoff tells BW Businessworld. “We tried general trade model for two years but we did not get as much success but we knew that something like grocery model will come along and we will grow. So, when we got opportunity, we took it and the growth started from 2020.”

According to a recent report by the Pahle India Foundation, over two-thirds of online vendors saw an increase in both their sales value and profits over the past year, with 58 per cent seeing growth in both areas. Excluding costs, vendors have seen positive improvements in nearly all aspects of their business since they began selling online. Around 60 per cent of vendors feel they now have better market access and have observed higher purchase values per customer. Also, 56 per cent of vendors have improved their sourcing and distribution methods, while 59 per cent have improved their product design, pointing to the positive impact of ecommerce on their operational efficiency.

It is now a well-established fact that if you are a D2C brand, you cannot ignore the power of ecommerce if you want to grow. Brands like boAt, Bold Care, Happilo, iD Fresh Food, Plum and Noise, among many others, have grown to prominence through the power of ecommerce. What once was a formidable challenge in the pre-ecommerce era has now become a seamless and essential platform for establishing and growing presence.

Not A Messiah?
While the e-commerce narrative has largely been a positive missive on its impact on Indian commerce and economy, the Commerce and Industry Minister Piyush Goyal’s recent comments during the Pahle India Foundation report launch threw a giant spanner in it.

Goyal, particularly pointed out Amazon’s business practices and its massive billion-dollar investments, which he suggested are focused more on mitigating losses than on driving economic growth in India.

“When Amazon announces a billion-dollar investment in India and we all celebrate, we overlook the fact that this money isn’t truly supporting the Indian economy. Instead, it’s used to cover a billion-dollar loss they incurred that year,” Goyal said.

He connected these losses to predatory pricing, where prices are set so low that they drive competitors out of the market. “If you incur a Rs 6,000 crore loss in a single year, doesn’t that seem like predatory pricing to anyone?” he questioned, pointing to the potential long-term harm to small retailers and the broader market.

Goyal’s criticism was not limited to Amazon as he questioned the broader impact of ecommerce on the country’s retail sector. While ecommerce is growing rapidly at 27 per cent annually, he warned that this expansion could cause big social disruption, particularly for the 100 million small retailers vital to India’s economy. 

He also spoke on his concerns over how the growth of ecommerce might overshadow traditional retail, which could harm small businesses already struggling to compete. Goyal mentioned the need for a balanced approach, where the benefits of ecommerce do not come at the expense of small retailers’ livelihoods. He also raised concerns about the legality and ethics of ecommerce platforms engaging in direct-to-consumer sales despite regulatory restrictions, prompting a closer look at these practices.

The comments trace back their roots to an ongoing investigation by Competition Commission of India (CCI) against Amazon and Flipkart in connection with their alleged contravention of the anti-trust regulations which has been ongoing since 2020-21.
 

“In India, mom-and-pop stores will continue to thrive in tier 2, 3, and 4 cities, as the quick commerce and ecommerce model may not be as viable there. While tier 1 cities will see a decline in physical stores due to the growth of ecommerce and qcommerce, the demand in smaller cities won’t support the same level of dark stores or rapid delivery services seen in metros.” – Akash Agrawal, Co-founder at Zoff

“The discourse is flawed in assuming only foreign ecommerce companies have a negative impact, while ignoring that large domestic ecommerce firms wield similar economic power. This uneven treatment is unfair. If we’re discussing the negatives of ecommerce, we should evaluate it as a whole, regardless of the origin of capital.” – Nirupama Soundararajan, Co-founder & Partner, Policy Consensus Centre

“In terms of regulation, we should avoid creating barriers that hinder market growth. Instead, we need an open and fair market while implementing protective measures to ensure that the general trade is not adversely affected.” –  Pankaj Mishra, Founder, Gatih Foods Pvt. Ltd (brand Mugdh)

“Currently, consumers aren't complaining about predatory pricing because they benefit from better prices.” – Vivek Gupta, MD-Research, Ipsos India

Earlier this year, the Confederation of All India Traders (CAIT) asked CCI to take swift action in the long-pending case filed by the Delhi Vyapar Mahasangh against Flipkart and Amazon. In a letter to CCI Chairperson Ravneet Kaur, CAIT’s National General Secretary Praveen Khandelwal stressed the critical importance of this case, spotlighting its impact on the livelihoods of millions of retailers and their families. The letter called on the CCI to prioritise the case, issue a final penalty order and direct Flipkart and Amazon to cease their alleged illegal activities. The Delhi Vyapar Mahasangh originally filed the case in November 2019, accusing the two ecommerce giants of engaging in anti-competitive practices that have forced numerous small retailers out of business.

The investigation into Amazon and Flipkart dates back to 2021 when the CCI initiated a probe following allegations against the ecommerce giants. The accusations claimed that these platforms were favouring their own brands and preferred sellers while offering steep discounts, thereby disadvantaging other sellers on their platforms.

Moreover, the consolidated Foreign Direct Investment (FDI) policy dictates that ecommerce platforms receiving FDI are prohibited from engaging in single-brand or multi-brand retail trading activities. As part of its investigation, CCI conducted raids in 2022 on the offices of eight companies, including Cloudtail and Appario, which have business connections with Amazon. However, the scope of the issue is still under consideration by the CCI as it has asked for more information from its investigation team.

“The same arguments made against organised retail 20 years ago are now being used against ecommerce. While the impact may differ, the core concerns remain unchanged. However, since then, the CCI has strengthened as a regulator. Today, Indian companies, including major brands, have embraced ecommerce, and we must distinguish between the origin of capital and its impact,” says Nirupama Soundararajan, Co-founder & Partner, Policy Consensus Centre, weighing in on the debate over predatory pricing.

“The discourse is flawed in assuming only foreign ecommerce companies have a negative impact, while ignoring that large domestic ecommerce firms wield similar economic power. This uneven treatment is unfair. If we’re discussing the negatives of ecommerce, we should evaluate it as a whole, regardless of the origin of capital,” she adds.

Who’s Feeling The Pinch?
A key argument in the ‘predatory pricing’ and ecommerce dominance debate is that brands and sellers voluntarily choose to list on these platforms to gain visibility and establish a presence that would be much harder to achieve through offline channels alone. For emerging brands like Zoff, the strategy has been to leverage ecommerce for initial exposure and brand building. Once established, they shift focus to offline channels, particularly in Tier-2, Tier-3 and Tier-4 markets, which are expected to remain dominated by general trade in the coming years, offering the potential for better margins.

“In ecommerce and q-commerce, having a good margin is essential. Top players enjoy gross margins of over 50 per cent, while ours is around 33 per cent. Despite offering competitive margins and discounts, we are able to maintain a decent margin. As our brand grows, margins will improve, especially as marketing costs decrease, which will boost EBITDA,” explains Zoff’s Agrawal.

Most experts BW Businessworld spoke to said that brands and sellers are not as concerned with the high margins pushed by ecommerce platforms and the pricing competition, as it’s fair play for the visibility and growth opportunity they get.

“Logically, they’re (ecommerce platforms) are correct. I am a new brand, so of course, either I have to give the marketing support or better margins to push my product. So, they will always push you for a better margin, not for the price point. Meanwhile, pricing is completely a brand’s call,” says Pankaj Mishra, Founder at Gatih Foods, which sells its dairy-based products on ecommerce platforms under the brand ‘Mugdh’.

While the public debate is around how ecommerce and quick-commerce are impacting mom-and-pop stores across India, a clear example of the effect is also seen in the apparel sector, where platforms like Myntra, AJIO, Flipkart Fashion and Amazon are starting to dominate. Younger consumers, especially Gen Z, are drawn to these sites for better deals and bargains, affecting both small mom-and-pop stores and larger retailers. Exclusive Brand Outlets (EBOs) and Multibrand Outlets (MBOs) are also feeling the heat, as customers might try on designs in physical stores but choose to purchase online.

A similar trend was observed with mobile handsets in the past, where heavy discounts offered online made it challenging for retailers to compete. “Offline retailers, especially mom-and-pop stores, were significantly impacted during Flipkart, Amazon and other sales events, which offered discounts far greater than those available from local shops. But local retailer activism has reduced the discount gap, as major players now offer less aggressive pricing due to the larger volumes they purchase at once,” says Vivek Gupta, MD-Research, Ipsos India.

As per experts, stores across metro cities are expected to be disrupted significantly in the years to come as quick-commerce players ramp up their efforts and traditional ecommerce players enter the quick-commerce arena.

However, Gupta notes that consumer has been clear a winner. “The consumer is still not feeling the pinch because he’s getting a better pricing the long term with ecommerce. Long-term effects have only happened in an area like telecom where it used to be nine to ten players and now it is three and consumers are starting feel challenges as telecom companies are hiking the prices. But perhaps the prices were unsustainable to begin with,” he adds.

What’s Next?
Addressing predatory pricing and competition is challenging due to several factors. Firstly, it can be difficult to differentiate between aggressive pricing strategies and genuine predatory intent, as low prices may sometimes result from competitive market dynamics rather than malicious tactics. Secondly, proving predatory pricing requires proving that the pricing strategy is intended to eliminate competitors and that the company can recoup losses through higher prices once competition is reduced, which involves complex economic analysis and evidence. 

Additionally, legal and regulatory frameworks can be slow to adapt to evolving market practices, making it harder to address such issues in a timely manner. Lastly, large firms engaging in predatory pricing often have huge reservoir resources, which can complicate enforcement and regulatory actions.

With Indian ecommerce projected to reach $325 billion by 2030, the introduction of a comprehensive ecommerce policy is urgently needed. Yet, even with its introduction, the policy will need to evolve continuously to stay ahead of the swift advancements in ecommerce and the growth of quick-commerce.