Tier 2+ India now drives 80% of e-commerce🤯
The inflection point for D2C is here.
Welcome to the 190th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more
The myth that India 1 drives e-commerce sale is outright wrong. This year, Amazon & Meesho saw over 80% of sales coming from Tier 2/3/4 India. The e-commerce adoption is changing & it's an inflection for D2C.
Here’s the insight behind the inflection.
First, it's the under ₹500 apparel for Meesho while it's smartphones for Amazon/ Flipkart - something everyone makes a negligible margin on. But, these are entry products to the "BHARAT" Janta buying online for the first time.
Second, most think the price parity and value customer vanilla insight drives online. But credit cards and EMI drive online purchases more than anything else. Which brings us to a fascinating number.
Third, the number of credit cards issued went from 57 million 3 years ago to ~80 million in the last 3 years. The sheer amount of money spent using credit cards surpassed debit cards early this year (April 2023). Please note, that credit card issued grew at a staggering 42% year-on-year in Tier 3+ towns of India.
Fourth, the logistics equation, especially for remote pin codes was broken for so many years. We have finally come back and can ship <500gm items almost to every pin-code in India in under ₹140 with a 3 to 5-day delivery timeline through the Amazon/ Meesho's of the world.
100% of India's serviceable pin codes are covered by Amazon’s delivery network.
Fifth, e-commerce is finding product-market fit with Tier 2+ towns. Most e-commerce orders are from existing customers → perfect sign of healthy retention if you realize the scale at which these giants operate.
Meesho has reached over a billion orders a year, with 85% of them coming from repeat customers. Known to primarily target value shoppers in Tier III and IV cities, Meesho’s non-fashion categories grew by 120% over the last 12 months.
Building a $100 million D2C for India?
Pay attention to what you are about to read.
Your cost of adoption is going down💰
Building a $100 mil business is hard if you can’t have a $10 ARPU product offering that can be sold to 100 million/ 10 Cr Indians. With these giants making even Tier 2 India adopt $10 ARPU products, the pain of educating the customer to buy online is lower - solves D2C first-time customer acquisition cost to an extent.
D2C with access to credit will win 💳
Online first customers want access to credit right on the checkout page. Those who will solve this elegantly will reap the benefits of high cart conversion rates. Access to credit features is non-negotiable.
ONDC will solve API driven logistics ⚡️
Even the Meeshos, Amazons’ of the world are exposing their logistics API using ONDC - a great way for anyone to build D2C on top of existing logistics infra - no capex, entry barrier to start D2C has never been lower.
Consumption-driven D2C will find repeat users 🤯
Don't build something that isn't a "frequent consumable". This is true for D2C having a marketplace play. If you don’t have a frequent buy product, freaking build one. Plus, pricing remains the key factor in all of this - never forget the shallow depth of the Indian consumer market vs pricing while building this.
Interesting times for D2C in India.
I wrote a related article on why you need to sbuild a $10 ARPU/ $10K ARPU, especially when you build for the consumer market in India if the goal is to hit that $100 million goal. You can read the full article below for free.
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It will be interesting to see other metrics like AOV and total GMV coming from tier 2,3,4 cities, because those metrics would really show if these geographies are UE positive with a healthy LTV : CAC ratio, otherwise metrics like number of orders, active user base etc. are all vanity metrics...
One needs to see whether this becomes a pattern or is a one off. As a one off it could be a one time aspiration after years of not being able to have something but then normal consumption patterns return.
Keeping an eye on this will be critical.