The Power of Kirana Stores : Transforming Indian Retail
In the race for dominance in India’s retail market by global and domestic players, India’s Kirana stores (the local neighborhood stores) hold the key as they dominate the grocery and the fashion market. In the USD 700 B Indian retail market, a large +85% spend of the Indian consumers is with the Kirana stores, making them the backbone of the Indian retail industry. The Kirana network, that spans the length and breadth of the country, cannot be ignored or killed. Unlike the western retail markets, the mom-and-pop stores in the eastern markets such as India and China have to be embraced to digitize and revolutionize retail and consumption.
The Kirana network of stores across India have stood the test of time by being highly relevant and have resisted the predatory power of eCommerce and Supermarkets. By industry estimate there are about 10 to 15 M Kirana stores in India and so are an enormous estate. These stores remain relevant and thrive based on their value propositions of (1) local access and convenience, (2) having locally relevant goods, (3) the store owner’s amazing pulse on the needs of the local consumers, (4) building personal relationship with customers, (5) providing a relationship based credit facility to known and regular customers, (6) free home delivery by the store staff and, (7) serve as a local community building venue. Exactly what the eCommerce players and Supermarkets have been trying to get to. The deeper knowledge of the local consumer needs helps the stores manage a simpler and relevant SKU assortment, efficient inventory turn over and higher utilization of smaller and premium real estate space. All these factors make the Kirana retail model more profitable than the eCommerce Retailers and Supermarkets.
India is a highly diverse country in culture, taste and consumption that stores even 50 Kms apart would be different in their assortment. Technology disruption, increasing urbanization, rural uprising, diversity in consumption, and growing aspirations for a better quality of life are effecting changes in the Indian retail market. Such a phenomenon needs deeper insights into the Indian consumption pattern and empowerment of the Kirana network, to provide higher value to the consumers and players in the retail ecosystem and for the growth of the industry in an efficient and sustainable way. However digital transformation of Indian retail industry including the Kirana network would be one of the greatest challenges to take on as it involves building and deploying a pan-India digital platform, policy reforms, geographical factors, and most importantly getting the store owners and federations on-board.
In today’s digital world, the Kirana stores are used as order collection and return points of eCommerce players such as Amazon and Flipkart. This eCommerce activation provides additional source of income to Kirana stores. Amazon has about 17,000 Kirana stores in over 300+ cities as part of its ‘I Have Space’ (IHS) programme. Flipkart with about 10,000 Kirana stores partnership in over 200+ cities is seeking to move a level further by planning to use them as sales channel for its top categories such as smartphones, in addition to using them for last mile delivery.
In sharp contrast to the eCommerce players and Supermarkets, the vast majority of the +10 M Kirana stores across India do not use any or much technology. There are huge untapped opportunities to understanding scaled local and regional consumption, improve demand forecasting, inventory management, supply chain efficiency, waste reduction and enabling multi-fold market growth. Small scale Retailers and the Wholesalers serving them stand to immensely benefit from the digital transformation of the industry. While store POS modernization has been happening in micro fragments of the Kirana network, it has not scaled and the digitization of Kirana stores has been limited to adopting digital payments such as cards and Paytm, more so following the Indian government driven currency demonetization in 2016.
Kirana retail modernization needs a scaled digital platform across regions and the country to enable (1) development of localized and regional consumption insights, (2) POS management, (3) inventory management, (4) digital payments, (5) integration with the wholesale Suppliers and FMCGs for a lean B2B Supply Chain, (6) allow store owners to monitor and manage business performance easily through a mobile app, and (7) enable them to participate in eCommerce by becoming a Seller on the integrated digital retail platform of India. With the 2017 implementation of the Goods and Services Tax (GST), the uniform tax code across India, pan country retail digital platform roll-out becomes less complex. A transformation of this scale will unlock huge benefits to all players — the consumers, the businesses, the government and the country. With increased interest from Kirana stores for technology led store modernization and desire for business growth, a digital retail platform as a backbone, the gold mine of data and an incentivized business model, will unleash retail industry transformation, or better a revolution. With transport, food and entertainment having become platform enabled, pharma, Kirana grocery and fashion will be the next to happen.
It is all fair in love and game. Amazon and Walmart owned Flipkart are multi-national companies with regulatory restrictions on running eCommerce business and operating stores in India. Unless they partner with a strong local player they cannot understand and crack the Indian consumption genome and the Indian market. On the contrary, Reliance Retail (a subsidiary of Reliance Industries), is an Indian company with a large estate of 10,000 stores and have demonstrated a rapid growth in the last 5 years. Local big players like Reliance have a strong sense on the pulse of Indian consumption, the Kirana model of business, the retail operational challenges and are beneficiaries of government policies to domestic players. In this context and with strong capital investment power, local players such as Reliance Retail are uniquely positioned to take advantage and transform the Indian retail market.
Reliance has announced big plans to enter the Indian eCommerce market. With its established scale of 10,000+ stores and a large customer base of 300 M via Jio communication services and 700 M via its retail footprint across India, Reliance would not have to burn huge cash on customer acquisition and retention as Amazon and Flipkart. Moreover, Reliance in early 2019 has launched trials of a digital retail platform in some Indian states starting with Kirana retail POS digitization and have incentivised Kirana participation. Future Group is another big player in India’s core retail transformation. Future Group have been experimenting with transforming retail via the Government operated Public Distribution System (PDS), known as ration shops, by enabling store technology, redesign and by increasing the range of product assortment available at PDS shops which normally sell a limited range of rice, grains, sugar and oil at subsidized rates.
The Indian retail market is witnessing the most exciting time of its modern history. Indian retail transformation is going to be a classic case of business 4.0, leveraging the power of digital technology, embracing the partner ecosystems and the scale of Kirana network, enabling new business models, securing government reforms, and taking bold risks, to deliver more value to the consumers and deliver exponential growth of the Indian retail industry.
