Changing the way India shops... forever

Kirana stores hold the key to retail and ecommerce growth in India

India is witnessing the most compelling retail consumption story largely on the back of a young, tech-savvy population with sharp digital education, faster and cheaper internet access and growing purchasing power. As large global and domestic retail as well as ecommerce players battle for a growing share of the consumer’s wallet, India’s offline physical infrastructure — the kirana stores and telecom points — are emerging as allies to help players capitalise on the next wave of retail growth.

The traditional kirana channels had constraints in assortment, products, price and location, but they enjoyed massive consumer goodwill with the local community they served, thanks to proximity, availability of credit, and the option to return/exchange products with relative ease. This is the trust factor essential to scale up retail. This will remain the key advantage, and the reason kiranas will continue to play a key role in the Indian retail ecosystem. 

Little wonder large ecommerce players are looking to leverage the existing physical infrastructure to strengthen and expand their own presence. These large players are helping the smaller ones go digital while also incorporating them into their mainstream distribution network. Some large retail and ecommerce companies have run pilot projects and have witnessed considerable success.  

Taking a cue from some major ecommerce players in China, companies in India are building business-to-business ecommerce platforms with digital wholesale marketplaces for products such as smart phones, televisions, apparels, spices and soap. It’s a win-win as it opens new avenues for both retailers and small store owners. It equips retailers with customer data to analyse consumption behaviour at the grassroots level — also helping in the personalisation of their products and services, and marketing for a region — thus ensuring higher return on investment. 

For offline retailers, real estate remains a huge challenge in India which has a bearing on their pricing and profitability. The kirana model, however, entails lower rental costs, minimal capex and fewer stock keeping units in a small space. Their knowledge of the local consumer community helps them to better utilise the limited store space and turnover goods smartly. The wholesaler is used as a warehouse. The digitisation of these stores with strong ecommerce-like technology and deals add efficiency to the entire distribution chain.

Tech startups are creating systems for easy access to wholesale procurement by these stores and to facilitate low inventory. Their solutions often entail little or no new capital investment, earning commission on all orders and increased customer loyalty. In fact, digital financial platforms are also playing a crucial role in helping kirana stores go online, by providing end-to-end payment solutions including invoicing, micro-lending and so on. This creates a newer and more efficient go-to market channel for brands to cater to a burgeoning customer base in small towns with big aspirations.

However, the digitisation of these stores is still at a nascent stage. There are several challenges in onboarding these small stores including knowledge of software use, connectivity and language (unless vernacular) which may reduce the pace of adoption of the tech-led model. Technology, while being a barrier can also be an enabler by building intelligent regional language platforms and in aiding buying, better cataloging.

The rural ecommerce market is a $10-12 billion opportunity (EY analysis) waiting to be tapped and with internet penetration expected to touch 45 per cent by 2021, it provides for a significant opportunity. That said, companies need to come up with indigenous solutions to overcome some of the unique challenges that catering to this segment entail. Also, given the diversity that India presents, this will require uber-localisation. Existing ecommerce players will also need to tinker with their existing models to help in demand generation and supply and services innovation to serve the rural markets better. But clearly, the omni-channel approach will be the most effective strategy to reach out to consumers and fuel consumption growth.

Innovative efforts undertaken by the government, including the focus on cashless digital transactions has accelerated the inclusion of rural India in the retail map. Policy initiatives like Digital India would also help retailers connect with consumers in otherwise under-penetrated geographies. Indeed, the convergence of technology and retail, the effective use of the existing physical infrastructure with the evolving digital infrastructure have impacted retail already; a stronger focus on digitisation and omni-channel strategies will change the way India shops... forever.

Pahwa is partner and national leader, ecommerce and consumer internet, & Mishra is partner and national leader, consumer products and retail, EY India. 

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