Market Mix - Will The New Quick Commerce Bet Work?

Good morning. Premiumisation has become a buzzword in the Indian economy, be it cars, homes or other goods, it is the luxurious ones that are selling. On the other hand, there has been a slowdown in sales of entry-level cars or affordable homes. Rural consumption hasn’t been that great either. But premiumisation alone can’t make a growth story for India and the auto sales numbers are telling us that. Read on to know more. 

In other news, e-commerce players like Flipkart and Amazon are planning deliveries as fast as your groceries. But will it work? Meanwhile, even graduates from India’s most prestigious engineering institutes aren’t making that much money. 

THE TAKE

Reading The Right Signs: The Wealthy Cannot Drive Economic Growth

Initial estimates for August are telling us that auto sales are slowing again. Domestic car sales saw a decline thanks to lower demand and high inventory with dealers, running over 70 days in many models. India’s largest car maker Maruti Suzuki, has reported a 4% decline year-on-year in August. That decline figure would have been higher if there wasn’t a 6% growth in exports.

Tata Motors also reported a 3% decline in passenger vehicle sales, though Mahindra & Mahindra posted a 16% increase, reported Mint. Automakers are now pointing to the festive season which has kicked off. However, it is not clear at this point whether it is hope or reason that is driving the optimism. This is not to say that sales will not pick up in this festive season, they likely will, but by how much is the question.

Dealers have to clear at least a month’s inventory for the auto industry to reach some stability. The larger point is the data and our reading of it. The build up in inventory levels for passenger cars has been staring at our faces for several months now.  The Federation of Automobile Dealers Associations (FADA,) representatives of which have appeared on The Core Report almost every month, has been consistently pointing to the inventory problem. So far there was no conclusion about a major demand problem as such. That in itself is a problem —  we seem to be not interpreting data properly even when it is staring right at us.

There could be many reasons for this, including the possibility that other data sets were sending contrary signals. But hasn’t been the case, at least in the recent past. Demand has been slowing at lower-level entry points, be it cheaper car models or affordable housing. Relatively premium and more expensive brands have been doing well.

Earlier this week, at a conference in Mumbai organised by Elara Capital titled Rethinking Brand Modi, the former deputy governor of the RBI, Viral Acharya, made a fairly logical point. Acharya said India cannot rely on wealthy individuals to drive growth and expect the overall economy to improve.

Acharya argued that after Covid-19, rural consumption and investments had weakened. This is a different discussion of course but here is the logic — a rich person earning Rs 100 extra will put it into financial assets whereas a poor person will spend that Rs 100 and also boost consumption in the economy. When the rich keep getting wealthier, they have a savings problem, Acharya said. Moreover, since funds can’t go out of the country that easily, they chase the limited financial assets within the country. That explains both the slowing of consumption at the lower end and the expansion of financial assets, including stock markets, at least partially. 

This also explains the rush for premiumisation as we have called it in recent years. Premiumisation has happened across products and services as producers and marketers target the more affluent in the hope that they will trade up rather than putting that money in financial assets. Obviously, this strategy has worked. But this also means that the propensity to consume premium products also has to and likely is starting to plateau. And then it is back to the mass market. So let's see how this festive season is and try and read the data better.

DECODE THE NEWS

E-Commerce Giants Join the Quick Commerce Frenzy, But Will It Work? 

We are familiar with quick commerce platforms that deliver food and groceries in minutes, but now e-commerce parcels could arrive in minutes too. Yes, that just happened recently when a Bengaluru man ordered a laptop on Flipkart Minutes and got it in 13 minutes.

E-commerce and hyperlocal logistics firms like Ecom Express, Flipkart-backed Shadowfax, and Loadshare are jumping into the rapid delivery trend to capitalise on rising order volumes.

“We have been planning the quick deliveries model for e-commerce for a while now, and it has been under pilot for six months. We are working with many D2C brands like Nykaa and Myntra, though some are still figuring out the costs for this service,” Praharsh Chandra, co-founder and chief business officer of Shadowfax, told The Core.

While quick commerce players are known for 10-15 minute deliveries, e-commerce logistics providers might deliver within three to four hours. But is there a demand for such quick deliveries for electronics and other non-essentials?

“Way more than one would imagine. While today it is not a must-have, it is very good for your business. It gives a seller an edge over their competitors,” Nayaan Ratandhayara, founder and CEO of Shipyaari, told The Core.

Want to know more about how the new service differs from quick commerce platforms and what will be the delivery cost for such premium services? 

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CO:RELATION

Zomato Zooms

In 2024, the share price of delivery company Zomato has doubled. The Nifty 50 is barely up 16%. At a time when valuations are rich, investors are buying into the company’s quarterly financial results and their expansion into the ‘going out’ category through an acquisition. Share prices of companies that acquire a business of over Rs 2,000 crore usually react negatively. However, in the case of Zomato, the market believes that the acquisition would be incremental to the business and future profits. 

The trend in the Gross Order Value (GOV) across food delivery, grocery, and going-out businesses determines the growth path. Zomato has said that it is performing well on all parameters. The credit must be given to how the company communicates its financials. The published granular analysis pushes analysts to ask only meaningful questions to the company in a 45-minute analyst call after financial results. The company management has promised to maintain the growth in GOV at over 20% (close to 30%) and maintain operating profit margins between 4-5%. Zomato is two-thirds owned by institutional investors.

🎙️ HOW INDIA’S ECONOMY WORKS

India’s Endless Struggles Against China’s Exports Dominance with Ila Patnaik

In this episode, Puja Mehra talks to economist Ila Patnaik about the complex challenges India faces as it strives to compete with China's export dominance. They talk about the uncompetitive infrastructure, higher labor and energy costs, and irrational tariff structures that hinder India’s manufacturing sector. Patnaik discusses the impact of China's post-COVID economic slowdown, its focus on exports, and the implications for India. She argues that India must address its internal economic issues before considering protectionist measures, and emphasises the need for a comprehensive strategy to counter China's export-driven model.

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CORE NUMBER

$11.1 trillion

This is estimated to be the contribution of the tourism industry to the global GDP in 2024, according to the World Travel and Tourism Council. The non-profit membership organisation also said that a record $1 out of every $10 spent globally in 2024 will be on travel. US, Chinese and German economies will be the frontrunners of this travel boom. Close to 348 million jobs are expected to be supported by the industry in 2024.

FROM THE PERIPHERY

—💸 SBI chairman CS Setty recently highlighted the banking sector's struggle with lending to emerging sectors like green energy and battery storage, The Economic Times reported. Despite extensive experience in infrastructure financing, Setty said banks lack expertise in these new areas. Setty noted that past corporate lending issues have led to high NPAs, pushing banks toward personal loans and away from small business and retail lending. He proposed creating a centre of excellence, partnering with multilateral banks and MNCs, to enhance skills and bridge the expertise gap for financing infrastructure projects.

—💰 As incomes rise, Indians are altering their saving habits. Debabrata Patra, deputy governor of the RBI, told Business Standard that households are starting to rebuild their financial assets, with savings increasing from 10.6% (2011-2017) to 11.5% (2017-2023, excluding the pandemic). Historically, household financial assets peaked at 15% of GDP in the early 2000s before the 2008 financial crisis. Now, domestic savings are crucial for financing the economy, though they have halved due to behavioural shifts, such as moving from savings to physical assets like housing.

—☕ While Indians have taken to drinking fancy coffee, its OG coffee chain CCD is taking steps backwards. Once all the rage, CCD’s cafe count was reduced to just 450 in FY24 from 469 cafes in FY23. CCD now only exists in 141 cities compared to 154 in FY23. After an IPO in 2015, the coffee chain had over 1,500 coffee shops in 219 cities across India. The company’s downfall came after it took several high-interest loans and ultimately its founder VG Siddhartha died by suicide. 

—💼 In line with the ongoing slowdown in IT jobs and salary offers, graduates from the Indian Institute of Technology, Bombay took offers as low as Rs 4 lakh per annum this year. Ten candidates accepted offers between Rs 4 lakh and Rs 6 lakh per annum. However, the average pay package increased to Rs 23.5 lakh per annum, a little higher than last year's Rs 21.8 lakh. While the average pay rose, only 1,475 of the 1,979 who appeared for the placement drive got placed.

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