India's biggest competitors to Walmart and Amazon? Mom and Pop

As Walmart and Amazon sink billions into e-commerce in India, they might be overlooking a tough rival on every corner

Amazon.com Inc. and Walmart Inc. are betting billions on India, but their mightiest rival might be a ubiquitous local champ: the mom-and-pop

store.

Tiny stores known as kiranas dot every Indian street, village and slum. Usually family-run, these micro-businesses range from street vendors selling vegetables to shops the size of a one-car garage. They pay low wages and have little or no rent, which helps keep costs down. And since they cater largely to neighborhood populations, many offer instant delivery, interest-free credit and other personalized services that the global giants are unable or unwilling to provide.

“The kirana store has better economics than a supermarket,” said Rajiv Lal, a professor of retailing at Harvard University. “There is no way to beat them.”

Big retail chains, both homegrown and international, have tried for years— and often failed—to find a profitable niche in India, a massive market with 1.3 billion people and rising incomes. France’s Carrefour has come and gone. Germany’s Metro has only 25 stores. Walmart , WMT -0.47% until its recent $16 billion deal to buy a controlling stake in India’s largest e-commerce company, Flipkart Group, had its plans for the country on the back burner.

India’s biggest conglomerates, among them the Tata, Birla and Reliance groups, have launched their own new retail chains but haven’t made much of a dent in mom-and-pops’ dominance. Small retailers control close to 90% of the country’s more than $700 billion retail market, according to Indian retail consultancy Technopak.

“The real challenge for e-commerce or for brick-and-mortars or any retailer is, how do you match those cost structures,” said Raj Jain, former president of Walmart India.

Unlike in the U.S.—where big-box retailers have used their heft to get wholesale discounts, offer lower prices and squeeze out smaller players—little stores in India stores often have the cost edge. Despite paying higher wholesale prices for their goods, their cost structure is much lower than modern retail chains, giving them higher profit margins, according to a survey of stores in India by Boston Consulting Group. A 2016 report estimated that small stores’ costs of rent, labor and other operating expenses was as low as 7% of sales. The same costs at modern supermarkets in India tended to be more than 15%.

Shops such as Amit Jindal’s Maa Bhagwati Store, in the booming New Delhi suburb of Noida, demonstrate the challenge big retailers face. Mr. Jindal’s store is only 240 square feet, but he packs it with more than 1,000 different products, stacked on shelves that reach the ceiling. There are bags of rice and wheat in the corner, a drinks cooler out front, a cooled glass display case filled with chocolates, plastic snack packets hanging from the walls and two ladders to help reach it all. His rent is $750, and his two employees cost him around $160 a month, he says. He has few expenses other than the wholesale price of his products. He keeps no inventory. He recognizes his customers by voice on the phone, and his deliveries arrive within 30 minutes because his delivery boys know where they all live.

A few years ago, Easy Day, a national chain of grocery stores once 49% owned by Walmart, set up shop about a mile away, then Amazon’s grocery delivery service moved in at the spot. Mr. Jindal says he barely noticed, and his own sales continued to climb. Today, those bigger retailers are no longer in the neighborhood.

Saravjeet Singh, one of Mr. Jindal’s regular customers, says he shops at big modern stores occasionally but still prefers the convenience of his local shop. “We have a personal relationship with our kirana man, the owner even knows my name,” he said. “We can call and ask for just one box of matches or four eggs and they come running.”

Big international and local retailers say there is enough business to go around in the growing market. Walmart runs a wholesale business in India that sells directly to the mom-and-pop shops.

"We love the fact that our cash-and-carry business here in the country supports kiranas,” Walmart Chief Executive Doug McMillon said earlier in May in New Delhi after announcing the company’s massive investment in the sector. “We believe we can help them.” Amazon didn’t respond to a query about whether it views kiranas as competitors. The company has partnered with thousands of mom-and-pop shops in India, paying them to deliver Amazon orders to homes nearby or store the packages until customers pick them up.

Still, some small retailers are making changes to try to ensure they stay on top. Millions have started accepting cashless payments through e-wallets. And they are interacting with customers through messaging apps rather than on the phone. Some are even turning to e-commerce sites to supply products their customers want.

Source: The Wall Street Journal