Chota Hathi of Indian Retail: New Age, Self Service Modern Kirana Stores transforming Retail

Indian consumption basket is skewed towards essentials where food and grocery accounts for 50 percent of India's retail consumption. The kirana store (or traditional trade), estimated to number over 1.2 crore, accounts for about 90 percent of Indian grocery retail. The organized retail (or modern trade) made inroads in grocery retail around two decades ago, and has slowly grown as consumers have adopted modern trade due to the wide assortment of products, freedom of choice due to self-service, and shopping experience. ???

The battle lines between modern and traditional trade have been around area of stores, range of products available in stores, availability of premium products, payment options, technology, and digitisation. In popular imagination, modern trade stands for the digital and technology-driven stress, while traditional trade stands for the old regime of community and credit-driven behind-the-counter stores.

As India is going through economic development, digital revolution, and social transformations, traditional trade stores are also changing with time. A new avatar of traditional trade called “independent self-service store" (ISS) has expanded fast in the last couple of years. Factors like demand-side boom, supply-side development, digitisation, and development of a partner ecosystem have fuelled the rise of ISS.

The demand-side consumption boom has been driven by a number of factors. Firstly, here has been a consumption boom in the country, with a ten times jump in annual per capita income from just above INR 15,000 in 2001 to over INR 1.5 lakh in 2021. The rise in income has been accompanied by a proportionate jump in consumption expenditure from INR 13 lakh crore to INR 123 lakh crore in the same period. It has led to explosive growth in packaged goods which is expected to reach 10.13 lakh crore in 2025. The packaged food industry has also seen evolution of multiple categories like instant foods, frozen foods, dairy, snacks, beverages, cooking ingredients, and health foods. We are seeing shift from cereal-driven diet to a protein-rich diet with milk and value-added milk products emerging as biggest commodity in value.

Similarly, aided by beauty revolution with 60 lakh salons and beauty parlours across India, the home care and personal care category has exploded, with the market growing 3.5 times from 2010 to 1.23 lakh crore in 2022. Rapid growth in grocery, home care, and personal care products has led customers to yearn for more choices. Customer are no longer happy with few SKUs and the local kirana stores are now under pressure to upgrade to a larger range of products.

We have seen massive improvements in supply chain due to investments in road infrastructure. Expressways, along with GST, have led to massive efficiency gains in the trucking and transportation sector. While milk cooperatives pioneered creating cold chains in far-flung cities for value-added milk products, other brands have also invested in building efficient supply chains by setting up factories and extensive distribution networks. Thus, products like mayonnaise and frozen fries are available across various town classes. Likewise, large and premium packs of Tide that were once exclusively distributed in modern trade stores are now available to local retailers in tier-III and tier-VI cities. Supply-side infrastructure development, equally important for the development of ISS, has been in place.

Digitisation and development of eco-system of vendor partner is also contributing towards rise of ISS. Digitisation is driven by the proliferation of smartphone users which has led to an explosion in payment app usage. Various sources estimate the number of payment app users above 350 million and the number of digital transactions around 72 billion in 2022. The value of digital transactions at INR 106 trillion in 2022 is expected to rise five times in the next five years with wider adoption of UPI.

Spurred by more than 93 crore smartphone users, there are over 33 crore Facebook accounts, 58 crore YouTube users, and WhatsApp has emerged as the preferred mode of communication with more than 54 crore users. WhatsApp and Facebook are now the new local media partners available to every small business. Digital payments and social media channels, especially WhatsApp, have made one-to-one connections with customers, marketing, home delivery, and payments seamless for small businesses which was once domain of large corporations.

The ecosystem of vendor partners has been possible due to the information technology revolution of the last two decades. Numerous players have mushroomed to provide point-of-sales (POS) machines and a gamut of services required to digitise kirana stores in the smallest of towns. Due to local enterprises, hardware items like chillers, freezers, and price communication signages as well as specialized services like catalog management, pricing systems, and customer relationship management are available with small investments. Furthermore, national and regional brand manufacturers have made the packs available for stand-alone modern trade stores in line with the requirements of the technological revolution.

Lastly, emerging social milieu is driving a change among owners of kirana stores. Being a successful kirana retailer means operating from 7 a.m. to 9 p.m. on all 365 days in a year with clockwork precision. The life of a successful kirana retailer is challenging, with minimal time for personal engagements, festivals, or holidays. The next generation of kirana retailers wants to avoid the toil and labor associated with the menial nature of this job. They either switch to jobs offering better lifestyles or aspire to upgrade their outlets to self-service stores providing a much better working environment. The new generation of retailers is also implementing systems so that these stores can operate even in their absence so that they can enjoy the perks of life. Thus, social status upgradation is also a reason for the younger generation of retailers to venture into opening ISS.

What is the takeaway from the rise of ISS which have much lower overheads and truly hyper-local in providing services? ?The various estimates of ISS peg the number of such stores in the country above 25,000. Almost 50 percent of these stores are located in towns with less than 50,000 populations. Southern states have taken a lead in setting up such stores, with Chennai having more than 3,000 ISS. Due to the factors mentioned earlier, the number of ISS is expected to rise as this retailing model combines the best of modern trade and traditional trade.

ISS provides a win-win scenario for the ecosystem. As ISS is deeply rooted in the local community, these stores keep a wide variety of regional and local brands. Customers get the experience of modern trade without venturing out of their neighborhood, thus saving time and effort. These stores ensure the availability of dairy, chilled, and frozen products due to cold chain infrastructure in store. Customers get access to wide range of products and the freedom to explore before making choices.

ISS can allow large brands to sell a bigger range of premium products. Large brands should also support ISS because these stores do not pose a threat of private-label brands. Moreover, large brands can procure valuable first-party data from ISS, which is unavailable to brands through organized modern format retailers as they do not share such data with brands.

The micro, small, and medium enterprises (MSMEs) stand to gain in various ways with the rise of ISS. Many local MSMEs can gain access to the market through these stores. Some local MSMEs offering products and services in setting up or supporting ISS will also grow as ISS numbers rise.

The rise of ISS will impact the organized modern format retailers struggling to grow their market share above 10 percent of the overall retail sector. ISS will give stiff competition to large retailers and will continue to co-exist with other retail formats. India is a large market, and the coexistence of multiple models bodes well for the retail sector. We believe that ISS is here to stay and flourish.

Rise & Impact of New-Age, Independent Self Service Stores