WWRR Vol.2.015

M
Retail Model #3: The Hybrid Model
FOUNDATION
We think it's a win-win. A hybrid model can address the
shortcomings of a pure-play model, with an increase in
total addressable market and potential to establish a
scalable (and profitable) business model with greater
focus on convenience vs. price. The importance of data
analysis in retail is rising.
Exhibit 30:
Hybrid retail model
Advantage bricks and mortar; advantage eCommerce: In our view,
the retailers with the best chances of success in online grocery are:
l Those that view eCommerce as a long-term strategic priority
incorporating best practices from global companies...
l ...but are still able to fine-tune the business for local habits, shopping
preferences, and social/cultural factors.
With rapid changes in consumer service expectations and technology
itself, companies will need to be open to continuous learning and
refining.
Even as technology will remain in the realm of global evolution, best
handled by eCommerce companies, brick and mortar players will be
able to drive superior customer servicing at a reasonable cost.
Source: Morgan Stanley Research
...can be addressed by a hybrid model… The hybrid model is about
physical retailers and eCommerce companies working together to
combine digital power with infrastructure and service capabilities.
The battle for grocery will be won by players offering accurate and
time-bound home delivery with the ability to curate personalised
baskets and offers based on customer behavior, which may not be
possible in the traditional retail model.
The shortcomings of pure-play models…. As established in this
report, pure-play brick and mortar players that dabble with omnichannel
retail just to stay relevant for their evolving customer preference
risk diluting their store operating margins.
Walmart has taken initiatives like the pickup towers within the stores
or the temperature controlled grocery pickup machines, in order to
offer convenient online ordering and pickup options for consumers.
(Details here and here).
With ever-increasing customer expectations for delivery, especially
amidst a vibrant traditional business model in India, pure-play eCommerce
companies are likely to struggle to establish express delivery
as a viable fulfillment model in India.
...with an increase in TAM... Let's say penetration rates in India were
to move higher (to ~2-3% of the >US$0.5tn grocery market in India
by F2023), similar to some of the developed markets (such as the US,
Australia, and France), driven primarily by customers seeking value
vs. traditional retail and a channel shift in favor of consumers seeking
the convenience of home delivery. Based on our assessment, the
potential for the online grocery market in India could be approximately
US$12-15bn.
MORGAN STANLEY RESEARCH 27