Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
BW Businessworld

Lucrative Liaisons

Photo Credit :

Madan Mohan Reddy of Bangalore is hard at work in his 500 sq. ft shop. Bhuvaneshwari Rice Shop is his livelihood. The 21-year-old puts in 17 hours a day to earn Rs 50,000 a month. He is savvy, ambitious and uses a strappingly large smartphone. He is a digital literate, knows about products such as the mobile wallet and is open to cash-on-delivery to win new customers. 
 
He’s the kind of guy Amazon has been looking for. Eighteen months ago the $89-billion e-tailing giant began its ‘I Have Space’ (IHS) programme using the street corner mom and pop kirana network to deliver products to their consumers. Reddy saw his future, made a phone call and registered as a ‘delivery partner’. All he had to do was provide his PAN card details and he was good to go. 
 
Amazon gave him a Samsung tablet and a palm-sized credit card payment device to connect the payments to Amazon’s seller app and the cloud server on the backend. Reddy hasn’t looked back since. 
 
“I got in to this program because Amazon gave me extra reach and more customers,” he says. His sales increased by Rs 20,000 a month and he made an additional Rs 15,000 by delivering products ordered on Amazon at his store. “Customers would come to my store to pick up their orders and ended up buying soups or juices too. When I began delivering Amazon products to the door step of my loyal customers on my bike, some of them would ask me to deliver groceries too.” 
 
Prashant N. from Bangalore has a similar story to tell about his store called Wave Telecom. The story of Reddy and Prashant has been replicated by around a 1,000 kirana stores that have joined Amazon India across 47 cities. 
 
The Power Of Unorganised Retail
In 2006, when large conglomerates such as Reliance Industries, Future Group, the Aditya Birla Group and others, committed $10 billion (Rs 40,000 crore) to expand their retail footprint, there was plenty of chatter about the death of the kiranas. Nine years later BW | Businessworld finds that kiranas have not just survived, they have blossomed. 
 
Historically, the Indian consumer has always been hyper local, preferring his neighborhood baniya. On the other hand, malls and independent stores found the capital cost of investing in land and filling the godowns a losing proposition. High rentals, between 15 and 20 per cent of sales and low footfalls, have killed many a mall. Consumer behavior also revealed that most Indians do not have the appetite to spend on premium retail prices, and their mall spends are mainly at the food courts and the multiplexes. 
 
Further, most retailing outlets do not buy in to the ethos of a brand and in turn affect a brand’s value by not communicating the value proposition. “One of the reasons why kiranas thrive is because retailers, barring a few, have not made modern retailing a career option,” said B .S. Nagesh, vice-chairman of Shoppers Stop, one of the largest retailers in the country, in an earlier interview with BW. 
 
The big retailers underestimated the underlying strength of the kiranas and their importance in the unorganised job market. In a country with high levels of unemployment, they provide sustenance to millions. According to James Thomas, Country Manager, Kronos Incorporated, the global human resource technology firm, of the 450 million workers in this country, only 30 million are in the organised sector, while the rest continue in ‘informal’ employment. A lot of the ‘informal’ work seekers therefore dabble with entrepreneurship and the kirana store offers the lowest-entry barrier. You can start with small finance from friends and family. It is the same ‘kirana’ spirit which Uber and Ola have hooked on to and made the taxi driver their partners. It is no coincidence that some of these drivers actually also own small shops and drive taxis for that extra income. 
 
The growing fast moving consumer goods (FMCG) industry feeds the kirana network that has become an endless river. One shuts shop and another opens up with new services. “Indian cities, with their culture of shopping, including the psychology of consumers, are tuned to being hyper local. Our goal has always been to bring that experience of a neighbourhood shop in a large store, which is convenience and great service,” said Kishore Biyani, chairman of the Future Group, in an earlier interview. He says people will still go to their kirana for their daily shopping and visit larger stores for their monthly needs. 
 
If You Can’t Beat Them, Join Them
It is no wonder then Jeff Bezos, founder of Amazon, wants to use the Kirana network, earlier seen as competition, to grow retail sales. His target is to bring 5,000 kiranas under Amazon umbrella within two years. The business model for the kirana owner is simple and profitable: he earns Rs 20 for every package delivered to the customer’s doorstep, and Rs 15 for every packet picked up by the customer from his store.
 
Kishore Biyani, chairman, Future Group
Similarly, Biyani wants to link 10,000 kiranas to Future Group’s food parks ,which make squashes and short eats, located in Karnataka and Madhya Pradesh. “The food park in Tumkur can serve all the small stores in South India and our plan is to increase our private label (branded merchandise exclusive to the retailer) reach across the country,” says Praveen Dwivedi, president of Future Consumer Enterprise.
 
The rush to connect kiranas does not stop there. Technology companies such as SAP, Mahindra Comviva and Infosys are working on boxing “payment and assortment” software for kiranas. They will link data generated from kiranas to FMCG distribution centres on a real-time basis. HUL has connected its distributors on tablets and they collect information from kiranas to avoid running out of stocks at the distribution level. However, because this system only captures stock depletion at the distribution level, and not at the kirana level, it nullifies the purpose of the retail supply chain, which is to increase the ‘fill’ or restocking rates by understanding consumer buying habits. To make matters worse, large scale mobile deployments, focusing on kirana fill rates, are not yet piloted. So, one may wonder why is kirana the centre of attention.
 
“It is because the kiranas know the customer better than anybody and their services add more value to our customer service experience,” says Amit Agarwal, managing director of Amazon India. Kiranas know their customer, but do not capture that information, which Amazon can. Kiranas are hubs for booking rail, air and bus tickets along with filling up passport/tax forms and mobile recharge vouchers to supplement their revenue. Over the years they have extended services to selling apparel, mobile repairs, and ironing clothes. Reports by CRISIL and Ernst & Young put the total number of kiranas in India at 12 million (approx.)outlets and they clearly continue to dominate the $550-billion retail market. The organised retail market accounts for less than 8 per cent of sales and, in the last 10 years, the share has only crept up by 3 per cent. If you can’t beat them, join them: is what the Amazon strategy dictates. 
 
Flipkart and Snapdeal said that the ‘kirana strategy’ is not on their immediate agenda, but Biyani’s $3 billion Future Group is committed to learning from and linking up with the Kiranas.
 
Kirana Now 
“The data is a gold mine. If e-commerce businesses get this data from kiranas, it is going to change the way they run promotions and campaigns,” says Devangshu Dutta, CEO of Third Eyesight, a consulting firm. “Can they provide customer satisfaction? That is the crucial test which will decide if kiranas can migrate to serving the mobile customer,” adds Dutta. Sources say that today kiranas deliver close to 3 lakh packages a month for Amazon, which means just through the kirana network it makes more than 3 million deliveries a year.
 
The company did manage to give BW a sneak peek into what it is doing for the food and grocery business and how it plans to use the kirana network to deliver to customers. A similar model is followed by Aaramshop.com. Vjay Singh, the founder of aaramshop.com, is aggregating 6,000 kiranas in 28 cities for food and grocery delivery, and is helping them find customers through his platform. However, this startup is yet to raise the kind of funding required to scale up the business. Meanwhile ,Amazon is going to push all its cash resources to create technology that can make the customer connect with kiranas a simple matter.
  
Fazal Mohammed and Abdul Basit, two brothers, run their 800-square-feet shop called Care Fresh, in Mathikere, in Bangalore, with a continuous watch on the expenses. Being new in the area, they were not getting any traction from their store. Their catchment had let them down and they had no marketing budget to connect with customers. When they heard about Amazon’s “KiranaNow” pilot program, which is a platform for kiranas to sell grocery through a mobile platform, the brothers jumped in. 
 
Amazon’s team took pictures of 15 to 20 items of the inventory of Care Fresh, and placed them on the mobile website and started an online store front for the brothers. Basit and Fazal have access to a browser-based system that connected with the Amazon network and the boys know, in real time, what their customers order. All they have to do is pack the items and generate an invoice. The Amazon delivery boy will take the package from Care Fresh and deliver it to the customer in 90 minutes. Amazon is trying to reduce this to 30 minutes and eventually will train the kirana to handle delivery. The cash will be paid back to the kirana in four days and Amazon will take 1 per cent of the total value delivered to the customer.
 
The ‘Kirana Now’ program is available only in a few urban centres of Bangalore, but in six months it would be scaled into other cities. That said, Amazon India has already cracked the kirana delivery model with its IHS program and is in a position to scale up this segment rapidly. Kirana stores in Delhi such as Manchanda Enterprises and Lakshmi Stationaries have scaled up their businesses with Amazon’s IHS. “I hardly made Rs15,000 a month. But with people picking up Amazon items, on a daily basis, it has upped my shop’s business too,” says Shankar Singh, owner of Lakshmi Stationaries at Janak Puri in Delhi. Today he makes close to Rs 40,000 a month.
 
The company had started with less than 10,000 packages with the kirana network 18 months ago; today, it is doing a million packages a month. Clearly, one does not need a crystal ball to see that kiranas will survive and thrive. Retail in India will continue with its hyper local system with no one brand or group dominating the consumer’s wallet. 
 
We say let the Kiranas drive the Indian story ahead.  
 
(This story was published in BW | Businessworld Issue Dated 15-06-2015)


sentifi.com

Top themes and market attention on: