Food and grocery accounts for the largest share in revenues in India and is estimated to constitute around 66 percent of total retail revenue by 2020. Most of India's grocery business happens through the unorganised sector, which mainly comprises small stores, also known as kiranas or mom-and-pop stores. According to market research agency Nielsen, there are around 12 million kirana stores in the country, accounting for 90 per cent of domestic retail and FMCG sales. Around 8 per cent of retail sales come from modern trade, while 2 per cent comes from e-commerce.
While the food and grocery market presents a huge opportunity, retailers are often left without a viable strategy to address this market. Primarily among them are the cost of last mile logistics, difficulty in locating addresses, maintaining stock-points and fulfilling deliveries. The retail players now realise that the kiranas could be their path to addressing this huge opportunity. They plan to tie up with kirana stores to allow consumers to opt for these local stores as pick-up points when they aren’t home. In return, the kirana store owners are paid a commission to ensure the order is picked up or delivered at customer’s homes in time. This creates a win-win for everybody. Several retailers are planning collaborative strategies to address this market.
Huge opportunity Reliance Industries plans to create the world's largest ‘New Commerce’ platform that would be a hybrid online-to-offline e-commerce platform connecting as many as 30 million kirana or neighbourhood stores. It has already added over 2.5 million kiranas to its network and is looking at another 50,000 stores as delivery and collection points for its ecommerce venture. Future Group, which had recently signed a franchise deal with 7-Eleven, would likely tie up with kiranas and plans to take its small-store network from 1,200 now to 10,000 in the coming years. Walmart-owned Flipkart is also reportedly looking to partner with 15,000 kirana stores as part of its strategy to sell smartphones and other products using convenience stores. Amazon, US e-tailer is piloting an online-to-offline programme in three cities in Karnataka. It currently has 17,500 small stores across the country in its network under its ‘I Have Space’ (IHS) programme. The company leverages its IHS partners – which are mostly local grocery, pharmacy, stationery, and general stores – for last-mile connectivity in over 350 cities, with most of them in Tier II and III towns. In expansion mode
According to a RedSeer report, almost 70 percent of kirana shops in big cities and 37 percent in Tier II towns are willing to use technology to manage their businesses. Reliance Retail plans to expand the current 15,000 digitised retail stores to over five million in India by 2023. It plans to install its Jio MPoS (mobile point-of-sale) device at kirana stores at a one-time investment of Rs 3,000 to connect neighbourhood suppliers to its high-speed 4G network that can be used by customers to order supplies. These PoS machines can be used for scanning barcodes, billing and printouts, swiping credit or debit cards, placing bulk orders from the retailers’ cash-and-carry outlets and even calculating goods and services tax.
Grocery is touted as the fastest growing segment within e-commerce. According to RedSeer Consulting, it is growing at a CAGR of 60-70 percent and is expected to touch $4-5 billion in 2020. Grofers, an Indian online grocery delivery service, is converting 200 kirana stores into its own branded outlets. This will help the retailer scale up his business by getting more footfalls, and for Grofers, it helps push their homegrown brands (private label products). The kirana stores can also help migrate some of its new offline users on to Grofers app.
Last-mile cost reduced
Amazon’s IHS (I Have Space) Programme has seen last-mile costs reduce 10 percent per packet YoY through their kirana partnership. The US-based etailer also leverages its relationship with kirana stores for its Kirana Now platform. Amazon interests kiranas in tying up with it through an attractive fee structure. Every order delivery attempted by a kirana store earns it Rs 20-25. Also, these partners are guaranteed a minimum of Rs 2,000-8,000 per month. So, on an average the partner Kirana stores makes about Rs 25,000 in revenue every month.
Clearly, hybrid ‘online-to-offline’ retail model is an inevitable future and the growth of the kirana store network is crucial for the retail industry.
Pinakiranjan Mishra is Partner and National Leader, Consumer Products and Retail at EY India.
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