Consider the example of Mohit Patel from Ahmedabad, who owns and manages an enterprise– Patel Foods. They offer traditional local snacks such as gathiya, sev, boondi, fafda, and khakhra among other things. It is a small enterprise with the items packaged with the branding “Patel Foods” albeit with limited brand recognition. Mohit runs a small factory unit with a couple of employees. The main customers of Patel Foods are local restaurants and a few distributors. But much of the distribution is undertaken by the proprietor himself; through his friends, acquaintances & personal contacts across the city. The restaurants and retailers that buy from Patel Foods are brand loyalists due to the top-notch quality of the products & have remained regular buyers.
Although the sales have been brisk, and a substantial customer base has been established, Mohit has not been able to scale up the enterprise. This is largely due to informal channels of distribution, the inability to tap into a wider base of retailers & customers, and the limited feasibility of managing a sole proprietorship. To bolster demand for a product, it is essential that it is discovered, recognized, and liked by wider customer bases. At the same time, the demand has no value if it cannot be met through better distribution.
The terms ‘distribution’ and ‘discovery’ are distinguished by Thompson1 as the ability of businesses to deliver goods to the consumer and the ability to be discovered by customers respectively. They hold the ‘utility’ of tapping into undiscovered customer needs, effectively expanding the markets. Thus, creating demand and providing for it. So, the problems of ‘distribution’ and ‘discoverability’ hold back the ‘demand’ for Patel Foods; withholding it from achieving its untapped potential. Navigating these issues in the B2B commerce space is pertinent for small producers & sellers. There are a few options for small producers like Mohit:
Anti-competitive strategies of the platforms push the small sellers & businesses out of the market. Also, websites and social media commerce have limitations regarding newer customer acquisition, especially in the category of grocery, FMCG, and food. Thus, leveraging B2B e-commerce is imperative.
ONDC-led Disruption in Contemporary B2B E-commerce
The B2B e-commerce space is one of the most exciting, fastest-growing markets in India. According to Statista, this segment in India is expected to rise from $5.6 billion in 2021 to $60 billion in 2025. The B2B commerce industry in India is fragmented and unorganized with traditional supply chain capabilities.
The incumbent B2B marketplaces in India can be divided into two types: multi-category (horizontal focus), and category-specific (vertical focus). The multi-category B2B marketplaces provide a platform for many different types of goods such as staples, textiles, apparel, medicines, electronics, footwear, etc. It has a horizontal focus– a product-agnostic approach to provide B2B e-commerce channels across different categories. The category-specific B2B marketplaces concentrate their efforts on a specific category of sellers/producers such as farmers, handicrafts, artisanal products, etc. It has a vertical focus– a product-specific approach to providing B2B e-commerce solutions. Many of the players in the B2B e-commerce space are still figuring out the right business models and the accurate product-market fits for their services & relevant markets.
Some of the promising B2B service providers are:
Indiamart is a listing platform for goods while also providing payments. It does not have a logistical network but depends on external transportation providers to connect with its customers.
Bizongo is a tech-enabled B2B e-commerce & supply chain marketplace for made-to-order goods such as packaging, apparel, textiles, and other customized, contract manufacturing products. It has built a network of more than 1500 curated manufacturers across categories.
Jumbotail provides delivery services, supplies software, and offers working capital to hyperlocal Kirana stores for wholesale food and grocery. It boasts of adopting artificial intelligence and machine vision for product identification, which has rendered its entire supply chain paperless.
Ninjacart is a platform that enables retailers and merchants to source fresh farm produce directly from the farmers2. By eliminating the intermediaries, NinjaCart allows farmers to directly deal with retailers, restaurants, and service providers.
Udaan has created a full-stack digital solution from transportation and credit, to a messaging platform for businesses. At the same time, its in-house logistics service Udaan-Express accounts for a significant part of the company's orders.
ShopifyPlus is a B2B product launched by the Canadian e-commerce platform Shopify that helps businesses digitize their stores, and enable online sales. This B2B product is specifically designed for merchants & large businesses with high transaction volumes and consistent sales.
Although these B2B marketplaces have built robust services for the industry, their reach has been minuscule given the large unorganized expanse of B2B commerce in India. At the same time, scaling up one platform to comprehensively provide for every need– seller onboarding, buyer experience, logistics, grievance redressal, etc. is cumbersome and difficult. By unbundling the e-commerce industry, ONDC allows the entry of specialized service providers as network participants to undertake specific tasks within the e-commerce pipeline.
Seller-facing platforms can focus singularly on smooth onboarding processes & offer reasonable commission rates for the sellers, producers, and manufacturers. Buyer-facing platforms can concentrate their efforts on shoring-up buyers such as manufacturers and retailers through better user/customer experience. At the same time, various logistics service providers can plug into the network to provide product-specific as well as product-agnostic delivery systems according to the needs of the supplier. The logistic partners can ramp up local-to-global delivery capabilities providing a lucrative value proposition to the producers, sellers, and manufacturers. Also, the revenue streams of many entities are based on the working capital loans extended to the producers and manufacturers. ONDC opens up such opportunities in embedded finance to reach a wider customer base.
The entry of multiple entities also reduces the barriers to entry in the B2B e-commerce space; effectively energizing innovation in the products & services offered by network participants to buyers and sellers. Thus, with the entry of multiple logistics network participants into the ONDC-compliant supply chain, innovative services that offer tailor-made logistics services can be imagined. ONDC opens up opportunities for fulfilling the logistical needs of distribution channels from a local to national level. At the same time, ONDC can give rise to the category-wise specialization of logistic service providers to fulfill the market demand of nationwide supply chains.
Exorbitant referral & commission fees from sellers have held back small sellers and producers from tapping into the digital channels of commerce, and unlocking their complete potential. By significantly lowering the fees/commission from the sellers as well as buyers, the advent of ONDC presents a valuable opportunity to a large number of sellers. To achieve the democratization of e-commerce in India, it is essential to provide such digital services of e-commerce at an affordable price.
Following is a table that puts out comparative statistics of fees & referral commissions on the incumbent B2B e-commerce platforms345678
Potential of ONDC for MSMEs
According to the Jefferies Report on B2B commerce, the supply side in India is characterized by the existence of unorganized & unbranded companies in a number of significant consumer categories. More than 80% of marketed items in the category of basic staples (cereals, pulses, and edible oil) are unbranded. The fashion business gets around 70% of its money from unbranded clothing. In packaged goods, the unorganized or unbranded portion is slightly lower (20–25%). This indicates that there are many sub-scale small manufacturers working in a certain industry or area.
India's growth principles of Atma Nirbhar Bharat, Vocal for Local, and Make in India, cannot be achieved comprehensively without strengthening not just the productivity and profitability of MSMEs but also their accessibility and adaptability to digital channels of operations. The digital revolution, which has swooped on every other industry, holds immense potential to reinvent the Indian MSME sector. At the same time, MSMEs can also benefit from adopting e-commerce channels to expand their markets. Digitization brings agility and resilience as well as expanding the reach of products and services offered. Thus, digitizing its operations by participating in the e-commerce channels for sourcing as well as the sale of goods and services is an existential imperative for the MSMEs in India.
The ONDC has made a timely entry into the e-commerce industry, especially for the B2B operations due to a number of structural changes that have been shaping up since a few years ago. The adaptability of MSMEs to B2B e-commerce has received a boost with various enablers such as increased digitization, better access to the internet, the proliferation of smartphones, and the adoption of digital channels for payments & other financial transactions. At the same time demonetisation, the enforcement of Goods and Services Tax (GST), and the Covid-19 pandemic, have led the MSMEs to adopt digital modes of undertaking operational activities of the business. Such structural changes in the industry have made MSMEs more willing to use digital channels for conducting business.
By enabling interoperability among all network participants, ONDC offers wide discoverability to the sellers onboarded on any of the participant platforms. This feature assumes great importance for small producers & MSMEs who are geographically restricted from distributing their products. At the same time, the practical challenges of scaling up can be addressed by the ONDC’s ability to deliver network-wide discoverability. Brands with local recognition have the opportunity to expand into neighboring areas. The ecosystem-wide network effects can lead to the establishment of home-grown brands across the country. Similar to the rise of Lijjat Papad, many more local producers can tap into the customer needs at the population scale.
Potential of ONDC for Kirana Stores
Due to their relevance to Kirana stores, staples and FMCG are the most crucial categories for B2B e-commerce for kiranas. Due to the limited penetration of organized supply chains, the requirements are quite different from B2C e-commerce. Retailers have the tendency to order staples & FMCG goods with a frequency of once a week or more. The rapid sales of these goods, and the low inventory capacity of small retailers, make the delivery timeframes for these shops acute and short. With these delivery timelines and high tonnage, supply chains must be highly localized to the end-demand market to ensure fast and feasible delivery.
The advent of Open-Network for Digital Commerce (ONDC) holds the potential for revolutionizing the distribution models of the retail sector in the country. E-commerce marketplaces have been attempting to transform distribution channels for last-mile, hyper-local Kirana stores. ONDC enables location-aware local e-commerce. Thus, by digitizing local supply chains, the ONDC presents an opportunity to boost efficiencies throughout the distribution channels. Due to the peculiar needs of staples and FMCG categories, exploiting local and accessible sources becomes quite pertinent.
ONDC provides nascent opportunities such as sourcing goods & products from producers and wholesalers/distributors situated in geographically distant places. Goods with better margins to the kiranas can be sourced and sold– expanding the market of various local, unbranded products. At the same time, location-specific brands can be distributed through retail stores. This creates a win-win situation for the Kirana stores as well as the small, local producers. Along with providing sellers to latch on to e-commerce channels, the proliferation of many microservices enhances the ability of Kirana stores by providing seller services such as inventory management, cataloging, billing, invoicing, etc. to better serve its customers. Seller services add value to the operations of Kirana stores by providing digital tools, processes & systems to better manage and operate their shops not just online, but overall.
To wrap it up
The ONDC-compliant network participants offer lower costs to the sellers along with wide discoverability to small producers & sellers. The ONDC has scheduled its B2B operations to commence in December, albeit in a pilot/beta-testing phase. This presents a transformational opportunity for not just the e-commerce industry in India, but also the MSMEs and the retail stores in the country. It is essential to research, document, and understand the bottlenecks faced by small producers, sellers, and retailers in their B2B commerce, and design processes as well as platforms that latch non-digital commerce with e-commerce channels.
Rutvik is an intern with D91 Labs and is a student of Public Policy at NLSIU.
All artworks are designed by Geetika Shukla
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Tech-writer Ben Thompson in his “Distribution and Demand” thesis notes that the Distribution and Demand thesis is fundamentally based upon 'utility.’
Currently, its supply chains are equipped to move 1400 tonnes of perishable farm produce to businesses in less than 12 hours every day.
Subscription-based Revenue Model
Interesting perspective on how ONDC could improve discoverability for small businesses.