How do you look Tata Digital’s shopping spree? What are the challenges here that the company faces?
This is a milestone moment — a large, traditional conglomerate has taken the big, bold step of paying a premium to acquire new-age digital companies. It’s not normally done in India, because people like to build it on their own. They do not like to acquire loss-making companies which is not EPS accretive. So, it’s a very welcome, bold move.
The world is clearly moving online. Covid has only accelerated it. Online commerce makes a lot more sense because it’s several orders of magnitude cheaper to sell online in a vast country like India than to build tens of thousands of stores. You are already seeing the likes of Kishore Biyani and other struggling.
India is still very early in the game. It makes sense for large industrial companies like Tata and Reliance to bet on this sector now that they already have done traditional retail and can leverage all the learning instincts and stores they have built over the years.
Indian economy, needless to say, is one of the fastest growing in the world. Indian consumer market is one of the largest. US and China are also huge markets, but they are fully developed. So, it’s great to see this happening in India.
I like it also because when they bring IPOs in India, that enables the Indian retail investors to participate in the growth. Otherwise, all the value creation and capital appreciation go to foreign funds and foreign investors.
Paytm, Zomato going public in India, with potentially Tata Digital also going public, is a hugely positive development. It answers questions like where are the exits in India, how will loss-making companies ever make money, how will they exit, etc. All of that has now been done.
Now, Super app is a completely different story. China has really confused everyone. Which app, for instance, is big because messaging is at the core of it and messaging is the highest frequency activity consumers indulge in. Equivalent to WeChat in India is WhatsApp. Now how the Super app is going to help in India is a question that we need to answer.
Tencent, for example, used tens and hundreds of millions of users who live on WeChat to build a Super app. They added gaming, they added commerce, they added payments, they added ticketing — almost everything. The users and usage were already there.
To start building a super app, it really require a core functionality which is super high-frequency. Messaging is the best, payment is slightly less so, commerce is not frequent except in fresh fruits and vegetables. That is where I think this BigBasket and medicine acquisitions make sense.
Merely adding a lot of categories into one app does not really solve the problem. The core problem of acquiring millions of users still remains. Besides, consumers can always order what they want on individual apps. That really is the question.
So, how are you going to build a super app in India where a WeChat-like entity is not there? Facebook’s investment in Reliance makes sense if we assume WhatsApp as the super app. But it’s still very early stage; there’s a lot to play out in this particular space.
Amazon is trying to build more and more traction with users, Reliance is getting into the game. How can Tata Digital ensure that it is in the race with the other giants?
Firstly, like I mentioned, we only have scratched the surface in the retail sector. There is a lot of headroom. I do not see real competition yet.
If we go back a few years when Amazon entered India, people said Flipkart is finished, how will Flipkart even compete, and stuff like that. But both of them grew tremendously, and are still growing. That’s because they are not growing at the cost of each other; they are growing at the cost of offline coming online. Covid has only accelerated it. So that is point number one.
Two, there are two distinct ways to get products to consumers. The first is using national-level distribution channels like Amazon or Flipkart, where products can be shipped anywhere in the country from warehouses. The second one is hyper local distribution — DoorDash, BigBasket, Swiggy, where products are shipped from a nearby dark existing store.
Most products can be delivered by either method. But fresh products — foods and vegetables, restaurant food, etc — can only be delivered by hyper local companies.
Now these are two different things. The moment you go hyper local, it means you cannot do one national strategy. You have to take on city by city, neighbourhood by neighbourhood. You have to fight with your competitors in each city separately.
So automatically, it is almost like, say, a school business. You can have one great school in Delhi and another great school in Chennai. No single school can cater to everybody, because it is a physical school, you have to do that stuff.
Both of these require huge amount of capital. I think there is enough room for everybody to grow, for everybody to build their businesses. So I do not see a challenge of competition eating into it. Obviously, you have to stitch this together, you have to build the right culture, you have to be able to ensure that the customer keeps coming back, but that’s about it.
Just to take an international example — what is the biggest, hottest thing that is happening abroad? It’s DoorDash, a $40 billion US company that started with food delivery and is now in groceries, is on-boarding locals stores in other categories (Macy’s for fashion is an example). And in future, they can well add something like BestBuy for electronics, Staples for office products, millions of local stores that have products that Amazon has and more.
Now tell me — is not it more efficient to deliver electronics or fashion from an existing local store than to carry your own inventory, build large warehouses, invest in nationwide logistics networks? So, that entire gamut is now open for Tata or for Reliance.
One good way for Tata could be to start with BigBasket and then add to it. So look at it like this: be a DoorDash and not an Amazon.
Amazon, of course, is great. Amazon will grow. But see, Amazon is making money from AWS, it is not making money in retail, while DoorDash is a $40-billion company in retail.
To sum it up, there is great opportunity in the hyper local model. At the national level, we have Flipkart and Amazon are there, and we may have a couple of more large players — Reliance and Tata can become big. But the rest the field is still fully and completely open. Competition is really not the issue; taking share from offline is the issue.