India has around ~ 13 million Kirana stores in the country, accounting for 68% percent of domestic retail and FMCG sales. Around 24.7% of retail sales come from modern trade, while 7.3% comes from e-commerce in metro cities.
Almost ~70 % of Kirana shops in big cities and ~37 % in Tier-II towns are willing to use technology to manage their businesses.
Multiple tech Start-ups have cropped to tap this demand in some other ways
1. Manage your accounting books- Khatabook, OkCredit
2. Make store Online ~ Dukan, Bikayi, Dotpe
But what’s the real problem of Kirana stores? Can giving a technology arm to Kirana stores to come on mobile or web uplift them?
The demand in Kirana stores is down by ~22% from the last decade because of supermarket shopping or e-commerce. Still, mom-and-pops remain on the speed dial of families for urgent home delivery of buys — when you need a popsicle or are out of toothpaste, the Kirana around the corner is the most convenient stop.
The problem of traditional retail is not just competition. The challenges lie at home, within their business model. Though footfalls and phone calls haven’t lessened much, the profitability of mom-and-pop stores is hit by rising operating costs. They pay higher rent and wages, but profit margins on various products have either shrunk or remained stable.
Hoping for a surge in sales is unrealistic. Mom-and-pops target customers close to their location. This number is largely stable.
Mom-and-pop stores do not want to match up with the supermarkets. Their goal is humble: to regularly take home more income. Yet, for several years they have been tethered to the brink: neither folding up nor earning big money. Why?
The reality is — “Kirana stores can’t make a great profit from a local grocery store business.”
Not only are margins low, but expenses are also too high. Worst of all, rent. Average rent in Tier 1 cities for a small-size Kirana shop is $240 per month.
Going by the lean balance sheets of mom-and-pops — a store larger than 100 sq. ft. earns ~ $4000 lakh a year.
Companies Unilever, Reckitt Benckiser, and Procter & Gamble have cut margins by 3–7% in the past couple of years.
The major problem in retail is ~ what sells more earns lower margins.
Local brands give ~10–15% while multinational companies like Unilever and Nestlé offer ~8%–10% margin. Even within the best-selling categories, margins differ widely.
Brands that sell more are stingier. ~ Cadbury offers 5% while Mars and Snickers 7%–10% profit. FMCG companies have also become strict about payments for inventory too.
Earlier companies offered a ~15–21 days window to pay for the inventory. Now they want payment on the spot or within seven days. Several multinationals do not encourage sales on credit at all.
The major problem of the Kirana store is not the accounting books or expanding the customer base by coming online; for them, it’s cost reduction and increasing the size of the order. Few tech companies building apps for Kirana stores under the assumption to acquire more customers for the Kirana store doesn’t seem to be economical due to low order size and high last-mile delivery cost and alternatives like modern trade available to the customers.
On top of it, few apps want to monetize on the transactional value of Kirana stores ~ charging 10%–20% of the order value, which is not viable for the Kirana stores.
What’s the real opportunity?
- If technology companies can reduce Kirana’s cost of inventory by way of a credit line against the inventory along with storage capacity and data-backed decisions on what to buy and what not to, Kirana will have a margin to play.
- Once the Kirana store has the margins, they can lure customers to increase their average number of buying items — “Why go to Big Bazaar when you get a similar price here?”
- Once the Kirana has the margins and higher transaction value, they can manage the last-mile delivery cost.
Bringing the mid-size store or shops selling medium/high ticket size items would be a good strategy (due to high transactional value and margins) by dukaantech companies, but when we talk about Kiranas, the number game flips.
In the end, what matters is a healthier bottom line. Tech platforms that can impact this can lead the Kirana world!
