Can neighbourhood kirana stores stay afloat? This is a rhetorical question that has been asked time and again in the last two decades. Ever since the advent of modern retailing in the 2000s, obituaries of the humble kirana stores have been written many times over.

Each time, and with every wave of competition, while there has been some growth and survival of kiranas, there has also been significant mortality rates, especially in the growing urban areas.

Therefore, when a recent news report spoke about the onboarding of 1.3 million kirana stores by Hindustan Unilever Ltd (HUL) on the Open Network for Digital Commerce (ONDC), the key question was: is this the beginning of a turning point for the 12 million kirana stores in the country which are at a crossroads?

“There was a time about two decades back when the humble kiranas were written off. There was great fear of Big Retail and the large FMCG companies. With ONDC coming to the help of small shop owners, there is hope for them,” said Sapna Popli, Professor of Marketing at IMT, a Ghaziabad-based business school.

Waves Of Disruption

The first wave of disruption happened when retail giants from India and overseas hit the marketplace. Reliance Retail started in 2006 and today has stores in about 18,000 locations in more than 250 cities. Not much later, Walmart and Bharti Enterprises came together to create Bharti Walmart in 2007. These were the beginnings of Big Retail in the country. Other Indian retail chains like DMart and Big Bazaar were not far behind.

By around 2010, there was another wave of challenge to the kiranas: online (and offline) grocery shops like Big Basket, Grofers, Godrej’s Nature Basket, JioMart and wholesaler Metro Cash and Carry made their impact on the market which posed a big threat to the small shops. Amazon, the world’s largest e-commerce retailer, sought to gain a formidable foothold in the Indian market.

The outbreak of the Covid-19 pandemic brought about a sea change in the way Indian consumers were responding to e-commerce, especially in the space of grocery retailing and among the youth.

Driven by digital innovations, new-age instant delivery e-commerce retailing firms like Blinkit and Zepto emerged as much a threat as an opportunity for kirana stores. Consumers who otherwise rushed to a neighborhood kirana store to fetch their instant needs such as a bottle of coke or a packet of salt began to place their orders through apps of these companies that promised to deliver within 10 minutes.

 

Such transitions, however, didn’t mean kirana stores lost out on those orders completely, because in most instances the neighborhood store was also the last-mile stockist for these apps. Of course, their margins shrunk as a good part of the profit on these sales now have to be shared with the e-commerce retailers, besides the producers and other intermediaries.

 

Finally, in this fourth phase, companies like HUL are partnering with kiranas to scale them and fight against joint competitors of quick commerce firms like Swiggy, Blinkit and Zepto. But, today, traditional competitors like kirana stores and HUL are collaborating with each other: this time with the mediation of ONDC.

“E-commerce and quick commerce have been major disruptors to kiranas. However, if the ONDC experiment works, they could portend a new era for these mom-and-pop stores,” said, Kolkata-based Sudeep Ghoshal, National Head of Sales Development at a large FMCG.

In a joint McKinsey-ONDC report, Kedar Lele, Executive Director, Customer Development, HUL said: “It is important to acknowledge that while modern retail formats are here to stay and grow, kirana stores are the fabric of the Indian grocery ecosystem. Even during the challenging times of Covid, the neighborhood kiranas showed their resilience and agility in modifying their assortment, managing the broken supply chains, and continuing to serve the customers.”

ONDC holds the promise to transform India’s e-commerce sector by creating an opportunity for millions of kiranas to participate in the digital economy, the report said. “As a company that counts millions of small stores as its partners, HUL is committed to supporting ONDC and helping it reach its full potential. We believe that ONDC will foster innovation, collaboration, and inclusion in India’s digital commerce ecosystem.”

Indian Grocery Landscape

It is estimated that the overall retail market in India is about US$ 800 billion of which the grocery segment which accounts for 35-45 per cent of the consumer spend is about US$ 400 billion. This is expected to grow at an annual 6 per cent clip over the coming years.

Nevertheless, India’s online grocery penetration is just 1 to 2 percent, substantially lagging behind other product categories such as electronics and fashion. Today, there is a major challenge that kiranas, one of the most fragmented trade bases in the world are facing: on the one hand, the market is becoming more organised and on the other, it is also getting more digitalised.

Roadmap For Survival

In the context of the challenges and disruption that the humble kiranas are facing, what could be a roadmap for them going forward?

Technology: One of the key enablers towards survival and growth will be the adoption of technology by kiranas. For example, HUL is onboarding the kiranas through an app called Shikhar, which then goes live on ONDC. In this case, HUL hand holds and plays the role of a mediating agent.

In the last few years, consumers have been placing orders with kirana stores from their mobiles verbally, apps or wallets with the products being delivered immediately or within 24 hours. Kirana stores are slowly being able to compete even with quick commerce firms like zepto or blinkit. The use of QR codes and UPI payments have also helped democratize consumer sales.

Power of informal networking: It was during the early Covid times that the neighbourhood shops really stepped up and displayed their resilience. During the early lockdown months when product supply from large retailers and FMCG companies were limited, the grocery shops came to the consumer needs.

Further, kiranas have first-hand knowledge of their consumer and, as Ghoshal said, “the kirana owners chit-chat with their aunty-ji and uncle-ji consumers who love the comfort of informal shopping.”

On the supply side, despite competing with each other in a neighbourhood, small retailers collaborate in procurement of goods so that they get the benefit of scale and pricing advantage.

Popli at IMT pointed out that a large number of small stores are owned from generation to generation, thus maintaining contact with consumer families for many decades. “Kiranas, perhaps, have the best customer relationship management (CRM) system through these informal networks which even outclasses the advanced data analytics of large retail and online stores,” she said.

Building communities: Despite recent innovations in the retail sector, kirana store owners operate in isolation without much market data about product quality and pricing. To overcome this situation, in early 2022, Anshul Gupta in Bengaluru founded the Kirana Club as an exclusive community for them. With Kirana Club, the vision is to build India’s largest community of kirana stores, where members can converse with each other and share information.

Adaptability and flexibility: In recent times, there has been a definitive change in the visibility and look-and-feel of kirana stores. Often, FMCG companies invest in creating neon boards, lighting and point-of-sale material for the neighbourhood stores. The small stores are more convenient now with larger space and consumers even get to move around within the shops and get the feel of a larger retail shop. Ghoshal believes this adaptability and flexibility of the small shops have been factors in the resilience of kirana stores. “They are no longer dark and dingy hole-in-the-wall shops,” he said.

Despite all the progress and adaptation to the fast changing retail landscape, it is not going to be an easy journey ahead for India’s vast kirana community. They will need to remain resilient and keep innovating to stay the course.