Rural market for e-commerce in India likely to be a US$10-12b opportunity in the next four years

  • The total e-commerce sales may likely to grow at 32% compounded annual growth rate CAGR from 2017 to 2021

It is estimated that the rural e–tail market presents US$10b-US$12b opportunity for e–commerce firms in the next four years. This can be attributed to the rising household incomes leading to an increase in consumption expenditure, diversified income sources from non-agricultural activities, positive agricultural outlook, increase in internet penetration, high propensity to spend and rising number of nuclear families in rural India, according to a new EY report, Rural e-commerce : The untapped potential.

The report states that demand in rural India is geography specific and would require considerable localization. Further, while rural customers are aspirational and desire to own branded products, they are also price sensitive. Hence, companies need to create the right balance in their product mix comprising both value-for-money, unbranded items and branded products, which cater to their aspirations.

The report also highlights that to gain traction in the rural markets, companies would be required to rethink their business models and focus on demand generation, supply and services innovation. Companies should: 

  • Offer an easy line of credit by partnering with financial organizations that help with micro-lending will enable spending both from businesses and rural customers.
  • Leverage on existing social structure and infrastructure to create awareness and trust among the customers.
  • Ensure product curation and rationalization across geographies while identifying the right category–product mix with the share of unbranded, branded goods and comparable private labels, which would help improve the unit economics of serving to the rural customers.

Ankur Pahwa, Partner and National Leader – E-Commerce and Consumer Internet, EY India, says, “Rural online retail opportunity is clear and present for aspirational rural India; however, success will come for e-commerce companies that continuously innovate to engage consumers, especially with those users who are online but are not transacting on the internet or are limited to only using online channels for availing specific services only.  E-commerce companies will need to innovate on distributed logistics, building trust with aspirational rural consumers and providing them with right category-product-mix through product curation and rationalisation” 

The report finds that while the metrics and potential user (semi-urban and rural) numbers are impressive, this segment of consumers will be harder to engage and win over:

  1. Language and trust is a key engagement factor and given the diversity, the more regional you can become, the better conversion you are likely to get.
  2. Access and transport infrastructure is another challenge and hence supply chain efficiencies, sourcing and logistic partner selections are significant strategic levers.
  3. Product portfolio and curation is fundamentally important as diversity results in significant micro markets, which requires sharper selection of merchandising.
  4. Innovations around distribution and logistics are important elements for efficient delivery and depth of servicing.
  5. Lack of touch, feel and fear of poor after-sales services will need to be addressed through assisted sales and omni-channel physical presence.

Ankur Pahwa added, “Effective use of vernacular languages and assisted commerce will help drive the large rural online opportunity for e-commerce firms looking to accelerate growth beyond the favourable industry metrics. The key will be to create business models purely with this customer segment at the centre of all operations and seamlessly intertwining the physical and digital worlds into a single touch point with the rural customers.”

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