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The kirana store will remain evergreen

Arvind Mediratta | Updated on May 28, 2018 Published on May 28, 2018

Durable model Kirana stores account for a 96 per cent share of the grocery retail business   -  Reuters

Thriving amidst retail chains and e-commerce, kiranas can even complement online businesses through digitisation

Digital technology is changing the world in ways that would have been considered unimaginable a decade ago. If at the turn of the century, had someone told you that owning a car in India’s cities would be redundant because you could hail a cab at the press of a button, or that reading out your shopping list to a phone could result in their delivery with a few hours, it is highly likely you would have dismissed it as science fiction.

However, the humble kirana store or the neighbourhood grocery store has proved extremely durable and digital-resistant.

These stores have not only survived the supermarket or large format retail chains then, and e-commerce now, they are also thriving. A couple of factors keep them evergreen and relevant.

Successful model

One is the ease of access. Two, is their ability to sell the most locally relevant assortment of goods for their customer base. You can’t beat a kirana store’s knowledge of what the local community consumes. Looking for a Maharashtrian lonche or Tamil manathakkali vattal? You are more likely to find it in a store round the corner than the swanky supermarket.

It not just the variety of local produce they sell. The kirana shops usually provide free delivery in less than an hour with a handy credit facility for regular customers.

Close to 12 million of these small stores dominate India’s grocery retailing. And despite the storied expansion of organised, modern retail and the arrival of e-commerce, kirana stores are the lifeblood of Indian consumption with a 96 per cent share of the grocery retail business.

Another key reason the kirana model will sustain itself is because real estate remains a huge challenge for supermarkets in India. The massive capital costs involved in real estate 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.

The intimate knowledge of the local consumer community helps them to better utilise the limited store space and turnover goods smartly. They stock only what they need while using the wholesaler as a warehouse.

Today, there is a lot debate on the merits and demerits of e-commerce in India. But making money selling groceries 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, the online retailers are likely to keep burning cash at such high a rate that sooner than later they will have to pause, make course corrections towards a profitable and sustainable business model.

In the long term, they may see visible returns on non-food item. But making money in food and groceries where the margins are wafer thin is going to be quite challenging. In addition, in the food retailing business, you need specialised infrastructure and cold chains which cannot be done by e-commerce players on their own. Ultimately, they too will also end up relying on wholesalers to manage their back-end.

Looking ahead

So what does the future hold? The online versus offline argument will continue for a few more months, but we can see consolidation in the horizon.

So, rather than trying to ensure offline becomes online, and bet on the demise of the kiranas, we should do the exact opposite — empower the kiranas.

By modernising the kirana shops and ensuring that business becomes better for them on the supply side and the consumer side, we will be ensuring that both customers and business owners benefit.

There are ample technological solutions available to bring the unfancied kirana into the mainstream of the e-commerce revolution, which sadly is restricted to a few big players right now.

The solution is more digitisation and hyper localisation of the kirana, POS billing, app payment and back-end integration of the kirana with the wholesale suppliers to ensure the customer’s unmet needs are met at the right time. Mobile applications which have the ability to scan and issue bills from a printer is the next stage of evolution for the kirana in India.

We have to support the kirana network with their assortment for their specific customer base as in India food habits change every 100 km.

Additional support can be provided by training them with planograms, assortment selection and product placement within their stores to improve their margins.

Digitisation is just step one for the modernisation and re-skilling of the kirana, there is much more the industry can do to ensure they thrive and complement the online businesses.

There is more that can be done on the finance aspect of modernisation, most kiranas work on credit with suppliers and customers, so working capital loans become a critical component of their business operations.

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.

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.

Technology can only make things better but human beings still prefer a human interface. Most kiranas have personal relationships with their customers; they are shopping advisors and have developed a deep level of trust in their given sphere of influence.

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

The author is MD and CEO, METRO Cash & Carry India

Published on May 28, 2018
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