The Hindu Business Line : Chennai’s flourishing kiranas

It has been twelve years to the month since the first modern, organised supermarket store opened its doors in Chennai. Chennai has since seen more than 250 modern supermarkets trading in the city and they have made a dent in consumers’ shopping habits, accounting for about 20 per cent of Chennaiites’ household expenditure. How have they affected the traditional mom-and-pop stores? The third and concluding part of the three-part series by KiranaFirst, published exclusively by BrandLine, focuses on how kirana stores have managed to remain competitive despite the growth of modern retail.

Contrary to common belief, about three-quarters of the kiranas surveyed have actually performed better both in terms of revenue and bottomline! Even though a quarter of the kiranas surveyed have not performed asper their expectation; none of them expressed any intention to close down!

Survey methodology

The city of Chennai was divided into 29 geographical hamlets. A total of 304 kirana stores were chosen from these 29 hamlets using a method of conditional stratification. The conditions used were:

Kiranas selected should have operated for at least a 5-year period in the same location.

The kirana must be within a two km radius of at least one modern organised supermarket.

It so happened (not part of the survey strategy) that 133 of the 250 supermarkets operating in the city fell within 2 km of 304 selected kiranas. Considering the median size of a kirana store is about 400 sq. ft, the total area of kirana space covered would have been a little more than 1.25 lakh sq. ft. Compared with that the area covered by 133 modern supermarkets would be around 3.5 lakh sq. ft. It would, therefore, be a fair assumption that the modern organised supermarkets would be providing significant competition to the standalone kiranas.

Of the 304 kirana stores forming the sample, 123 (40 per cent) were small with trading areas of less than 250 sq. ft., 138 (46 per cent) were of medium size with an area of 250-750 sq. ft, and 43 (14 per cent) were large kiranas with size of 750 sq. ft and above.

Key findings

Our survey reveals that 76 per cent of kiranas have witnessed an increase in revenue whereas only 24 per cent saw a revenue decline. Similarly, 67 per cent of the kiranas actually saw an improvement in profits whereas 33 per cent suffered a decline. Asked whether kiranas witnessed changes in consumer buying pattern, 47 per cent of them replied in the negative. However, 53 per cent of the kiranas surveyed believed that there has been a change in consumer buying patterns since the onset of modern organised retailing.

The survey also finds that kiranas located in more affluent hamlets or in more densely populated areas have witnessed an increase in revenue. The decrease in revenue seems to have come in hamlets with low intensity of population as well as the less affluent ones. For example, areas such as Alwarpet, Mylapore, Adayar, Kotturpuram and Kilpauk are among the areas where sales in such stores actually went up whereas, areas such as Choolaimedu, Kottivakkam, Tiruvottiyur, Velachery and Tambaram (all suburbs in the city) had a concentration of kiranas which witnessed lower revenues as well as profitability.

It is well known that modern, organised supermarkets have been using price as an important strategy for acquiring customers (see article titled Twelve Years On in BrandLine edition dated May 15, 2008). It would, therefore, be natural to expect that kiranas would have used price reduction as a strategy to counter competition from organised supermarkets. Our survey, however, reveals that only 21.7 per cent of them have used price reduction as a customer retention strategy.

How have the kiranas remained competitive? What strategy do they use to not only survive but also keep growing despite the onslaught of organised retail?

Competitive strategy

We could describe the competitive strategy used by kiranas as “transformational”. They seem to have used three transformational strategies:

Change in format

Change in merchandise

Change in customer services

Some 28 per cent of kiranas have changed store format whereas nearly half (49 per cent) have made significant changes in their merchandising. Another 27 per cent of those surveyed have incorporated value-added customer services. It was observed that many of the kiranas surveyed have used more than one, if not all three, of the transformational tools to enhance their competitiveness.

Format improvement

Considering that it is not always possible to acquire more space to increase the size of the stores, we find that only 17 per cent of the kiranas have increased their store size. However, there has been an incredible amount of development work in three areas, namely, increasing the shelf space, increasing the breadth and increasing the depth of stacking.

We find that 35 per cent of the kiranas have increased total shelf space inside their stores. Forty-four per cent of them have improved breadth of stacking and close to 42 per cent have used depth for stacking more stock keeping units (SKUs). We therefore infer that the total number of SKUs stacked have gone up quite significantly in the near past.

We observe that hygiene standards in kiranas have gone up significantly. Some 20 per cent of kiranas has deliberately worked towards improving ambience, chiefly by air-conditioning the store, putting self-help racking and better lighting.

Merchandise transformation

We find that addition of new categories as well as increasing the width of merchandise within a category has been quite transformational (see chart/table above).

We observe that 37.5 per cent of the kirana stores has changed to ‘general merchandise’ as a category. It is, of course, well known that general merchandise is responsible for the stores’ profit improvement. As recently as five years ago, these stores did not stock fruits and vegetables. We now find that there is a high penetration of fruits and vegetables in kiranas to complete the basket of offering.

Customer service

Personalisation of customer service has, of course, been the hallmark of kiranas anywhere in the world. We, however, find that kiranas in Chennai now recognise that value-added and personalised service are the key differentiators between them and the modern supermarkets. We find from the survey that 71 per cent of all kiranas are offering home delivery service. Home delivery is available both when the customer comes to the stores as well as when orders are placed on phone. We also find that more than half of the kiranas are using credit facilities as a value-added offering. Also, we find that 22 per cent of stores use a significant customer retention tool of offering a selective discount to their loyal customers (see Emergence of Super Kiranas, BrandLine dated May 22, 2008).

Conclusion

We find that at 20 per cent market share organised chain supermarkets have not taken away revenue from the traditional kirana stores.

Over the last decade kiranas have learnt aspects of stores reformatting as well as merchandising from the modern supermarkets. They have also used their traditional strengths, namely, personalisation, home delivery and credit as weapons of competitive advantage. It would also appear that financially traditional kiranas have fared better than organised retailers.

We would conclude that both modern supermarkets and kiranas have learnt to live together and even grow. It will be fair to predict that supermarket chains will now concentrate more on supply chain management to drive up their financial sustainability. When supply chains begin to yield competitive advantage, kiranas will face true competition. Going by transformational strategies adopted by kiranas in the last decade we believe they are in a better state of readiness to regenerate and keep their business sustainable.

This is a KIRANAfirst research conducted jointly with Prof Paneerselvam and post-graduate Retail Management students of the Chennai Business School. KIRANAfirst is a not-for-profit organisation devoted to enhancing competitiveness of kiranas.

Related Stories:
Twelve years on
The emergence of super-kiranas

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