India has 13M kirana stores in India, that is 1 store for every 100 Indians. The kiranas alone account for 90% sales in the food and grocery segment.
As the pandemic hit India in 2020, many of us found ourselves rushing back to nearby kirana stores rather than the giant retail stores. We rediscovered solace in the home deliveries on a phone call, settling monthly/weekly bills, and regular greetings from acquaintances at nearby stores behind masks. But apart from us, there are some more parties who have been visiting the Kiranas for some time now - the leading tech firms and startups striving to make their mark in the space.
This makes the kirana segment one of the hottest segments for the companies to venture in. In this edition, we’ll talk about what makes these kirana stores so attractive, what are the different segments in this sector and what are the problems that are looming over the sector?
Why is everyone chasing Kirana stores?
Indian retail economy is to reach $1.3 Tn in the next 5 years and is expected to grow at a CAGR of 9-11% as per BCG. As per NSSO, the food and grocery make up 48% of this segment. This puts the market size of the grocery segment ~$400 Bn in 2020.
13 Mn Kiranas form the backbone of this. They command over 90% of the food and grocery segment. Small neighbourhood stores continue to be relevant in this space owing to familiarity, proximity, and monthly credit facility.
Well, market size, potential, everything is fine. The most fundamental reason why everyone wants a pie of the kirana space is the vast network of these shops. They ensure last-mile delivery. Now, multiply the last mile capability with the 13 Mn shops spread out across India connecting 1.4 Bn people. This is the scale that right from Reliance, Amazon to Flipkart and startups from Udaan, Khatabook to Dunzo want to capture.
If not from us, take it from the world’s richest man. Bezos even stopped by one such Kirana store during his highly publicized visit to India.
Replacing the kirana stores, which are deeply embedded in the Indian economy, is not possible. This is the very thing that these players have realized. So, they are finding different avenues to work and partner with the stores. Well, technology and scale is the biggest USP that these firms can offer to our nearest kirana shops.
This has given rise to a booming segment - Kirana-Tech.
What is Kirana-Tech?
We live in an incredibly interconnected world, and the ecosystem associated with the Kirana stores is a testimony to that. Let’s say you want to buy a tooth-paste from your nearest Kirana shop. Even after the FMCG company produces the product, that tooth-paste has gone through a network of distributor, wholesaler, and Kirana shop before reaching out to you. Over and above there are multiple players who are supporting the supply chain, payments, credit facility to a retailer. So, only with the help of this complex network, an item as small as toothpaste is able to make way into your home.
Now, coming to the term Kirana-Tech, it loosely comprises any tech solution which solves the problem at any point in this ecosystem by using technology. It would be difficult to say which players are purely operating in Kirana-Tech. A technology solution that is helping the Kirana ecosystem can touch multiple other industries. Take the example of Paytm. It helps thousands of Kirana shops to collect payments digitally every day. But, PayTm itself operates in multiple sectors. Similarly, Khatabook, which digitizes book-keeping and accounting, not just helps the Kirana stores, as it has onboarded 10M small businesses on its platform.
The Digital story so far
If you look around yourselves, you’ll find that there are numerous Kirana shops that are running from 2-3 generations. These are our traditional mom and pop stores. And fundamentally, nothing much has changed for many of these Kirana outlets in the past 2-3 decades. They still use cash. They still use pen and paper to keep their accounts.
Only 3% of kirana shops have been digitized. The digital story, thus, has just started.
As per Redseeder consulting, 3 out of 4 kiranas lack the exposure to any kind of tech platforms. The remaining 25% lag behind in tech-enabled procurement and payment processing. B2B businesses like Udaan, ShopX, Jumbotail, and NinjaKart, among others, have been pivoting kiranas in a big way and are significantly working with them on last-mile deliveries, maintaining supply chains, effective inventory management, credit, and more.
Maintaining hyperlocal inventories by the big players increases their capability to serve the customers satisfactorily by multi-folds. Unlocking the spaces like eB2B retail can deal with issues of intermediaries, delays, quality in the traditional Kirana setup. Thus, the potential of transformation at each stage coupled with the market volume poses an interesting proposition to the big players in the traditional dukaan setup.
The Indian Kirana-Tech Ecosystem
The supply chain, until as of late, confronted a huge number of difficulties, like delays, wastage, unreliable payment mechanisms, leading to lost opportunities and clients. Stores are additionally progressively receiving new advancements to guarantee practically zero disturbances in the supply chain, At the centre of this tech-driven method of working, is data science. Ecommerce platforms and aggregators are the key components fueling this change in the principal way that Kirana stores work.
Here, we have mapped the opportunity space in four broad areas, as below.
Introducing ‘Desh ki Nayi Dukan’ - Jio Mart
Reliance plans to digitize 40% of Kirana stores by 2023!
Let’s discuss the elephant in the store. Mukesh Ambani has geared up again to bring yet another Jiofication in grocery retail with JioMart, the highlight being its deal with our beloved videshi player ‘Facebook’. Your local kiranas are awaiting a transformation with JioMart being the curator. With Facebook, JioMart aims to exploit the potential of 13 M stores, aggregating them end to end on the cusp of 400M Indians powered Whatsapp and India’s homegrown brand Reliance Retail.
Online grocery retailers have been able to tap only 0.2% of this 400 billion-dollar segment. Moreover, their presence in a limited number of cities reduces the modus operandi of connecting Indians in tier-2 and tier-3 with the power of curated experiences in grocery retail.
You might be wondering, what is it that JioMart is offering to the kiranas? Well, the answer is cheap credit facilities, nearly zero monthly payments for point-of-sale devices, deeper discounts, free no questions asked returns, easy sourcing from its branded Reliance Fresh and Smart channels. JioMart is here to spoil Indian customers and retailers with higher quality, low-cost, hassle-free options so that they can never gravitate back towards the traditional systems. Sounds eerily familiar right?
Jio delivered what the Indian telecom industry had failed to provide us for ages for a fraction of cost. Leveraging the same customer base of 400M+ Indians along with the easy interface of Whatsapp, JioMart offers endless possibilities. The payment feature which Facebook had been struggling to launch in India can be well integrated with JioPay offering closer synergies.
Reliance has more than ever a better shot at understanding its customers and delivering them what they truly need. Connecting them with the local kiranas and offering to solve the woes Kiranas have been struggling for ages for quality, sourcing, better insights, cheaper credit, state of art PoS solutions at practically zero cost. JioMart indeed poses as the knight in shining armour we all had been secretly waiting for.
With a presence in 200 cities (BigBasket - 20, Grofers - 17), JioMart is clocking 400k daily orders (BigBasket - 280k, Grofers-190k) in August in just 3 months since it concluded its pilot.
This gives us every reason to believe that Reliance will become Desh ki nayi Dukan.
A Catch with the ecosystem
Humongous market size, immense growth opportunity and scope for multiple solutions to co-exist - all this seems to hint a very bright picture for the Kirana tech startups and companies. Well, not quite.
The kirana shop owners are not as keen as the startups to partner with them. And looking closely, their concerns are legitimate. Firstly, for the shop-owners going digital means having a record of all the items that they sold. Currently, cash transactions allow greater flexibility in paying lesser taxes. And a digital ecosystem will make it hard for them to evade taxes.
But, the bigger problem here is the trust deficit. The retailers are hesitant to share their customer data, something which the startups want dearly. The kirana owners also fear that the startups are trying to replace them by digitizing their business. The recommendations provided by the digital portals can also promote their own products neglecting the local products and devoiding customers of ‘real choice’.
In order to woo the retail shops, many startups are offering their products and services at steep discounts. Khatabook, valued close to $300 Mn and ~1M daily active users, has no revenue source at present! Udaan lost 17 rupees per every 1 rupee of revenue in 2019. It is valued at 460X of its revenues!
As we have seen with the likes of WeWork, the numbers, growth, valuation won’t matter if the companies don’t figure out their unit-economics.
Since the sector is gaining momentum and size, government regulations will also be needed which safeguard the interests of both small businesses and consumers. The digitization story won’t happen overnight. It will take time for the firms to gain the trust of the kirana owners. In the process, some startups might need to revisit their business models in tandem with the needs and aspirations of shop-owners. As Laura Ashley, the Welsh designer once said:
"We don't want to push our ideas on to customers, we simply want to make what they want"
Whatever is the case, two things remain certain - It’s the most exciting time to be in this space and another, Reliance is all set to make another disruption!
This piece is co-contributed by Payal Garg