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Corona, kirana and the convergence model for Indian retail

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Corona, kirana and the convergence model for Indian retail

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Will India’s retail sector witness collaborations between organised retailers and the neighbourhood stores?

Corona, kirana and the convergence model for Indian retail
With India moving into lockdown 3.O, it is hoped that businesses shall gradually become operational at some level of tangibility. Several weeks of lockdown has hit automobiles, construction, transport, tourism, trade and hospitality sectors extremely hard. It was no different for India’s almost trillion-dollar retail sector, but segments of it remained active throughout the lockdown. While neighbourhood grocery or Kirana stores remained in business, the e-commerce companies were permitted to deliver essentials. In lockdown 3.O even the non-grocery standalone shops in residential areas have been permitted to operate. However, Hypermarkets and shopping malls remain largely shut.
Most pundits acknowledge that amidst lockdown the neighbourhood Kirana shops stood out for providing essentials to millions of citizens. With their last-mile reach, these stores were best placed to serve communities across cities, towns and villages. Much like sanitation workers, doctors, nurses, local bodies and police, the neighbourhood Kirana stores gained substantial citizens’ respect.
Here was a non-glitzy grocery shop, a shopkeeper and his helper, opening their store daily to serve customers who, for a change, queued-up to shop. Customers, even those accustomed to spending their weekends shopping in mega malls or over their screens seemed satisfied, perhaps even happy with their neighbourhood Kirana store. Overlooked were the small shops’ hitherto ridiculed practices of selling goods at MRP, cash-only sales, pushing cheap candies in lieu of coins and offering limited choice. Millions of such stores belong to India’s unorganised retail sector, which accounts for 80-85 percent of India’s retail market share. They command over 90 percent of the food and grocery segment, which makes for 65-70 percent of India’s total retail sales.
Regardless of the above numbers, for much of the last decade, it is the fast-growing organised big retail and e-commerce which seized the attention of investors, analysts, policy-makers, middle class, business students and media. In these days of lockdown though, the mundane Kirana stores are being noticed for their efficacy, value and access to communities and customers. In contrast, new-age shopping malls located at a distance from residential areas and designed to operate with large footfalls were not amenable to mandated restrictions and norms of social distancing. Till-date, malls in urban India have not been allowed to operate during the lockdown.
These experiences make us ponder if a business model based on partnership with neighbourhood grocery stores could enable organised retailers (both big retail and e-sellers) to rapidly expand their customer base in India’s food and grocery segment. Moreover, as this segment is somewhat inelastic to income variations and business cycles, increasing its contribution to overall sales can help organised retailers to hedge for demand volatility. As per a recent Boston Consulting Group report, these small stores across India shall remain relevant for a long time owing to what they offer: familiarity, proximity and the convenience of monthly credit.
The question remains: will India’s retail sector witness collaborations between organised retailers and the neighbourhood stores? Let us consider the recent announcements of collaborations in India’s retail sector. Amazon’s tie-up with Future Group intends to ensure that Amazon can boost its business in India’s grocery segment while the Future Retail’s Big Bazaar stores can move rapidly on the ‘offline to online’ strategy. This tie-up is not intended to include small Kirana stores as partners. Rather, it’s an alliance between an e-commerce giant and a big offline retailer to take on other organised retailers as well as the neighbourhood Kirana stores. The same appears to be true of Walmart’s $16 billion acquisition of a majority stake in Flipkart.
In contrast, the most recent announcement of Facebook’s $5.7 billion investment to acquire an almost 10 percent stake in Reliance’s Jio Platforms promises something different. Though it is too early to gauge their exact business plan, this deal suggests a possible partnership between big business (Jio Platforms, Reliance Retail-JioMart, Facebook) and millions of small Kirana shops across the country. The venture, it is said, will enable millions of WhatsApp users to order their groceries from neighbourhood stores via a WhatsApp message. If so, this would be a test case for a partnership between big organised players and small neighbourhood stores. And it is likely to push competitors to examine this model based in the convergence of big retail, small neighbourhood stores and e-commerce.
Such convergence can be truly disruptive for India’s retail sector and result in a win-win for four key stakeholders — big retailers, e-sellers, small stores and the customers. If it is successful, this business model would enable wider use of technology and IT in managing the supply chain, working capital, inventory and customer needs. It would help create thousands of jobs in supply chain, technology and logistics while supporting millions employed by the Kirana stores. It would discourage off-the-book business transactions and boost government tax collections. And finally, let us hope that such inclusive collaborations will help preserve the invaluable social capital accruing from relationships that emerge between a neighbourhood and its small stores, which in turn, are integral to a community’s folklore, culture and history.
-Nimish Rustagi has a PhD in Marketing from HEC Paris. He is a civil servant and the views expressed are personal.
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