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Humble kiranas will still hold sway over market even as retail and e-commerce players grow

Arvind Mediratta
15th Oct 2018
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At the turn of the century, if someone had told you that in a few years’ time you could hail a cab by swiping a few buttons on your mobile phone, or that you wouldn’t have to step out of your room to buy anything from daily essentials to televisions and high-end electronics, it is likely you would have dismissed it as the figment of someone’s imagination.

This is the kind of transformation that digital technology has brought into our world, bringing to life things that were considered impossible even a decade ago. 

But, even amidst all this, one entity that continues to hold its sway over the Indian consumer is the neighbourhood grocery store or as we call them the local ‘kirana’ stores.

These stores have proved to be extremely durable and, over the years, have survived the emergence of the supermarket, big box retail chains, and e-commerce players. In fact, despite the emerging competitive landscape, they continue to thrive and remain relevant to the local needs.

Local knowledge coupled with smart inventory handling

Today, we have close to 12 million of these small stores across India. Despite the expansion of organised, modern retail and e-commerce players, kirana stores hold their sway over the grocery retail business with a whopping 90 per cent share.

Their accessibility, convenience and the variety of locally relevant goods they stock makes these seemingly small stores popular. They are better tuned in to the requirements of their regular customer base than several larger players. If you are looking for a Maharashtrian Chivada or lonche; Guntur chilli or Karnataka’s Mankattu chilli, you are more likely to find it in a kirana store just around the corner than on the shelfs of some fancy supermarket.

Their intimate knowledge of the local consumer community helps them with smarter utilisation of their limited store space, since they stock only what they need while using the wholesaler as a warehouse. In addition, they also tend to provide free delivery in less than an hour with a handy credit facility for regular customers.

Another key reason the kirana model will sustain itself is because supermarkets in Indian face massive capital costs involved in real estate, which has a bearing on their pricing and profitability. The small neighbourhood store, on the other hand, manages with fewer stock keeping units (SKU) in a small space.

Margins continue to remain low for online grocery players

In the ongoing debate around the merits and demerits of e-commerce in India, one fact that remains indisputable is that making money by selling grocery online is one of the hardest things to do. The cost of customer acquisition for online retailers will remain high and keep going up. For the foreseeable future, they are most likely to have a high cash burn rate and will eventually have to make course corrections towards a profitable and sustainable business model.

In the long term, they may see good traction for items such as apparel, mobile, television, but making money in food and grocery where the margins are wafer thin is going to be quite challenging. In food retailing business, you need specialised infrastructure and cold chains which requires huge investments which eventually impacts overall cost and sustainability of the business. Additionally, customers will keep buying online till the time there are discounts and offers. However, people are more comfortable buying from their neighbourhood stores as it is easy and you don’t have to wait for the delivery. Kiranas play an important role in last mile connectivity and it is imperative to create an eco-system to support kiranas and help them deliver.

Merging the online and offline can empower businesses and consumers

The future is not a question of offline versus online, but how online can complement offline; as both will continue to thrive in different ways.

Rather than trying to bet on the demise of the kirana stores, we should do the exact opposite — empower them. By modernising the kirana shops, we will be ensuring that business becomes better both on the supply side and the demand side, and that both customers and business owners benefit.

There are ample technological solutions that can bring the humble kirana store into the mainstream of the e-commerce revolution, but only a few big players are exploring this option right now.

The more sustainable solution is increased digitisation and hyper localisation of the kirana, POS billing, app payment, back-end integration of the kirana and competitive pricing with discounts to be passed on to customers in order to enable them to compete with the modern retailers and e-commerce players. Mobile applications which have the ability to scan and issue bills from a printer are the next stage of evolution for the kirana store. Another step would be re-skilling of the owners and staff of the kirana stores by training them with planograms, assortment selection and effective product placement to improve their margins.

Digitisation is just one step, there is much more the industry can do to ensure that these stores thrive and complement the online businesses.

Most kiranas work on credit with suppliers and customers, so working capital loans become a critical component of their business operations.

The human element as the differentiator

Even if big box retail and e-commerce find a way to be profitable, kiranas will dominate the consumption market with a share in excess of 80 per cent.

Technology can only make things better but customers still prefer a human interface. Most kiranas have personal relationships with their customers; they serve as shopping advisors to them and enjoy a deep level of trust.

This will remain the key differentiator, and the reason why kiranas will continue to succeed.

 

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