9 Predictions For India’s Consumer Services Economy In 2024

India’s internet economy has gone through a major growth spurt in the past few years and as with age, most sectors are rapidly maturing. In the case of consumer services, the maturity manifested itself through a sharper focus on revenue and profitability in 2023. 

In some cases that meant entering product territory (a la Urban Company), and in others it meant relying on platform fees as seen in the quick commerce and food delivery space. But the push for revenue and improving unit economics has meant compromising on the unbridled user base growth. Instead, the attention is on maximising the revenue gained from the most active users. 

But before we look at how this macro trend will trickle into the various parts of India’s consumer services economy, a look back at some of the major developments of 2023. 

Three-year-old startup Zepto turned into something of a poster child with strong revenue growth and securing a big round that saw it turn into a unicorn. On the other hand, Swiggy and Zomato have looked to celebrate milestones that are closer to fundamentals aka unit economics and profits. 

But the year was less than joyous for Reliance-backed Dunzo, whose fate hangs in the balance, as the hyperlocal holdout faces an unprecedented cash crunch as the market transitions to quick commerce — we have covered this in detail here. 

On the mobility front, ONDC changed the picture for Ola and Uber, at least in Bengaluru, where Namma Yatri has graduated beyond a proof of concept. How will ONDC’s influence disrupt the sector that’s already facing a big challenge — i.e. the transition to electric vehicles? 

9 Predictions For India’s Consumer Services Economy

Let’s take a look at this and other important trends that are likely to shape the critical consumer services sector and some of the biggest startups in India in 2024:

Consumer Services To Get Costlier

This is almost a no-brainer by now. What began with a few isolated cases in 2023 has seen much wider adoption by now. We are talking about platform fees or per-order charges by food delivery, ride hailing, quick commerce delivery and even ecommerce. 

Instead of relying on discounts and cashbacks to attract new users, the focus is on charging platform fees per order from those who are any way ordering. 

The founders and investors we spoke to believe despite the capital-intensive nature of consumer services, startups will continue to expand, however, now there is also a focus on not just expanding without completely considering the unit economics implications. 

Ankit Nagori, cofounder and CEO of Zomato-backed Curefoods, believes that as metros and Tier 1 cities has almost reached a point of saturation, many platforms are now looking to expand to smaller market segments. As a result, they cannot afford to rely on high discounts to existing active users. 

“For both food delivery and quick commerce, there are no more new avenues to tap into in metros. Hence, the focus is on increasing average order values (AOVs) through smart discounting or charging platform fees, delivery charges to sustain and make profits,” Nagori added.

An analyst working with a Bengaluru-based consulting firm said that public market pressures forced Zomato to think about platform fees, but it must be noted that it was Swiggy which added this charge before its Gurugram-based rival. 

“Zomato has learned the lesson that if it has to perform well in public markets, it has to chart a sustainable path to profitability and increase margins which will attract the retail investors,” the research analyst added.

Besides Zomato and Swiggy, the likes of Uber, BigBasket, Zepto, Myntra and Dunzo have additional costs (handling fees, convenience charge and more) even as they often have discounts on the actual delivery fees. The drive for revenue has resulted in new models such as Ola Prime Plus or Namma Yatri’s subscription plans for driver-partners.

Fashion ecommerce giant Myntra began charging a fee for returns, one of the key USPs of the Flipkart-owned online shopping giant. All of this is about fixing unit economics.

Second Order Impact From National Ecommerce Policy

With the government indicating that the national ecommerce policy which has been in the works for several years will finally be announced in 2024, it remains to be seen how the regulations will impact the quick commerce sector, given the opaque ownership structure when it comes to the retailers operating dark stores. 

Besides this, the creeping of quick commerce into ecommerce territory (more on this later) is expected to bring these instant delivery platforms under the purview of any policy governing ecommerce.  

Sources have informed us that the regulations are expected to build on ecommerce rules (2020) and may have provisions related to quick commerce, especially on the discount side, since that puts millions of brick-and-mortar kiranas at a disadvantage.

“The interest of small businesses has been clearly outlined to be a priority by the union commerce ministry. Hence we can expect the ecommerce policy to favour the kirana store owners across the country and could also negatively impact the quick commerce players which have been heavily banking on discounts till now,” one of the sources privy to development said.

Swiggy’s $1 Bn IPO Will Dominate Consumer Services Debates

Food delivery sector is one of the fastest growing consumer services sectors in India as evidenced by the growth seen by Zomato in the past year. Zomato’s gross revenue surged by 68.9%, from INR 4,192 Cr in FY22 to INR 7,079 Cr in FY23. It reported a 70% quarter-on-quarter growth in revenue in September. 

Swiggy has been able to embark on a massive profitability spree in 2023, with platform fees and rejigged restaurant commissions playing a huge role, and its cofounder and CEO Sriharsha Majety making public statements ahead of a speculated IPO in 2024.

Given Zomato’s progress, there will be no room for error for Swiggy when it comes to profitability. The Prosus-backed platform will attract plenty of questions about valuation given the same concerns were raised in the run up to Zomato’s IPO. 

But Zomato’s experience in the past year will give Swiggy much optimism. The question is will retail investors turn their attention to a new stock or continue to bet on Zomato which has a longer track record as a public company. Zomato is likely to see some sell-offs as investors hedge their bets between the two stocks, provided, however, that Swiggy lists in 2024.

In general, Swiggy’s IPO success or failure will also be a testament to the public investor’s faith in platform businesses, given that Zomato was the first real gig economy company to go public. 

Services Giants Will Turn Focus To Consumer Durables, Goods

Even as Urban Company faced heat and widespread protests from its service partners, the Gurugram-based unicorn ventured into something altogether new, nearly 10 years after it started out as a service company.

UC forayed into the consumer durables territory by launching reverse osmosis (RO) water purifiers and a smart door lock under the brand name Native.

And given the problems in its service model from the point of view of gig worker ops, it begged the question of whether this is a pivot from a services model to a product company. 

At the time, we wondered whether Urban Company buckled under this pressure and transitioned to the consumer products and durables segment, which adds a less complicated revenue stream to the business. 

The company told us that data from its appliance repair service vertical informed its decision to venture into consumer durables and create what it calls a ‘better’ product. And we would not be surprised if the company adds to the product lineup in 2024. 

Categories such as air conditioners, air purifiers, electrical components are ripe for disruption especially because the company has a stream of data around the existing products and their fault lines. 

While Urban Company claims that the launch of the Native brand of consumer durables will not change its service-first DNA, the nature of the market is such that capital-intensive people-heavy operations are going through restructuring in favour of cost-effective business models such as retail and consumer products. And domestic manufacturing is a major selling point for companies looking to create alternatives to brands made and imported in other parts of Asia. 

Gig Worker Will Finally Get Social Security Code Relief

When it comes to transitioning from services to products, another factor that is likely to have weighed heavily for Urban Company is the potential increase in costs to support gig workers or part-time service providers. 

Across consumer services, platforms have also roped in tens and thousands of gig workers over the last few years to fulfil last-mile delivery and service demand. While a majority of these gig workers are not employed full-time, labour rights groups and unions have raised concerns time and again about job security, income stability, anomalies in payments, untenable working conditions and more. 

Gig worker unions have urged the courts and government to make platforms liable in case of accidents leading to serious injuries or death, which is often related to platforms promising fast delivery times to consumers. 

Urban Company was rocked by gig workers protests outside the company headquarters in Gurugram in July 2023, alleging opaque policies for deplatforming workers. 

Similarly, Blinkit saw a strike impact its services earlier in 2023, which forced the company to scale down in certain major cities. 

The fact is that the Indian government has looked to redress these gig worker concerns, but the implementation of the law has been very slow. 

A Social Security Code that was drafted by the government envisaging the minimum wages, insurance, health and other benefits to the gig workers is expected to be brought into effect in 2024, after being delayed since 2020. This will increase the costs associated with having part-time gig workers since platforms have to allocate a certain portion of their revenue for this outlay. 

There is also the fact that gig workers could become a tax liability for many companies. 

While platforms have maintained that they are not liable to pay tax since gig worker charges collected are transferred to the gig workers, this is open to interpretation by the tax department on a case-by-case basis. The government is thus likely to come up with more clarifications on this front in 2024 as well.

Quick Commerce Players Will Step Into Marketplace Territory

Quick commerce began as an essential delivery service at the beginning of the pandemic, but today one can order an iPhone from Blinkit. Of course, that might qualify as essential for some consumers, but the larger point is that quick commerce ambitions have grown far beyond what one expected at one time. 

On the other hand, the government-backed ONDC has also pushed its electronics delivery game and many buyer apps are now connected to local sellers offering new products and short delivery timelines.  “This is an interesting trend which will further expand the markets for instant delivery apps in 2024 and will also test the consumer appetite. Mobile phones and cheap electronics will be best suited for such deliveries,” a market analyst said.

For instance, Blinkit started delivering brand new iPhone15 within minutes and has also launched a books vertical to mimic some of the larger marketplaces. Same is the case with Instamart and Zepto.

Swiggy’s Instamart tied up with boAt to sell its products on the platform. Instamart has also ventured into Swiggy Mall, where it sells larger products typically seen in marketplaces. Zepto and Blinkit are selling apparel. Then there’s Swiggy Instacafe and Zepto Cafe, which add a different colour to the quick commerce game. 

In other words, the line between ecommerce marketplaces and quick commerce platforms is fast blurring and this could have big implications on indie product makers, D2C brands and large FMCG players. 

Furthermore, the quick commerce platforms will likely expand into fashion, pharma and beauty categories too. 

Curefood’s Nagori said that the expansion of quick commerce to remote cities may not happen as rapidly as it did in metros, and hence the business models will see rejigs from a category point-of-view. 

It also makes more sense for these companies to use the less dense hub-and-spoke model (instead of dense dark stores) to improve the existing last mile delivery network in smaller towns. In this light, technology spending on logistics and last mile delivery is expected to increase — more on this soon. 

Quick Commerce Giants To Eye Retail Tech Acquisitions

Remember the kirana tech wave of 2020? Well, it’s well and truly on its last legs now. Most players have moved to ecommerce SaaS (Bikayi and Dukaan, being two examples) and Dunzo’s failure as a hyperlocal player shows that kirana tech was a flash in the pan in 2020 and has now been superseded by quick commerce and dark stores. 

But in their quest to expand, quick commerce players are likely to need better inventory management, process monitoring and procurement solutions, which would likely make some kirana tech players attractive acquisition targets. 

Redseer, forecasts that quick commerce will have to adopt slotted deliveries when expanding to Tier 2 and beyond, since density of delivery warehouses will be lower here. 

Slotted or scheduled deliveries began as the norm for grocery delivery during the pandemic and the same story is now unfolding in Tier 2+ cities, since players are taking a more cautious approach here. 

And as they look to reduce costs in larger cities to support the cautious expansion in new markets, their attention will turn to technology to automate operations, reduce human errors and streamline the backend of the quick commerce game, which often remains in the dark.

Electric Makeover For Ride-Hailing, Last Mile Mobility

India’s ride-hailing industry is once again in a state of flux as consumers realised the pitfalls of the Ola-Uber duopoly and gave a shot to alternatives. 

EV-focussed BluSmart surged in prominence, while Namma Yatri, Rapido’s expansion into cab-hailing has complicated the picture. Ola was forced to respond and it did so with the Ola Prime Plus model, while Uber has added a ‘Booking fee’ as the answer to its revenue problems. 

But for Ola and Uber, the transition to an electric fleet is perhaps the bigger goal in 2024. Uber invested in Everest Fleet in July 2023 to add to its EV fleet. 

Ola’s EV ambitions will be further strengthened as it begins to produce electric four-wheelers apart from its two-wheelers. The company is funnelling electric two-wheelers into its bike mobility business, which is seen as the route it will take for cars as well. 

Uber on the other hand has already initiated its EV ride-hailing services Uber Green in three cities Delhi, Mumbai and Bengaluru signalling that the ride-hailing giant will push for electric mobility.

The EV charging infrastructure being widely built across the country with impetus from the government will further strengthen electric mobility services, analysts told us.

But EV cab rides are costlier than petrol/diesel/CNG-powered rides, which is not expected to be eased any time soon. “BluSmart rides are anywhere between 20% and 30% costlier than Ola//Uber rides. As many new players enter the ecosystem, we will see these prices coming down,” the founder of an EV charging startup said.

ONDC Will Add New Dimension To Competition In Mobility

 Models such as Namma Yatri in smaller towns and cities will break out of their shells in 2024 as mobility goes through a major democratisation movement.  

As per its public dashboard, Namma Yatri has over 42 Lakh registered users and over 1.7 Lakh registered drivers in Bengaluru, with drivers earning INR 335 Cr till date. Juspay-backed Namma Yatri started with auto drivers in Kochi, before expanding into Bengaluru and Mysore. It also ventured into Kolkata under the brand name ‘Yatri Saathi’, adding taxi services to its bucket, and is eyeing Hyderabad next. 

Namma Yatri also joined ONDC and potentially this means any buyer app on ONDC has the potential to become a partner for Namma Yatri and offer ride-hailing services. 

Given that many established players in the mobility segment are focussing on charging users per ride, ONDC’s zero-commission model will not only attract drivers, but also promises to be a big allure for consumers.

[Edited by Nikhil Subramaniam]

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