Their study suggests that local retailers should innovate to increase their business by going in for a combination of e-commerce and small brick-and-mortar stores.
With organised food retail in a bind due to rising real estate prices and reticence of international companies, who industry watchers believe are the best hope to revitalise a crumbling supply chain, to find Indian partners, putting the onus of so-called kirana stores to expand online distribution sounds like a smart idea.
Retail’s other big issues of poorly trained staff, high levels of pilferage and overhead costs would also be mitigated by merging traditional and modern retail formats, say Piyush Sinha, Srikant Gokhale and Saurabh Rawal of the IIM-Ahmedabad.
And with rapid penetration of technology, changing consumer preferences, the growing adoption of the internet and surging rents, the four pillars of successful online retail are all currently being met in India’s metros, making the IIM premise a possibility.
According to a McKinsey report, the number of internet users in India is expected to overtake those of all developed countries by 2015, to reach 370m. At the same time, according to the IIM report, e-commerce companies are developing business models to suit Indian consumers, especially with discounts and promotional offers.
According to the authors, a move to online kirana stores would not take place solely in the cities.
“Such growth will not remain confined to urban centres… but rather will spread more rapidly in the rural areas, where organised retail has found difficulty in serving the base of the pyramid,” the study predicted.
“The inability for organised retail to make a strong presence… will be tapped by the growing number of internet users who will largely prefer to either shop through the internet or shop from nearby traditional stores.
“A firm with an omni retail strategy that merges the two formats may prove to be formidable in service a diverse and large country like India.”
With non-store retail now around Rs175bn (US$2.9bn)—a growth of some 225% since 1007—Indians are cottoning on to online retailers for their groceries. Meanwhile, small grocery outlets still dominate the country’s retail market, and account for an estimated 12m of the overall 14m stores in India.
“Smaller stores are also very high-value formats. The ubiquitous kirana store provides an adequate merchandise mix, home delivery, credit and personalised services. Their merchandise mix is also localised, especially with regard to food and edible products,” the report stated.
If just a fraction of these largely family-owned businesses were to take their stock online by providing a simple smartphone or browser interface for customers to place their orders, they would immediately begin to enhance the segment of the supply chain between storage and customer.
These tiny businesses would also be able to spread their customer-base much wider than they would normally, in what is now being called the Internet of Things. Customers would appreciate the savings it offers in time and fuel, and this extended network of local stores could even develop into a co-operative supply chain which has never seemed to develop between kiranas.
Clearly Indian retail is not yet close to seeing “brick and click” on even a small scale, but the indications are that it would make for a passable alternative to the current uncomfortable relationship between big-box and mom-and-pop retail. Something needs to be done to find a third way, and maybe it is the millions of shop owners who know Indian retail best who can do forge the solution.