Upgrading the neighborhood Patel Store
Jim Barksdale and you will be happy to note that we have plenty of data points (and not just an opinion) on why we believe in the potential of the eB2B space. There are 13mm kirana stores in India, out of which 46% ~ 6mm are in rural India and 32% ~4.14mm in Tier II, III and IV cities. More than 90% of these stores purchase from wholesale markets, less than 5% from cash & carry and B2B platforms. The B2B retail market surpassed $700bn in 2019 alone and is expected to grow in tandem with the overall consumer spend.
But why will the Patel Store at a walking distance from your place want to switch to ordering online now aka eB2B? Plenty of reasons — The traditional retail supply chain has a lot of redundancy built in partially because of the excessive number of players between the manufacturer and the retailer; and inefficiency cause no innovations have been done to this age old space. On the customer side, issues such as lower fill rates, poor or no data on demand preferences bring the consumer experience and engagement down. This is especially important to take care of because with the B2C segment taking off online in a big way, Mr Patel is competing with Amazon, Flipkart and a slew of online marketplaces for customers’ interest. He needs props to be able to better service his customers and preserve/grow business — whether it be data that helps them order better, integrate with suppliers, access credit to stock up, etc. Earlier credit facility wasn’t available for online deals but this scenario is slowly changing with credit being available for online transactions. Those retailers who have taken the plunge into the online channel are boasting a higher GMV and those who have accessed credit, are reporting a 3x increase in GMV.
Mr Patel & Son switched to ordering online a couple of months prior to the lockdown (in no way influenced by it) and couldn’t feel more prosperous. They got timely and safe delivery of goods when a whole bunch of nearby stores were stocked out; and what is more, now that they tied up with a startup offering SMEs working capital, they are able to outgrow competitors by leaps and bounds.
Startups thrive on problems, they live to organize an unorganized space. And the level of information asymmetry — be it on demand, credit, processes — is exciting to those seeking a problem to solve. While the market size of all such solutions is attractive enough, the structural foundation of the retail business is the products to sell. Once this is digitized and data captured methodically, a whole slew of value add services can be built on top of it.
Startups such as BigBasket, Grofers, Zomato (with its acquisition of Wotu), Jumbotail and Ninjacart are doing their bit to aggregate supply and demand in the FMCG and grocery space — some entering the eB2B space organically after successful stints in B2C. Players such as Udaan with a horizontal focus and a strong thesis around electronics, pharma are going where no one barring Indiamart has gone, and with good success. Other interesting models are emerging around this mammoth market. Recent funding of startups like Bijnis which operates in the eB2B footwear space and sources directly from small manufacturers; and WholesaleBox (apparel category) suggests room for vertical plays with an intent on controlling and introducing efficiency in the supply chain. Consolidation from small manufacturers can also prove as a key differentiator in a highly competitive space. Plus, there is a new category of startups emerging with a brand-first, rather than a retail-first approach. Clear bets are stationery, toys, sports & fitness equipment and fashion & accessories. Could there be room for a network-based approach in the space with ad-based revenue generation and hence, strong focus on adding more and more suppliers and retailers onto such a platform? We believe that the answer to these questions is positive and unique answers/solutions will pave the way.
So while the value proposition for 13mm Indian kirana stores is still very convincing, why will brands want to supply to kirana stores online? The channel doesn’t as yet provide (as) attractive economics, given high distribution margins and timeline of payments. A big angle is that brands recognize that there are enough customers that want to buy via offline retail, so they will seek to make investments to improve customer experience (via better data etc) — ultimately for their own benefit. Customer is always the king/queen. As this channel matures, we think there will be a bigger margin potential for brands as retailers adopt new models such as eB2B.
Whether digitization of kirana stores is pushed by brands or pulled by retailers, the fact that it is upon is, is clear. Since in its infancy, we have just scratched the surface of the eB2B retail sector. There is room for new categories to emerge in the organized side and a lot more organizing to do of the unorganized side. The country by all means is all set to be the biggest eB2B market in the world and the market size by 2025 is expected to reach more than a trillion $. How is that for numbers that matter?
(We encourage startups innovating in this space to reach out to us at info@ankurcapital.com)
