Competing for the kirana

Online retail majors are focusing on the country’s sprawling small retailer base to increase their reach

Your kirana shop owner next door is the new retail king. The big e-commerce boys such as Jio Mart and Amazon are wooing him not only to become their partners for last-mile delivery but to also buy and procure more from their wholesale operations or business market place. They want him to be a partner on their digital e-commerce platforms and also offer credit support.

B2B retailers are also getting into the act. Udaan is promising the small retailer delivery of an array of food and non-food products at attractive prices directly from the manufacturers, cutting out the middlemen, at their doorstep in quick time. Metro Cash & Carry, one of the earliest foreign entrants in retailing, is helping them modernise and digitise their stores so that their revenues go up. It is even offering e-bookings and delivery of products at their doorsteps through a digital platform, rather than they having to travel to Metro warehouses. Start-ups such as Pine Labs are offering point of sales (POS) solutions and Khatabook is giving them short-term credit lines.

Why this renewed focus on the kirana? “The market is huge. India has around 25 million small retailers and 90 per cent of the retail market is dominated by them. The B2B market is around $780 million, of which ecommerce penetration is less than 1 per cent, so there is a huge market waiting to be tapped to supply the small retailer,” said Sujeet Kumar, cofounder of Udaan.

The strategy is simple. At the back end small retailers have between five and 15 procurement agents. Jio Mart, Udaan, Metro Cash & Carry and others are looking at grabbing a larger share of those transactions by supporting kiranas with services.

Metro, for instance, has over one million kirana shops using their platform. Arvind Mendiratta, MD and CEO, said, “Our aim is to offer the kirana shop owners services and technology by which three things happen — he can increase his revenues, increase profits and reduce inventory so that he can improve his cash flow.”

To achieve these objectives, Metro’s Smart Kirana programme has roped in 2,000 retailers, upgrading their stores in 48 hours and offering them tips on product placement and display. It also offers POS machines at a nominal cost so that they are digitally connected. Mendiratta said kirana that have modernised have seen sale jump 30-40 per cent.

Metro has also brought over 100,000 retailers on its digital platform by direct deliveries to the stores, which increases convenience and helps kirana halve inventories from six or seven weeks because they can now order online four or five times a day.

Udaan operates in the same space as Metro, selling products to three million small retailers (of which half are active on its digital platform) directly from manufacturers. By cutting the distribution layers, Udaan says it can save three to four per cent as middleman commissions that they can pass on to the retailer. It also offers them credit lines through its own non-bank finance company and tie-ups with others based on their requirement (it has disbursed about $1 billion in short-term credit).

To ensure distribution to the store on time, it has over 200 warehouses (10 million square feet) in 900 cities, and plans to increase space five-fold. Kumar said the Covid-19 lockdown helped small retailers gain trust in their platform because Udaan could supply goods when other distribution chains failed.

But the average transaction size for kirana at ~4,000 is still small. Kumar said Udaan’s challenge is to increase this or get a larger share of the retailer’s pie. But the $280 million of new funding just a week ago should help.

Others such as Jio Mart (which is already in 200 cities offering 45,000 stock-keeping units [SKUS], mostly in grocery and foods) want to straddle the supply chain. They have one fundamental difference with Metro and Udaan — they also want kirana to be their last-mile delivery partners.

So for backend delivery Reliance is leveraging its acquisition of Future Group (when it is completed, pending a challenge from Amazon) to control over 17 per cent of the country’s organised retail revenues and negotiate better terms from the manufacturers. It also has a large range of its private labels that kirana stores can sell because of their lower price. Jio Mart is also offering not only a POS machine, but inventory and working capital management and credit. Its tie-up with Whatsapp is designed to make the interface even easier for the retailers to do business.

Insiders say last-mile delivery accounts for over 16 per cent of overall delivery costs; this would drop to a third if it is shifted to the kirana store, earning the latter a commission as well. To enable this, the consumer’s orders have to be mapped to the nearest kirana store that can deliver the SKU if it has it or buy it from Reliance Market. Of course, it will still be a hybrid model and Reliance will continue to deliver products directly to the consumer.

Amazon has a similar model but is ahead of the curve. For instance, for the last-mile delivery, it has the “I have Space” programme covering 28,000 small retailers to deliver products within a 2-4 km range. An Amazon spokesperson says this helps supplement their income by ~12,000 to ~15,000 a month.

In April last year, Amazon took another big step by bringing offline retailers on the Amazon online platform. Amazon spokesperson says it has roped in 22,000 small retailers in 400 cities to showcase products on the platform and fulfil the orders themselves.

The company also runs Amazon business marketplace — which has over 300,000 sellers offering wholesale prices and covering over 99.8 per cent of the country’s pin codes — from where small retailers can order for delivery of their SKUS. The buyers get GST invoices and can save up to 28 per cent on their B2B purchases. Amazon also offers credit lines through banks and NBFCS upwards of ~25,000 at 10.5 per cent interest.

But retail experts say the bid to include kirana is a slow and arduous process. For one, small retailers are chary about integrating digitally with larger players on grounds that it will give them access to their customer bases.

Also, there is growing competition with a bevy of players putting in money and fears that Jio with its financial muscle could take a large part of the pie. But Kumar is not worried. “The market is so huge that there is space for 3-4 large players to operate, we have just scratched the surface,” he says.

Small retailers are chary about integrating digitally with larger players on grounds that it will give them access to their customer bases