Asset Management

Covid has energized adoption of the digital ecosystem – and the change is likely to be permanent

September 2020

Read Time: 5 minutes

Aristotle, the legendary Greek philosopher said, “Man is by nature a social animal.” Frankly, the import of these words is now dawning upon - us - largely confined to our homes, as a consequence of the pandemic, and bereft of societal interactions. Psychologists opine that human beings are creatures of habit. The exigencies of the current situation are moulding our habits and our lifestyles. While the immediate priority was and continues to be health, wellness and safety, we have had to adapt to certain changes in our habits and lifestyle that were unimaginable a few months ago. This has prompted a change in consumption behaviour on how and what we consume across categories (e.g. food, entertainment, education, news) and how we pay for them. These changes in user habits are likely to be sticky and will cause a structural shift towards digitally enabled businesses. Arguments that this is primarily a metro centric phenomenon may be accurate today – however the permeability of these changes across ‘Bharat’ is only a matter of time.  Brands need to take cognizance of these winds of change.

Cheap data rates and the broad-based availability of mobiles have ensured that consumers have adopted to the digital ecosystem surprisingly seamlessly. These structural tailwinds have accelerated the growth of several categories like online retail, online education, OTT platforms, digital news providers, digitally enabled stock brokers and digital payments.  

Categories like online retail, especially grocery, were the early and biggest beneficiaries during the lockdown. In a situation when access to retail markets was restricted / constricted, several new users flocked to platforms like BigBasket, Grofers, JioMart and Amazon Fresh. It is estimated that the ~USD 3 billion grocery market is expected to increase 3x in the next couple of years and the overall e-commerce market is expected to hit USD 100 billion in the next four years. Adapting to the situation were over 12 million kirana stores spread across the country, which were the lifeline of supplies during the national lockdown. Digital adoption by most of these outlets has been at an astonishing pace. They resorted to using WhatsApp to procure orders and ensure deliveries, in addition to accepting online payments (either through the UPI network or through mobile wallets). Given the efficacy of such transactions, most of these changes are structural and irreversible.  

Digital consumption of services has also kept apace with products. Education, as a sector, has had to migrate from a predominantly offline mode to a completely online mode within a matter of months. Platforms like Byjus, Unacademy, Eruditus, WhiteHat Jr, have enhanced their user base during this period. Students and teachers have had to adapt to e-education, and it is likely that even when the pandemic subsides, several digital education initiatives will continue. However, in order to scale digital education and make it broad based, addressing the digital divide becomes imperative. 

Newspapers were part and parcel of our daily lives. However, with the Covid induced scare, many readers have migrated to digital news platforms for their daily news consumption.  With the ability to customise content, availability in vernacular languages interspersed with videos and the ability to provide hyperlocal news, digital news has transformed news consumption habits. It is unlikely that a majority of adopters of digital news media will revert to newspapers with its static, broad based content. This is reflected in the growing share of digital advertising – USD 4 billion market (representing ~25% of the overall advertising market) is likely to increase by 3x in the next five years. 

OTT platforms like Netflix, Amazon Prime and Disney Hotstar were already gaining traction at the expense of satellite TV or even theatrical movies in some cases. With negligible options for entertainment in the foreseeable future, the adoption of OTT platforms has increased manifold (some estimates indicating a subscriber growth of as much as 30% during this period). For several categories of movies, OTT platforms may become the de facto go-to option even post pandemic.

None of the changes have been as seismic as the changes to the payments ecosystem. With a generic reluctance to handle cash, the pandemic has achieved what demonetisation targeted. Widespread use of payment wallets, UPI and credit cards in traditional mom & pop stores, and even amongst local stand-alone vendors, is a manifestation of how quickly the user base has adapted into a digitally enabled ecosystem. The growth in UPI transactions is a case in point - 1.61 billion UPI transactions aggregating USD 39.7 billion were recorded in August 2020 (as compared to 0.8 billion transactions aggregating ~USD 19 billion in August 2019). With these tailwinds, it is expected that the digital payments market will double from its current levels of USD 28 trillion in the next two years indicating a structural shift in the market towards digital payments.  

Apart from giving a fillip to digital players, these fundamental structural shifts in consumption usage are likely to have long term implications on customer acquisition costs, advertising strategies and budgets, investments in technology and long term profitability of brands in India. Companies considering these as temporary blips may do so at their own peril.

Author: Ritesh Chandra, Managing Partner, Avendus Future Leaders Fund – I

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