Will the likes of Amazon, Walmart, HUL and Reliance ride on India's 'kirana network'?

We are all familiar with the local kirana shop. We had one in every street of India that we grew up in, whether it was a metro like Mumbai, a state capital like Trivandrum or a village on the outskirts of Anand. I still remember the local neem sweets I used to devour from these kirana shops. These were the shops your mother would send you to get some last minute stuff that was required or when guests came home unannounced. Over time, these shops added newer goods - chhota mobiles, DTH charging coupons, the shampoo sachet and the small packet of Lay's..

Let us understand why kirana shops are so critical before we move forward

• India is home to some 12 million kirana and neighbourhood stores...That means almost one store for every 100 Indians

• This number makes kiranas account for 88 per cent of India’s retail universe

• These kiranas provide direct and indirect livelihood to around 20 crore people across India

• The kiranas account for 90 per cent of sales of India’s largest FMCG player, HUL

• The kiranas serve 95 per cent of consumers of FMCG products in the country

• An average kirana shop makes about 9.5 per cent net margin

• The kirana shops are serviced by distributors of different companies

• The distributors offer credit to the kirana stores which enables them to rotate capital

• The distributors also take back unsold material on a case to case basis

• The kiranas know most of the people in the locality and stock the inventory based on his experience of the buying patterns of his locality

Why would these retail giants eye the kirana shops?

Last mile delivery and the cost associated with it

Last mile connectivity is a major service and cost overhead for all retailers. The average cost of e-commerce companies for delivering a product to a customer's place is about six to 12 per cent of the price of the product. Therefore, the average cost of shipping a packet worth Rs 500 for an e-retailer is more than Rs 100.

So, if the e-commerce retailer could tie up with the kirana shop to do the delivery for him, the e-retailer would then deliver all the products in the neighbourhood to the kirana shop who in turn would deliver the same to the customers. The e-commerce retailer would easily save more than Rs 50 on each package of Rs 500. Even if he has to incentivise the kirana shop owner with Rs 25 for each delivery, he would still be saving delivery costs with each transaction.

Product returns by customers

Almost 30 per cent of products are returned by customers. E-commerce retailers spend an equal amount of money for taking back the products as well. Therefore, they can save the same amount in product returns too.

Better understanding of spending patterns of customers who visit kirana stores

This will help the companies in their product planning and launches as it will provide a huge database for personalised products. Right now, the CRM exists in the heads of the old kirana shop owner, but with systems and use of new disruptive technologies like AI, there will be huge potential to exploit the customers visiting the kirana stores.

S,o how are these retail giants trying to get a foothold in the kirana stores?

1.Reliance

The Reliance team has so far connected 2.5 million kiranas on its network…They are offering POS (Point of Sale ) machines at a very nominal price…This POS called Jio Prime partner POS is capable of inventory management, customer relationship management and financial management.

2. Flipkart (Walmart)

Since Flipkart is no longer an Indian company, the laws do not allow it to have a multi-channel presence. So, they are partnering with the kiranas. As of date, Flipkart has tied up with 17,000 retailers who help the retailer with last mile delivery. In addition, Flipkart has also partnered with 10,000 general stores under an initiative called Flipkart Authorised Buy Zone where it handholds first time consumers. These Buy zones are spread across 700 cities in the country.

3. Amazon

Amazon runs a programme called “I have Space” through which it partners about 23,000 kiranas for local delivery within a two to four km radius of their shops. In addition, Amazon also has an assisted shopping programme called Amazon Easy. For this, Amazon has tied up with distribution companies like Vakrangee and Store King and local retailers in small towns to help consumers in smaller markets set up accounts, order on the website, make online payments and initiate refunds.

4. HUL

HUL, the big daddy of FMCG, has the Shikhar app, which enables the kiranas to order their inventories directly. The wider objective of HUL is to understand the consumption pattern of each store through data analytics and enable these kirana stores to better understand the science of retailing.

5. Future Group

The first mover in this segment, like everything in Indian retail, has been the Kishore Biyani led group. They launched Big Bazaar Direct way back in 2013, in which the company on-boarded kirana stores and provided them with tablets, which they could use for all their transactions. However, this programme has since been withdrawn by the company. It is presently running the 5000 odd public distribution centres in West Bengal and Rajasthan that it has rebranded as Annapurna Bhandar.

In addition to these major players, others like Bigbasket, Metro Cash and Carry and Grofers are also working on wiring up these kirana stores and their projects are at different levels of success.

So, what are the responses from the kirana owners to all these initiatives?

While there are a good number of store owners who are using the opportunity and increasing their income by anywhere between Rs 10,000 to Rs 25,000, depending on the location, the kirana shop owners still have a lot of apprehensions. Some of the major ones are captured below

• Many of these are single man operations. They do not have an option to close the shop to go out for deliveries

• Being manned singly they do not have time to place orders on the app and still prefer placing the orders to the distribution sales boy, which they do while attending to his customers

• They are not comfortable ordering through the app and some of the required Stock Keeping Units (SKUs) are not available

• The distributor offers credit, which is not the case while ordering directly through the app

• The company apps do not have an option to take back unsold SKUs

• Many of the kirana owners still do not understand the digital business

While each of these super retailers find ways to utilise the power of the kirana stores, I also see the possibility of an aggregator like Uber coming in. This could bring these widespread and localised kirana stores on to a single digital platform.

Till that happens, watch this space for more.

The author is Circle Head, Zee Entertainment Enterprises