Covid-19 has become a moment of opportunism for Indian e-commerce companies to consolidate their market power, insert themselves into local supply chains and co-opt neighborhood stores. Policy interventions are urgently needed to preserve the autonomy of the traditional retail sector and prevent Big Tech’s takeover of local economies.
When the government of India shut down the country on March 24, a certain sector received special protections: e-commerce. The lockdown order granted no such privileges to the Food Corporation of India, the agency that the poorest depend on for food rations—yet retail platform companies in food, medicine, and medical equipment were categorised as essential services and allowed to continue their operations.
This unequal treatment was a candid admission that e-commerce companies have become infrastructural utilities indispensable to India’s aspirational middle class. Prior to the lockdown, Flipkart, an Indian e-commerce unicorn acquired by Walmart for USD 16 billion in 2018, had extended a hand to the government, offering to partner in any programme for the delivery of essential commodities. Then, immediately after the lockdown began, Indian e-commerce companies met with the Minister of Commerce and Industry, asking for an expedited channel for trucks and suggesting that consumers, and not the government, should decide which items are essential.
History has shown that wars, natural disasters, and epidemics are often followed by disaster capitalism: calculated, free-market “solutions” that exploit and exacerbate existing inequalities. During the Covid-19 crisis, disaster capitalism is evident in the zeal that e-commerce platforms in India have displayed. For these companies, the lockdown is the moment to consolidate their dominance in the market. The pot at the end of the rainbow must be claimed now, and the traditional retail sector—grocers, pushcart vendors, neighborhood traders who have actually been catering to the public in these trying times—rendered irrelevant.
Indian commerce in the time of Covid-19
The pandemic has intensified the already snowballing crisis for small retail. Social distancing measures and fears of contagion have led to lost revenue that exacerbates the financial stresses on the sector, according to the Retailers Association of India. The lockdown has worsened the cash flow crunch as consumers rapidly switched from brick-and-mortar retail to e-commerce.
Even prior to the outbreak of the pandemic, e-commerce had already been poised for a phenomenal breakthrough in India. Industry analysts estimate that over 175 million Indians will shop online in 2020, a 46 percent jump from 2018. Then came Covid-19. Surveys of the Indian market indicate that hyperlocal e-tail businesses (such as grocery) registered a 45 to 50 percent growth in overall gross merchandise volume in the first two weeks of March when compared to the same period in February. During the lockdown period alone, Amazon and Flipkart, as well as e-grocers such as Alibaba-backed BigBasket and Grofers, reported a two- to threefold increase in orders.
Companies are diversifying as well. At the height of the crisis, BigBasket acquired the milk delivery start-up DailyNinja, gaining control over the latter’s network of 110,000 consumers and 2000 dairy producers across the country. Food-delivery platform Zomato is launching a new business-to-business grocery vertical called Hyperpure to focus on supplying farm produce to restaurant partners, while Swiggy, a similar start-up, is re-deploying its food delivery workforce as grocery delivery and concierge services. The landscape has changed and when the crisis passes, it can never return to normal as we knew it.
Big eats small: India’s beleaguered kirana stores
In this re-engineering of supply chains, e-commerce companies have one critical actor to reckon with: the kirana store, or the neighbourhood, mom-and-pop retail outlets. The kirana stores were vulnerable before the pandemic, as changes to economic policy in India between 2016 and 2019 led to a slump in consumption, pushing them into a corner. Still, current estimates suggest that the humble kirana store accounts for over 90 percent of the USD 44 billion of fast-moving consumer goods sold in India each year. The battle for the Indian e-commerce market cannot be won without a strategy for capturing the kirana stores, and major e-commerce players recognise this.
In late 2019, in the months just before the pandemic, e-commerce companies were busy wooing the beleaguered kiranas. JioMart—the e-tail offering of Reliance Jio, the largest telecommunications company in India—launched the Jio point-of-sale (PoS) machine for kirana store vendors in order to gain a firm hold over its distribution segment. In late April, spurred on by a USD 5.7 billion Facebook investment, Reliance Jio started a Whatsapp-based hyperlocal grocery service on Jiomart, connecting customer orders to local kirana store partners. Amazon and Flipkart have launched very similar initiatives through their ‘Local Shops on Amazon’ and ‘Buyzones’ programme, and have pushed their payment wallets AmazonPay and PhonePe. (Amazon is also in early-stage talks to buy a stake in Bharti Airtel, Jio’s telecom rival.)
If they are to survive, these local stores (and even wholesalers and distributors) may have no option but to integrate into one of these big platform companies. Yet, roped in as ‘partners’ in a highly skewed equation, kirana stores now subsidise e-commerce big business in stocking, inventory management, and the delivery of goods. Reports from the ground suggest that e-commerce platforms are already using the data from kirana partners to acquire intelligence about hyperlocal consumer demand and launch their own ‘dark stores’ network, or distribution outlets that only fulfill online orders.
The end game for JioMart, Amazon, and Flipkart is to push their own grocery and private-label business through the kirana stores. Irrespective of which e-commerce platform wins the race, kirana vendors will eventually lose their space and autonomy in the datafied retail market.
Healthy markets post-pandemic
Only e-commerce giants will have the ability to gain resilience post-Covid and achieve economies of scale in this context, in terms of sophisticated AI, robotics, and IoT. E-commerce platforms dream big and their cash burn models are built to embrace ventures across different sectors. For example, Amazon in 2018 acquired the US online pharmacy PillPack and established its ambitions in health care (which partly explains Jeff Bezos’ public-spirited motivation during this crisis). As a result, retail is poised to see a second digital disruption, a new normal with significantly higher concentration of market power.
The longer-term prognosis is worrisome. Governments fighting job loss and recession may find it easy to give in to these corporatised, new age public utilities, allowing them to lead the way and looking away from their predatory market practices.
The critical policy questions for the coming years will be how governments can regulate companies and prevent market consolidation by digital behemoths. What will an ideal version of the e-commerce policy look like? Will the proposed ‘equalisation levy,’ a tax proposed on non-resident e-commerce companies be imposed? How are ‘foreign direct investment in e-commerce’ norms likely to change? Will they be re-clarified to allow e-commerce platforms to invest in or even acquire a majority stake in traditional retail?
The opportunity to reimagine e-commerce is immense. Policy measures must promote public infrastructure—digital and physical connectivity, warehousing, smart logistics and delivery—that encourages alternative, locally embedded platform marketplaces to secure the future of the small and medium retail sector. For instance, it is possible to set up an e-commerce platform marketplace that is owned by a cooperativist federation of small producer/retail enterprises, operating on a fixed fee rather than a commission basis, and deploying responsible data practices for the collective benefit of enterprises on the platform. With policy and financial support, such cooperativist platforms linked to local production and consumption can play a strong role in reviving local economies.
They can also help create a more equitable digital economy. Just as in the United States, in India, too, workers associated with e-commerce platforms have mobilized against exploitative conditions during the crisis, while activists are starting to worry about the economic impact of market concentration in the sector on issues of strategic concern such as food sovereignty. Small traders in India attempted to partner with the government to launch an alternative e-commerce marketplace that works for traders, workers and consumers. The old model of retail will not come back, but policy actions to promote a new digital regime that works for all can avert the devastating consequences of post-corona disaster capitalism.