As the covid pandemic stuck and subsequent punishing lockdown broke the back of big modern trade & online retail in Indian
cities, the country’s kirana stores have kept supplies going, thanks
to their human and often personal network with consumers, suppliers, vendors
and distributors. These stores have been able to home deliver goods profitability, or at
least without incurring losses. In fact, some of them made higher profits during the first phase especially when there was panic buying happening for essentials like food and basic amenities.
India's retail market was pegged at $793 billion in sales in the fiscal year ended March 2020 and is expected to grow to nearly $1.5 trillion by 2030, according to the latest report by Technopak Advisors and the NASSCOM (National Association of Software and Services Companies). The country is home to about 20 million kiranas, which account for 88% of the brick-and-mortar market. Of the total retail market, grocery retail accounted for around $600 billion. The sector contributes 10 per cent to India's gross domestic product and accounts for 8 per cent of India's employment, according to Invest India.
Most of India's grocery retail happens at kiranas (mom-and-pop) outlets which account for almost 80% of the consumer goods market. Industry players also refer to these outlets as Traditional Trade or General Trade outlets. Store owners have a strong and regular customer base in their neighbourhood, with home delivery and taking orders on phone a common practice. Hundreds of household items are crammed inside the shop or in the open.They typically operate from early morning till late evening.
Over last 3 decades, various other formats have entered Indian retail market, trying to have a larger part of pie from these established players. First to make a mark during late 90's were Modern Retail Format (supermarkets) or Modern Trade as referred by the industry. They were well-lit, cool zones with self-service and automated billing and chain of such outlets spread across different parts of the town. Led by Big Bazar, lot of players including large conglomerates flirted with this new development, some for building large business vertical and others looking for building a scale and later selling it to a foreign buyer when FDI rules are relaxed. However, with intense competition to lure customers by cutting prices coupled with higher rentals, manpower costs and other fixed costs, we saw consolidation happening in this sector, leaving behind only few quality players with ability to scale.
This was followed in late 2000's by pure E-commerce players (E-tailers) taking cues from established platforms like Amazon and trying to replicate model with focus on groceries through hyper-local deliveries and order taking, billing, payments etc taken care of online through websites or dedicated apps. This was led by players by Big Basket and Grofers and also led to specialised players focusing on special categories or areas and large established platforms like Amazon as well as Flipkart also taking a plunge in grocery retail. While some of the players were able to scale up with larger assortment and higher customer base, they were struggling with higher logistics costs, smaller ticket size of purchases, etc.
This led to both consolidation of E-commerce players as well as development of Omni-channel platforms with large retailers like Reliance Retail, D-Mart, etc. combining their physical stores with E-commerce play and also trying to network with mom-and-pop stores to expand their reach. We are currently seeing a flurry of activities going around this phase right now with Walmart-Flipkart, Reliance Retail-Jiomart, Tata-Big Basket and Amazon emerging as large players, who are creating a complete eco-system around omni-channel play. We have also seen development of D2C (direct-to-consumer) brands as well as platforms proliferating the landscape to ride this new wave.
In spite of all these formats making a splash in the market and with huge investments done both in terms of distribution as well as logistics to support the new formats emerging, mom-and-pop stores have not only emerged unscathed but are the new frontiers whom these large players are trying to lure. Further, the current pandemic and lockdowns cemented their position as the retailers of choice for both consumers as well as brands.
As per Nielsen reports, during lockdown period traditional trade emerged as the biggest gainer in absolute terms with quick bounce back from June 20 onwards while E-commerce gained healthily in %age terms, albeit with a small base.
In fact, during the two phases of lockdown, we have seen marked shift towards two outlets: Kirana followed by Chemists with major growth coming in from shift of business from being a retailer of garments or ornaments to grocery during the pandemic times. It is estimated that there has been increase in kirana outlets by around 7-8% during this period.
What makes kirana stores successful in India?
1. Indian consumers prefer buying fresh on daily of weekly basis except for large consumption items like grains & oils which are brought more infrequently.
2. Further, due to shorter purchase cycle as well as lower purchasing power, average ticket size of purchase is smaller, which does not makes sense to travel all the way to large supermarket or order online.
3. While buying frequency is higher per month, they prefer to pay to the retail outlets less frequently, once a month or longer; leading to prevalence of credit.
4. Further, consumers prefer availability at arm's length, should be available within the short perimeter of her residence.
5. Consumer prefer one-on-one interaction and seeing & touching the products before buying, need assurance of immediate replacement & refund.
6. These stores are generally operated by single household and members within family help during different times of day, duly supported by employees depending on volume of business. They don't consider separate labour cost for family members and hence their labour costs are much lesser.
7. Further, these stores are mainly owned by these families and in few cases, rented out since many years. Therefore, their rental costs are much lower (only rent is considered at actual, with no consideration for owned property).
8. Most of these stores stock many products crammed in limited space with almost 20% stocks put out on the pavements and dont necessarily have high consumption gadgets like heavy-duty freezers, ACs, etc. Hence, their other operating expenses are also smaller.
9. They do business with consumers for building long-term trust and profiting out of the relationship over a longer term rather than link profitability to every order. They know every member of the consumer by name, including what activities are performed and most of the cases are also aware about regular orders of the consumers. Therefore, a phone-call or message is enough to service the consumer.
10. Further, most of these retailers perform home delivery of products and are willing to deliver even smaller Rs. 10-20 order to consumer door-step without any separate delivery charges.
Supermarkets and E-commerce platforms have implemented various methods to wean consumers away from the strong-hold of these kirana outlets viz. offering price offs, bulk buying discounts, better purchase experience (either in-store or through apps), free home delivery or delivery at nearby location, payments options including cash-on-deliveries (COD), etc.
These kirana outlets have also learnt from them and trying to implement changes as evident in major Tier-1, 2 & 3 towns in terms of converting their shops into enclosed space with AC environment, self-service counters, automated billing, price-offs, etc. They are also further getting smarter and getting their stocks through aggregation of smaller retailers, large B2B platforms or other supermakets where it gets retailed cheaper.
However, all these qualities of kirana outlets especially their personal touch with consumers, lower operating costs and ability to forgo profits for shorter term limits them to the same locality and does not allow them to branch out with chain outlets. There are only few examples of chain outlets who were able to grow beyond their geographies because as one tries to expand, they are in direct competition with other giant Modern Trade outlets and they level out in all these factors while losing out on purchasing clout, private label brands, investment support, etc.
On the other hand, E-commerce platforms can't survive in current market, where they are thinking of having loyal base of consumers, higher frequency of purchase, much higher average billing size; to provide them enough viability. In current context, very few consumers remain loyal to platforms and they switch at the drop of hat, provided same products are available cheaper at other location; shall not change their buying behaviour and stock-up for longer just because there is bulk buying discount, which strains her budget beyond a limit, shall pick & chose different products from different platforms and never aggregate to a single one.
Same applies to supermarkets, who still have better model after lot of iterations now but won't be able to ride the last mile and omni-channel bandwagon with their current set-up.
Therefore, only way forward is to integrate these kirana outlets with either supermakets or E-commerce platforms and create a truly hybrid omni-chennal model, which is completely hyper-local and delivers to end consumers within minutes.
This would also make the end consumer happy as she is served by a trusted retailer, kirana outlet would remain relevant and would be the most-important pillar of the model, while large supermarkets or E-comm platforms would get the required volumes and have control over the big data.
Bain & Co. in it's latest report "How India shops Online 2021" has predicted around 25-30% CAGR growth for E-commerce in India leading to total size of around $120-140 billion market by FY 26. However, provided there is rapid integration of E-commerce with traditional trade, this can accelerate even faster! Lets see how the sector evolves.
Posts
0 Comments