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September 16, 2024
Sesa Sen, NDTV Profit
16 September 2024
As India’s economy grows and digital technologies reshape consumer behavior, the future of kirana stores—the quintessential neighbourhood grocery shops—hangs precariously in the balance.
These soap-to-staple sellers, once impervious to change, now confront an existential threat from quick commerce players like Blinkit, Instamart, Zepto, and from modern retailers such as DMart and Star Bazaar, raising a pivotal question: Can kiranas survive the pressure of change, or will they die a slow death?
The All India Consumer Products Distributors Federation, that represents four lakh packaged goods distributors and stockists, has recently raised alarms, urging Union Minister for Commerce and Industry Piyush Goyal to investigate the unchecked proliferation of quick commerce platforms and its potential ramifications for small traders.
Their concerns are not unfounded. Data suggests that the share of modern retail, including online commerce, which is currently below 10%, is set to cross 30% over the next 3-5 years. Much of this growth will come at the cost of traditional retail.
“Unless the government takes on an activist role to support the smallest of business owners, the shift toward large corporate formats is inevitable,” according to Devangshu Dutta, head of retail consultancy Third Eyesight.
Casualties Of The Boom
Madan Sachdev, a second-generation grocer operating Vandana Stores in eastern Delhi, has thrived in the recent years, adapting to the digital age by taking orders via WhatsApp and employing extra hands for home delivery.
Despite having weathered the storm of competition from giants like Amazon and BigBazaar, he now finds himself disheartened, as his monthly sales have halved to about Rs 30,000, all thanks to quick commerce.
Sachdev is worried about meeting expenses such as rent, his children’s education, and other household bills. He finds himself at a crossroads, uncertain about how to modernise his store or adopt new-age strategies in order to attract customers in an increasingly competitive market.
India’s $600 billion grocery market, a cornerstone for quick commerce, is largely dominated by more than 13 million local mom-and-pop stores.
Retailers like Sachdev are also seeing a steep decline in their profit margins from FMCG companies, which now hover around 10-12%, down from the 18-20% margins seen before the Covid-19 pandemic. The consumer goods companies are instead offering higher margins to quick commerce platforms so that they can afford the price tags.
Quick deliveries account for $5 billion, or 45%, of the country’s $11 billion online grocery market, according to Goldman Sachs. It is projected to capture 70% of the online grocery market, forecasted to grow to $60 billion by 2030, as consumers increasingly prioritise convenience and speed.
Many of the mom-and-pop shops are family-run and have been in business for generations. Yet they lack the resources to modernise and compete effectively with larger chains. Modern retail businesses, including quick commerce, begin with significantly more capital, thanks to funding from corporate investors, venture capital, private equity, and public markets.
“They can scale quickly and capture market share due to a superior product-service mix, larger infrastructure, and more robust business processes,” said Dutta.
Moreover, their ability to engage in price competition poses a challenge for small retailers and distributors, making it difficult for them to compete.
“This is something that has happened worldwide, in the largest markets, and I don’t think India will be an exception,” Dutta said, adding that it would be incomplete to single out a specific format of corporate business such as quick commerce as the sole villain in this situation.
“India is a tough, friction-laden environment at any given point in time, including government processes which don’t make it any easier,” he said.
Peer Pressure
Data from research firm Kantar shows that general trade, which comprises kirana and paan-beedi shops, have grown 4.2% on a 12-month basis in June, while quick commerce grew 29% during the same period.
Shoppers are becoming more omnichannel, rather than gravitating towards one particular channel, said Manoj Menon, director- commercial, Kantar Worldpanel, South Asia. “While the growth [for quick commerce and e-commerce] might appear to have declined compared to a year ago, a point to note is that the base for these channels has significantly grown. Therefore, achieving this level of growth is still commendable.”
Consumer goods companies such as Hindustan Unilever Ltd., Dabur India Ltd., Tata Consumer Products Ltd., etc., have acknowledged the salience of quick commerce to their packaged food, personal and homecare products. The platform currently comprises roughly 40% of their digital sales.
“We are working all the major players in the quick commerce space and devising product mix and portfolio. This is a very high growth channel for us,” according to Mohit Malhotra, chief executive officer, Dabur India.
Elara Capital analysts have pointed out that the share of quick commerce is expected to rise to60% in the near future with e-commerce and modern trade turning costlier for FMCG brands than quick commerce. “The larger brands tend to make better margins on quick-commerce platforms versus e-commerce due to lower discounts on the former,” it said in a report.
However, it is too premature to draw a parallel between kirana and quick commerce in terms of competition, given the significant size difference.
The average spend per consumer on FMCG in kirana stores stands at Rs. 21,285 annually while the same is Rs. 4,886 for quick commerce, according to Menon.
Rural Vs Urban Divide
Quick commerce is still an urban phenomenon. In contrast, in rural settings, where internet penetration is still catching up and access to large retail chains is limited, kirana stores continue to thrive.
According to Naveen Malpani, partner, Grant Thornton Bharat, while the growth of quick commerce is undeniable, this channel is not poised to replace traditional retail, which still has a wider reach in the country. “It will complement older models, filling a niche for immediate, smaller purchases. Also, a 10-20-minute delivery may not have a strong market pull in rural markets where distance and time are not much of a concern.”
Yet many others believe, even in these areas, the challenge is palpable.
The small businesses are beginning to feel the sting of same slow decline that once befell the ubiquitous telephone booths in the era of mobile phone, according to Sameer Gandotra, chief executive officer of Frendy, a start-up that is building ‘mini DMart’ in small towns where giants like Reliance and Tatas have yet to establish their presence.
As rural customers slowly start to embrace digital shopping and seek more variety, kirana stores must adapt or risk becoming obsolete, he said.
Besides, the popularity of quick commerce is set to challenge the dominance of incumbent e-commerce platforms, especially in categories such as beauty and personal care, packaged foods and apparel.
“Quick commerce is primarily operational in metros and tier 1 markets, which is impacting the sales of traditional companies in these areas. However, if quick-commerce players were to extend their operations to tier 2 and tier 3, it would even challenge companies such as DMart and Nykaa, and would pare sales and profitability,” noted analysts at Elara Securities.
Frendy’s Gandotra believes the journey for kirana stores is not a lost cause, but it requires strategic interventions. Many kirana store owners struggle to integrate point-of-sale systems, inventory management software, or even digital payment solutions. These stores need to embrace technology.
Another aspect is the need for policy support. Regulations to ensure fair competition can prevent monopolisation by large retailers. Additionally, subsidies, tax benefits, and grants for infrastructure improvements can help small businesses adapt to changing market dynamics. With renewed support, kirana stores can continue to be the backbone of Indian retail.
Nonetheless, there will be some who’ll be left behind during this shift. Analysts at Elara Capital warn that the swift rise of quick-commerce platforms, combined with aggressive discounting, could wipe off 25-30% of traditional grocery stores.
(Published on NDTV Profit)
Devangshu Dutta
October 14, 2008
If you’re like me, then at any given point of time you have a vague idea about what is in your refrigerator, but not quite. That must why we end up buying stuff that duplicates what is already in the fridge.
Here’s an example of what that translates into for me:
At other times, it is the semi-consumed half-loaf of bread that gets trashed half-way through its fossilization process. Or the new flavour of cheese spread, where the price offer may have been tastier than the spread itself.
I sure there will be at least some among you who would have similar stories. (I would be shattered if I’m told that I am the only one with these tales of inadvertent consumption!)
In the normal course, we would not call ourselves excessive consumers. For the most part, we believe we display rational shopping behaviour. We make our lists before leaving for the market and we generally know which shop or shops we want to stop in at. So, why do we end up doubling or trebling our purchases, when we aren’t actively “consuming” double or triple the amount of food?
Well, the lords of marketing spin have mapped their way into our minds. In a strategy that has been proven over centuries, we are offered things ‘free’ or at a significant discount. The very thought of getting something for free, or for less than what it is worth, is so seductive and irresistible.
(As an aside, just look at what has happened during the last few years in the real estate market and the stock market – everyone thought that they were getting a good deal because the stuff was “worth actually more” than the amount they were paying. Not!)
We believe we are being rational in buying the three packs of juice at the price of two – never mind the fact that juice wasn’t on the shopping list in the first place. The danglers and end-caps jump out and ambush us, as we walk through the aisles. The samplers entice in their small voices: “try me”.
You might say that the really traditional kiranawala is the customer’s greatest friend and also a barrier against uncontrolled consumption.
By keeping the merchandise behind the counter or in the back-room, he maintains a healthy distance between the addiction source and all us potential shopaholics. In fact, he goes beyond the call of duty, and even prevents us from stepping anywhere near the merchandise by delivering to our homes.
The enticing deals and offers that you can’t see won’t hurt you. You won’t call to get that new, exciting BOGO (buy one-get one) offer, because you don’t know that it’s there in the store.
Unless, of course, the sneaky brand with its accomplice – the advertising agency – sidesteps him, and puts out the temptation in your morning newspaper.
By now, surely, you’re wondering whose side I am on.
Well, as a consumer and a customer, I am only on one side – mine!
As someone who is intensively involved with the retail sector, I’m also on the side of the brands and the retailers.
And believe me, we are all actually sitting on the same side of the table.
The years in this decade, after the recovery from the minor blip of dot-com busts, have been like one mega party and most people have forgotten that parties seldom last forever. And the morning after the wild party can start with quite a headache.
Retailers and brands have recently acted as if there is no end to multiplier annual growth rates, and consumers have been only to happy to prove them right. Until now.
Currently, we are passing through a fairly serious global economic correction which started in 2007. But it has only really hit hard in the last couple of months, as the headlines have increasingly started talking about recessions and depressions. Naturally, there are some people who have really lost money, others may be looking at the possibility of lower income. But even those people who sustain their current incomes are “feeling poor”, just as they were “feeling wealthy” when the markets were booming.
Of course, superfluous or discretionary expenditure such as movies in multiplexes, eating out etc. are the first to get hit. But should grocery retailers rest easy – after all, people still have to eat, right?
And how about deals, and multi-buy discounts – isn’t this the scenario where “more for less” will be the strategy which will work?
Well, I don’t believe it is quite so cut-and-dried, or quite so simple. The grocery shopping lists will not only become tighter, but will also be more tightly adhered to. Anything that looks like it may be a wasteful expense will be unlikely.
Remember the deals in the fridge? What you are throwing away now starts looking like money being put into the trash.
Pardon the seemingly sexist remark, but men: your wives will not let you get away with driving your trolleys irresponsibly into aisles where you are not supposed to be!
So how should retailers and brands respond?
Well, a good starting point would be to understand what the real market is. Let us not infinitely extrapolate growth figures on a excel spreadsheet on the basis of the early-years of new businesses. Let us not extrapolate national demand numbers from the consumption patterns of select suburbs of Delhi and Mumbai.
When we have the numbers right, let’s look at the business fundamentals at those basic levels of consumption. Is there a viable business model?
Is the business full of productive resources, or are we overstaffed with “cheap Indian labour”?
Is your modern retail business or your food / FMCG brand really providing value to the Indian consumer? For instance, two very senior people from large retail companies were very vocal this last weekend in stating that the value provided by local business to the value-conscious consumer was grossly underestimated by the industry.
I believe that best filter for business plans is the filter of business sustainability. How sustainable is the business over the next few years? What is the real demand? What are the true cost structures, and can these be supported on an inflationary basis year-on-year, or will you be squeezing the vendors for more margin at every stage until the relationship goes into a death spiral?
Let’s look at macro-economics. Are you actively looking at generating and spreading wealth and income around, or is your focus only on stuffing that third pack of juice into the fridge for it to go stale? If your strategy is the latter one then, to my mind, that is neither a sustainable economic model nor a sustainable business.
There’s more about the current and developing economic scenario, “realistic retailing” and other such issues, elsewhere on the Third Eyesight website and blog, including a presentation made at the CII National Retail Summit in November 2006 (download or read as a PDF). (The article based on that presentation is here.)
I really look forward to your thoughts and would welcome a dialogue on how you believe retailers and brands should work through the next few years as we unravel the excesses of the recent past.
Devangshu Dutta
April 4, 2008
April has opened eventfully around the world, when it comes to food prices.
A leading Indian business daily opened the first week of April 2008 with a story saying that chain-stores may be as much as 15-40% cheaper than street vendors for staple vegetables and fruits. When we put this against the backdrop of concerns at skyrocketing global prices of rice and fuel, as consumers we may have a reason to thank the chains for helping to balance our monthly budgets.
But is this really a victory for proponents of organized retail, or a blow against retail chains?
The same article went on to state that chain stores were offsetting the hit they were taking on food by selling other products that offered them more margin, “an option not available to hawkers”, and also quoted leading Indian retailers.
The very same day, media in Hong Kong were covering a survey that stated that supermarket prices in the city were on average 12% higher than independent grocers, with some branded products being sold for as much as 20% higher. The Democratic Alliance for Betterment and Progress of Hong Kong, which carried out the survey, cautioned consumers that they should not be misled by supermarket ads for big discounts and advised them to compare prices frequently between chains and independent retailers.
(The study did not compare price differences now to what they might have been 20-25 years ago, when the market was not so consolidated. Such a study may provide some other interesting insights.)
During the same week, the government of Ivory Coast in Africa also responded to protests by women and youth in Abidjan against rising living costs with an emergency meeting and lower import duties on key food items.
Obviously inflation, especially in food prices, is a global concern right now, so this simultaneous appearance of news across countries is hardly a coincidence.
They, however, do raise concerns about how the chain of food supply and retail is structured, and also some important questions about competitive strategy.
Let’s deal with competitive strategy first. Obviously, the terms “loss leader” or “key value item” have been coined in the last few decades, but the strategy itself has been well-known and widely used since the time humans started trading thousands of years ago.
The foundation of the strategy is built on items that are a staple, usually widely compared by consumers or used as a benchmark when comparing different merchants. A merchant may place a very low margin on such a product, or sell it at cost (or even at a loss).
The concept is simple: attract a customer into the store with an irresistible offer, but make sure that consumer also buys other products that provide enough profit to the retailer.
As a consumer you may feel outraged that someone is “cheating” you, but in our “sensible” and rationally-aware moments we as customers know that this happens frequently, and know how to avoid it. However, we are not always rational – if shopping were purely a rational exercise then automated comparative software would be fulfilling all our shopping needs by now.
Stepping beyond the retailer-consumer relationship, there is also question whether this can be classified as free or fair competition when cash-rich organizations with a wide basket of goods, take the strategy to the doorstep of the small individual trader whose product offering is much narrower and usually concentrated on the staple goods that are being discounted.
There is no really easy or quick answer to this question.
On the one hand, large retailers such as Wal-Mart, Carrefour, Tesco, Metro and others, have been widely credited for achieving cost-efficiencies from scale, and then passing on these efficiencies to the consumer in the form of lower prices (and, apparently, higher standards of living). That is a good thing and definitely of benefit to the population at large, especially in inflationary times such as these. Rather than keeping prices high due to inefficient sourcing, wasteful and expensive handling, and non-value-adding costs in the supply chain, it is surely a good to push for lower costs.
On the other hand, there is no simple way to draw a line when competitive benefit to the consumer becomes predatory pricing within the trade.
If a retailer took price reduction as a “strategic investment” to grow a market (as happens in markets and product categories around the world), when do you start calling it “unfair”? And should you even attempt to label it unfair? What is the cost to the market, when it could eventually concentrate and consolidate market share in few hands? Is the cost to society more in supporting small inefficient retailers, or more if these retailers lose their independence and become employees? (If you’re looking to me for the answers…sorry, I don’t have them yet!)
Value judgements are almost always subjective rather than objective. ‘Large versus small’ conflicts are frequently emotive rather than rational. And even though there are no easy answers, I believe we should think about these questions, as businesspeople, as consumers and as social individuals.
There are some rather interesting (and by no means conclusive) studies, opinion papers and books that have looked at the structure and economics of the food supply chain, but constraints of space force me to postpone that aspect to another column. The questions and competitive strategy will not be disappearing quickly, so I’m sure these will still be relevant then.
Meanwhile, I’m sure we have enough food for thought!
Devangshu Dutta
March 4, 2008
Picture an upper-middle class consumer out shopping groceries in a large, air-conditioned hypermarket after catching the new movie at the mall.
Global best-practice is the standard here. The aisles are wide enough to allow two shopping-carts to pass each other comfortably, and are organized according to product categories. The shelves are neatly ticketed, and the products equipped with bar-codes to allow for quick checkout. The emphasis is clearly on convenience. But (surprise!) the store has apparently underestimated the demand for the conveniently pre-cut and packaged vegetables. The loose vegetables are going untouched, while the pre-cut packs are almost sold out. Looks like another win for modern retailers.
This scenario would seem plausible to most people who have observed or been part of the growth of modern retailing in a market like India.
The “organized retail boom” and “growing consuming class” are consuming miles of newsprint and eons of airtime, while the malls are the gleaming new temples at which every devotee of retail must pay respect. This is the picture of modernization or organization of the Indian retail sector that comes to the mind of most people.
On the other hand, the picture that comes to mind when one thinks about the traditional sabziwala (greengrocer) is a total contrast. A messy side-street, with the push-carts overflowing with an indifferent mix of vegetables, other than the occasional yellow bell pepper or some other such “exotic” produce. Or the typical kirana shop owner scrawling an illegible list of items and figures on a scrap of paper and handing it over as the “bill” for the groceries one has just bought. Surely, a business model that is not going anywhere fast.
So, to most people, the line between modern or “organized” retail and traditional or “unorganized” retail is quite clear, and the differences quite stark. “Organized retail” usually means large, “corporate” stores that personify the so-called “retail revolution” which apparently is about 3-5 years old, while traditional retail business usually means “unorganized” and “belonging to the past” (or at least, soon to belong to the past).
However, a revolution is when the majority starts getting impacted. When only a few create a change that mainly benefits them, it is a coup.
To anyone who has been involved in the retail sector for longer, in fact, there has been a far more interesting, widespread and ongoing change in the retail business over the past couple of decades, and possibly further back. This is not restricted to a few corporate groups. It is not even restricted to the front-end (store-end) of the business.
The change is created by the feedback loop between customer expectation and the minimum acceptable standard of service which is constantly being moved up. Of course, the newly-minted corporate retailers have a role to play in this. But, more than that, it involves many small changes accumulating organically over a period of time involving individual kirana owners, farmers, wholesale traders, market associations, the FMCG companies and even the migrant villager who sets up a hand-cart that may be stocked daily with rolling credit from the money-lender.
And that is my point. The modernization of retail is an ongoing process, and it is sustainable because it is widespread.
In recent Indian retail history, as customers we may identify a point where we saw the local shop shift from stocks in a dingy back-room to being displayed openly, setting the example for other shops in the market.
But the changes needed were not just at the retailer’s end – they also required the wholesale vendor’s approach as well as the FMCG principal’s approach to begin changing.
Certainly a shift occurred in service standards, when vegetable vendors started taking home-delivery orders on mobile phones – impossible without the wider telecom price-quality revolution. And when credit card swipe machines started appearing in the kirana, something that could have only happened with the support of the banks and their intermediaries.
And the pre-cut packaged vegetables whose demand the hypermarket had underestimated? Well, the sabziwala has that covered as well – beginning with the packs of cleaned baby-corn, this list has now expanded to include pre-shelled green chick-pea (chholiya), cut jackfruit and chopped sarson saag – vegetables that can be quite inconvenient to clean at home when time is scarce.
The impact of this modernization was brought home to me, when I observed a customer reprimanding the local sabziwala for not keeping adequate stock of shelled peas. The interesting aspect was that this was not one-half of an upwardly-mobile DINK couple. The customer here was a domestic helper, whose complaint was that he had many other jobs to get done around the house, and shelling peas was something that was too time-consuming and best “outsourced”!
So, to all those who have the question, “what is the key to succeeding in the Indian retail market”: the key may lie somewhere entirely different from where you have been looking, or the customer-profile that you have been building.
We are surely underestimating the business potential amongst India’s middle and not-so-middle classes – as we would discover if only we were to re-state business objectives and tweak strategy a little bit, and look at the market without high income-tinted glasses.
