Consumer Sentiments Improve?Ahead of the Festive Season

Despite the increased awareness of sustainability among people in general, much of the plastic is still falling out of the “recycling chain”. The e-commerce industry which is heavily dependent on plastic packaging in its supply chain has a huge potential to raise sustainability standards by many points. 

In fact, greater participation by private stakeholders and other members of the value chain is crucial to building a holistic, circular plastic ecosystem to reduce plastic leakage into nature, according to a case study developed in collaboration with WWF (World Wide Fund for Nature India) India and India’s top e-commerce firm Flipkart. 

Mahesh Pratap Singh, Head of Sustainability and Social Responsibility, Flipkart said, “As a homegrown e-commerce organisation, the Flipkart Group is committed to building a sustainable business while playing the role of a catalyst in the creation of a thriving sustainable ecosystem. We are excited to have achieved a milestone of eliminating 100 percent single-use plastic packaging in our supply chain in a short span of time and look to aggressively work towards pushing the goal for our sellers and brand partners. We’ve also committed to sourcing from environmentally sustainable sources by working with various partners and becoming a proactive force for a better good."

Flipkart shared that its approach towards Sustainable Packaging relies on four pillars: Engage, Innovation, Capacity Building and Compliance. 

Reportedly, Flipkart Group companies, including e-commerce marketplace Flipkart and leading fashion destination Myntra have eliminated 100 percent single-use plastic packaging in their own supply chain by working with several stakeholders across traceability, plastic reduction and brands and universities to name a few. It is also working towards adopting circularity in its plastics value chain in collaboration with sellers and brand partners.

E-commerce ecosystem can rely on this model and build their organization that aids in fulfilling the sustainability targets. 

Varun Aggarwal, Associate Director - Sustainable Business at WWF India said, “A coordinated approach between e-commerce companies and all the other stakeholders in the plastics value chain is crucial to attaining a circular economy for plastics , Flipkart has a large secondary packaging footprint, making plastic waste management a key lever in its commitment to sustainability. The best practices adopted by Flipkart can be replicated by players in the same space to contribute to the mitigation of plastic waste”.

The study further mentions that companies need to customize interventions to influence consumer behavior and collaborate for improving and innovating the existing collection and recovery infrastructure and grow it further. Market leaders need to set up goals for their supply chain who wish to similarly engage and bring about a better plastics waste response to ultimately contribute towards a circular plastics economy and greater good of the society.
 
Through this case study, WWF has highlighted the need for active participation by the private stakeholders to ensure a holistic, circular plastic ecosystem to reduce plastic leakage into nature. As a leading digital platform engaging in online commerce of goods and services, Flipkart has a large secondary packaging footprint, making plastic waste management a key lever in its commitment to sustainability.
 
Some of the next steps identified include data-based goal setting to ensure a data-driven approach to waste management and regularly track the impact of alternatives, creating an ecosystem view of the entire waste management journey for packaging. It also includes creating a state-by-state playbook for training and working with sellers partners across different states to optimally implement the transition to sustainable packaging solutions. The best practices adopted by Flipkart can be replicated by other players in the same space for greater uptake to contribute to the mitigation of plastic waste and move towards a more circular system in e-commerce packaging.  

Online shoppers in India are seeking new experiences in the age of social and video commerce and this has given digital-first brands a massive $250 billion market opportunity by 2030.

India's e-tailing gross merchandise value (GMV) reached $53 billion in 2021, demonstrating post-Covid acceleration, according to a report by Bengaluru-based market research firm RedSeer. 

"Additionally, Indian e-tailing showed impressive growth (on-quarter) in 2021 while other global players struggled to maintain the momentum," the report stated. 

"The current B2C retail landscape is evolving rapidly with the emergence of new consumer behaviours and expectations. The rise of new retail channels, particularly video and social commerce, is further changing the way consumers shop and what they expect from brands, said Mrigank Gutgutia, Associate Partner, RedSeer.

As a result, digital-first brands are finding it increasingly rewarding to engage with consumers in these channels and offer them a seamless, omnichannel experience.

"The success of such brands will depend on how effectively they leverage these new retail channels and how they innovate on the digital front to offer a superior omnichannel experience," Gutgutia added.

The findings suggest that consumers opt for these new-age brands for their quality (and not only price) with significantly high repurchase willingness.

Multiple $100 million revenue technology-first brands have been created already across the categories in just the past few years, with each having a unique winning playbook and first-of-their-kind business model.

"Over the 2021-30 period, we expect many more digital-first brands to scale exponentially, supported and incubated by roll-up platforms that are building the next wave of digital-first brands for India," the report noted.

READ MORE: Unlocking E-shopping: Decrypting the Future of E-commerce

Sustainability considerations now influence the majority of the world’s grocery shoppers, particularly when buying packaged foods such as potato chips and cookies. About 67 percent of Indian consumers are more likely to purchase packaged food with sustainability claims up 11 points from 2019. 

Compared globally, U.S. consumers were also more attuned to sustainability claims: 37 percent indicated they were more likely to purchase packaged food with a sustainability claim, a 6 point increase compared to 2019 results, according to a survey by Cargill. Whereas Brazil and Mexico saw 13 point increases in the purchase impact of sustainability claims between 2019 and 2021.

“Our latest findings clearly demonstrate that messages surrounding sustainability are having an impact on consumers,” said Nese Tagma, Managing Director of Strategy and Innovation, Cargill’s global edible oils business. “Insights like these help guide our consumer-focused approach to innovation, enabling us to partner with customers to co-create new products and solutions that reflect current consumer trends and ingredient preferences.”

In the case of the U.K., 51 percent of consumers now say they place a greater emphasis on sustainability, an 8 point jump in just two years. 

“These insights further affirm our commitment to embed sustainable practices into every aspect of our operations,” said Florian Schattenmann, Chief Technology Officer and Vice President - Innovation and R&D, Cargill. “This includes everything from our sourcing practices to processing facilities, and even extends to new product development, where decisions to commercialize innovations now consider sustainability alongside performance and cost.”

READ MORE: Changing Consumer Trends and Shift Towards Sustainable Products

Cargill also provides sustainable solutions to meet consumer and customer needs for oils, from regenerative agriculture programs for row crop oilseeds to palm oil certified responsibly sourced by the Roundtable on Sustainable Palm Oil (RSPO). 

India's fast-moving consumer goods (FMCG) market has expanded 10 percent in January year-on-year from 2021.

Experts believe that this indicates that the third Covid wave buoyed consumption for daily essentials and groceries.

Even in discretionary products like televisions, refrigerators, and smartphones, leading companies said they have grown sales at a double-digit percentage pace in January despite initial hiccups, according to retail intelligence platform Bizom. 

READ MORE: 4 Key FMCG Trends to Watch Out For in 2022

"We are seeing a significantly lower impact even on a month-on-month sales basis compared to earlier waves. Commodity products continue to grow sales despite an easing of prices for key products like edible oils, indicating strong consumption," said Akshay D'Souza, Chief of Growth and Insights at Mobisy Technologies, which owns Bizom.

Also, despite restrictions on store timings and mobility in certain markets, the impact on business has been the least in the third Omicron wave compared to the previous two.

Moreover, commodity and packaged foods grew 43 percent and 38 percent each while sales of home and personal care products fell.

Samsung has topped the global smartphone shipments chart in 2021 as the market grew for the first time since 2017. Total global smartphone shipments in 2021 hit 1.39 billion units — a 4 percent on-year growth — but remained below pre-pandemic levels.

The reason for lower shipments is continued disruptions caused by Covid-19 and the ongoing component shortage, according to a report by Counterpoint Research. Q4 shipments fell 6 percent on-year basis to 371 million units.

“However, China, the world’s biggest smartphone market, continued to decline due to supply-side issues caused by the ongoing component shortages, as well as demand-side issues resulting from lengthening replacement cycles,” said Harmeet Singh Walia, Senior Analyst, Counterpoint. 

Experts believe that the increased demand in Latin America, North America, and India led to the recovery in the global smartphone market. Growth in the US was driven by demand for Apple’s first 5G iPhone 12 Series, which continued throughout the year. The growth in India was attributed to higher replacement rates, attractive financing, and better availability of mid-to high-tier phones.

READ MORE: India Smartphone Market Logs 169 mn Units Shipment in 2021, Highest Till Date

"The market recovery could have been even better having the component shortage did not have the impact it did in the second half. The major brands navigated the component shortages comparatively better and hence managed to grow by gaining share from long-tail brands,” Walia further added. 

How Mobile Brands Are Performing?

Overall, Samsung shipped 271 million smartphones, up 6 percent from 2020. The report attributed the increase to higher demand for the mid-tier A and M Series devices. Apple registered an 18 percent on-year growth to a record 237.9 million units on the back of the iPhone 12 Series’ strong performance. Xiaomi’s global shipments grew 31 percent on-year to a record 190 million units.

Also, Oppo, including OnePlus shipments since Q3, recorded a 28 percent growth to 143.2 million. Sister brand Vivo grew 21 percent to 131.3 million units. Motorola, on the other hand, was the fastest-growing smartphone brand among the top 10 original equipment manufacturers based on global shipments.

And, for the first time, Realme entered the top five in global Android smartphone shipments, while Honor also entered the top 10 in its first year as an independent manufacturer. 

The fashion and lifestyle category has turned out to be one of the top two segments for direct-to-consumer (D2C) brands that enabled BNPL as a payment method at the checkout.

The demand in fashion and lifestyle was also led by men and women in Tier-I and Tier-II cities. While men in Tier-I cities spruced up their wardrobes and spent heavily on fashion, their women counterparts upgraded their tech and electronics while also indulging in fashion and lifestyle retail therapy. In Tier-II too, men took to spending on fashion and lifestyle, besides travel, while women spent on EdTech courses and upskilling besides electronics and fashion, according to a report by Fintech platform ZestMoney.

While most of the customers (median) were in the 23-26 years group, BNPL emerged as the preferred option for people across age groups with the youngest customer being 18 years old and the oldest at 66. The number of millennial and GenZ customer base increased by 2X and 3X respectively, indicating that the BNPL segment has been driven by young cohorts in India in line with the global trend.

Also, Bangalore, Mumbai, New Delhi, Pune, Hyderabad, Chennai, Ahmedabad, Thane, Kolkata, and Jaipur emerged as the top cities witnessing demand for BNPLin 2021, while Lucknow, Kanchipuram, Vijayawada, Visakhapatnam, Guntur, Surat, Indore, Bhopal, Tiruvallur, and Coimbatore were the other top Tier-II and Tier-III cities.

Lizzie Chapman, CEO & Co-founder, ZestMoney said, ‘2021 was an intense year, with the volatility of the pandemic coupled with its impact on the consumer we serve - from pain to recovery and then rapid demand acceleration over the last two quarters. Customers continued to lap up Pay Later because it gives them the perfect flexibility to spread out costs and plan their finances better. We've doubled our user base in the last 12 months taking our total registered user base to 15 million – almost 2X growth. It's been a well-rounded growth across categories from smartphones, electronics, travel, fashion and lifestyle, and home decor emerging as the top categories on the platform.”

“We not only added the highest number of new customers and merchants but also gained market share in an ever-growing market.   We saw a 300 percent YoY growth in BNPL transactions as people took to convenience and affordability in a big way. Owing to the solid consumer demand we saw last year, we now have a 50 percent market share in the Indian BNPL market and over 70 percent market share in the online ‘Pay in 3’ no-cost interest-free offering. On the back of the strong demand and our expansion plans, we are confident of hitting a $10 billion GMV run rate in the next 3 years and cementing our position as the market leader in the country.”  Chapman further added.

During the festive season last year, customer applications for BNPL went up by 10X with top categories being Smartphones, electronics, large appliances, fashion, furniture, and home decor. ZestMoney witnessed a 200 percent growth in transactions on Amazon, Flipkart, and Myntra compared to last year. While physical stores observed growth of 100 percent during the festive season compared to 2020.

CMIE data shows that the average weekly index of consumer sentiments in the three weeks that ended on January 9, 16, and 23 was 59.9 and the 30-day moving average of the index of consumer sentiments as of January 23, 2022, stood at 61, higher than November 2021 when it stood at 60.3.

Consumer sentiments have improved in January by 3.9 percent after a dip in December when it fell by 4.5 percent to 57.6, though the recovery is somewhat “hesitant”.

The average weekly index of consumer sentiments in the three weeks that ended on January 9, 16, and 23 was 59.9 and the 30-day moving average of the index of consumer sentiments as of January 23, 2022, stood at 61, higher than November 2021 when it stood at 60.3, according to CMIE. 

“We call the recovery seen in the early data of January as hesitant because, after that 6.9 percent increase in the week ended January 2, the weekly growth rate fell to 2.1 percent in the next week and then by 3 percent erasing much of the gains made in the preceding two weeks,” CMIE stated. 

Further, while the level of the index in the latest week ended January 23 and also the 30-day moving average are impressive at 61.2 and 61 respectively, the week-to-week variations reflect some uncertainty of the January recovery, experts believe. 

“The index of consumer sentiments in January is expected to cross its December level of 57.6 and could possibly cross its peak level of 60.3 reached in November,” it said, adding that the index still has a long way to go before it reaches its pre-Covid levels of around 108.

The data further showed that the index of current economic conditions went up by 6.3 percent to 58.2 and the index of consumer expectations grew by a modest 2.5 percent to 60.9.

“A faster improvement in current economic conditions with slightly higher confidence in the future as is seen in the weekly sentiments data for January 2022 is a good development. Its stride needs to be bigger and a little more confident,” CMIE added.

READ MORE: Consumer Confidence Continues To Improve, Households More Optimistic about Future

India's 'Buy Now, Pay Later' sector is expected to grow to $56 billion by FY26.

Also, India's BNPL is at an inflection point with rising e-commerce and digital P2M payments fuelling deferred payments, according to HDFC Securities.

BNPL GMV is poised to exhibit 74 percent CAGR and accounts for 5 percent of digital P2M payments by FY26E.

Experts believe the segment provides short-term financing to make immediate purchases and the credit can be paid back at a later date.

"The proliferation of BNPL as a mode of credit-based payment is gaining significant traction, particularly amongst the millennials and Gen-Z population within a short span of time," HDFC Securities stated.

According to the brokerage house, the growth of the BNPL segment is expected to be triggered on the back of rising e-commerce and digital payments penetration. "BNPL players are exploring multiple business models and are yet to establish economic viability with limited revenue drivers and high delinquencies."

READ MORE: Buy Now Pay Later: The New Financial Buzzword in Retail

Besides, the brokerage house's report cited that although 'FinTech BNPLs' enjoy favorable regulatory arbitrage, incumbents have an opportunity to expand their customer funnels either through in-house offerings or partnerships.

"We expect regulatory convergence on the back of the RBI's recent narrative for digital lenders although 'FinTech BNPLs' are likely to sustain their superior user experience," the company further added. "Within a bouquet of BNPL options, credit cards remain the most exhaustive and profitable and, in fact, offer an up-sell opportunity for credit-tested top-of-the-BNPL-pyramid customers."

Rentals of mall operators are expected to decline by 20-25 percent in Q4FY2022 as against earlier estimates due to Omicron-led third wave. 

With impact on recovery in Q4FY2022, the rental recovery for FY2022 is expected to be up to 70 percent of pre-Covid levels, as compared to earlier estimates of up to 75 percent recovery, according to ICRA.

Overall, the majority of the store categories are expected to reach near-normalcy by Q1FY2023 as against earlier estimated Q4FY2022 with variance depending on the mall or brand-specific factors.

“The trading values are expected to decline to 60-70 percent of pre-Covid levels in Q4FY2022 due to the third wave as against recovery of over 85 percent in Q3FY2022. The rental recovery for Q4FY2022 is estimated to be at 70 percent of pre-Covid levels as against the earlier estimates of over 90 percent levels,” said Anupama Reddy, Sector Head - Corporate Ratings, ICRA.

The fact is that the Omicron-led third wave of the Covid-19 pandemic has resulted in a resurgence in fresh Covid-19 infections leading to restrictions by various state governments impacting the trading values for the retail store operators and hindering the rental recovery for mall operators.

The footfalls in the malls are witnessing a declining trend from the first week of January 2022 with restrictions in major cities such as closing dine-in for restaurants, occupancy restrictions for multiplexes, and their closure in a few cities along with weekend curfews. This is sure to impact the rental recoveries for Q4 FY2022 and thereby FY2022.

“Also, the rental recovery for FY2022 is expected to be up to 70 percent of pre-Covid levels, as compared to earlier estimates of up to 75 percent recovery. However, the recovery post third wave is expected to be faster than the previous waves with short-tenured restrictions and expected quick ramp up for major tenant – multiplexes, as content line up remains robust with several big-budget movies ready for release,” Reddy further stated.

With the estimated rental recoveries over 85 percent of the pre-covid level, Q3FY2022 was the best quarter for the mall operators since the onset of the pandemic. The recovery was driven by pent-up demand, high vaccination coverage, resumption of multiplexes which also coincided with the festive season, experts believe.

While certain store categories such as hypermarkets, electronics, fashion, and beauty have done extremely well with certain brands even exceeding the pre-Covid sales, tenants such as department stores and food and beverage are observed to have moderate recovery in line with the improvement in footfalls in Q3FY2022.

“Weaker H1FY2022 due to second wave and expected reduction in recovery in Q4FY2022 due to the third wave of a pandemic is expected to impact the full-year FY2022 debt coverage metrics. The projected DSCR is estimated to be in the range of 0.70-0.75 times as against earlier estimates of 0.80-0.85 times,” Reddy added.

The trading values for these stores would be impacted by the third wave in Q4FY2022. Multiplexes will be the most impacted segment due to deferred movie releases.

READ MORE: How Expectations of Consumers and Retailers are Changing From Malls

Overall, the majority of the categories are expected to reach near-normalcy by Q1FY2023 as against earlier estimated Q4FY2022 with variance depending on the mall or brand-specific factors.

“The support from sponsors, debt service reserve, and undrawn credit lines (for few issuers) have helped ICRA rated malls in meeting their obligations during the H1FY2022. With improvement in rental recoveries, there was no significant shortfall or major dependence on sponsors in Q3FY2022. However, with 20-25 percent reduction in rentals in Q4FY2022, the malls would again be reliant to some extent on available bank balances and undrawn lines, in the absence of which timely sponsor support will be critical,” Reddy stated.

India's smartphone market has registered its highest-ever shipments at 169 million units in 2021 to register 11 percent year-on-year growth from about 152 million units in 2020.

The market showed high resilience in a year that witnessed a second and more virulent Covid-19 wave as well as supply disruptions and price increases due to the ongoing component shortages, according to a report by Counterpoint Research.

Also, the increased adoption and demand for 5G smartphones was one of the key factors for high shipments in 2021, the report added. And, 5G smartphones contributed to about 17 percent of the overall shipments in 2021, registering 6x growth compared to 2020.

"Intense competition among OEMs, availability of cheaper 5G chipsets, and declining prices of 5G devices will enable brands to push more 5G devices into the market. The price of entry-level 5G devices has come down by 40 percent in the last six months. The increase in affordability of 5G devices has been a key reason for high 5G smartphone adoption," the report stated. 

Consumer demand remained high in the premium price tiers (above Rs 30,000) in 2021 with shipments in these price bands growing 98 percent y-o-y.

The under-Rs 10,000 category -- which accounted for 30 percent market share, declined 5 percent, while Rs 10,000-20,000 segment (47 percent share) grew 8 percent. The Rs 20,000-30,000 tier (13 percent) grew 95 percent.

The retail ASP (average selling price) also showed high growth, increasing by over 13 percent y-o-y, the report added.

READ MORE: Smartphone Market Moving Towards a Steady Growth and Recovery Stage

"High installed base, as well as high replacement demand coupled with the increasing affordability of premium devices, led to the high growth of the premium segment. Going forward, we expect the market to continue to grow by double digits with a healthy contribution of the mid-to-high-end 5G smartphones. India's smartphone market continues to offer big opportunities for multiple players to grow and co-exist," the report said.