Kirana (Grocery) Startup in India is full of Challenges

Today we will talk about problems and challenges in Indian Kirana (Grocery) Retail.  

The Indian Retail sector is one of the most unorganized markets in terms of structure.  As was stated in various studies India Kirana is run by small-2 families, still in its raw form. When we compare Indian retail with western, or other developed countries we can see a big difference. Today Indian Kirana Market is contributing around $450 billion, a big contributor to Indian GDP, nearly 10%, and contributing to employment to the tune of 6%.  But, still, 90% of Kirana retail is unorganized

Running a grocery store in this semi-modern India is no easy task. The economic condition of the consumer is shifting from low to middle and middle to high, accordingly, preferences are also changing resulting in changes in shopping habits and convenience. Tier 1 to Tier 3 people in cities with higher disposable income are finding a way to experience shopping through the category of retail. For people of such income groups, Modern Retail is the shopper’s stop.

  

Amidst the proliferation of organized retail, something went awry in and around these mom-and-pop shops, and their numbers are dwindling day by day. The aggressive players in offline retail are Reliance Fresh, Big Bazaar, DMart, More, and Vishal, some having 4 to 5 stores in a city through over 100,000 sq ft of space. If I change the location and put the size of the mom-and-pop store then about 1000 stores are equivalent space they are using in a city running 4 or 5 hypermarkets.

Now that offline organized retail is making a noise, e-commerce is also booming. Both Walmart and Amazon's giant e-commerce platforms have now deepened their eyes and started mining biological data to increase the ticket size from Rs 2550 to Rs. 5000/. Despite claiming to have lakhs of retailers joining them, they are not making money. If we talk about Walmart, 40% of the business is coming from retailers but not in investment ratio i.e. millions of dollars are needed to set up Cash & Carry. The average basket size should be above Rs. 5000/- per month when one is catering to the entire market or 70-80%.

According to hypermarket owners "based out in Delhi" - no one can wipe out mom and pop shops from India even in the next 50 years. "We have to build our own consumer base and leave them to their consumer base. We're on it. Why is a section not paying attention? Burning money is not the solution. Indian consumers are unpredictable so don't think about loyalty on their part. When Metro C&C, Carrefour, and Walmart were entering India, they used to say that they are a big threat to retailers despite they were allowed to do business in B2B only i.e. Retailers. This is my honest prediction that after 5-7 years in the near future they will have to pack up their own system from India and they will be forced to sell their setups.  No one can think to wipe out Kirana stores from India.

Based on my one-year-long in-depth survey across 7 major cities of India and hours spent on the streets inquiring about the Kirana retailer's business pattern, future aspects, and their interest, I can predict that the coming year will be a good year for grocery stores. It will be more dedicated to grocery retail and the entire ecosystem. There will be a focal point i.e. grocery retailer. All is going to please them to find the precious space for their products. Even many will try to provide various IT solutions to them like POS, auto-replenishment systems, etc, and accounting systems and VAT management. Also, various banking services from micro banking will come to assist their working capital need.

I can predict based on my deep conversations with thousands of people in 2011 and 2012 that as the consumer is adapting to the changes, they are happy to buy a new package, clean and quality product. In food products, they are less brand savvy. This will revolutionize the growth of private-label brands in India. This means that there will be an influx of regional and local brands in a way but the only challenge for them will remain the "retail space" i.e. retailer, and connector.

So what's the harm if I'm talking more of a grocery retailer? After all, they are  the main connector and channel partner to the brand connecting to the end consumers, without pleasing them how can one think of their brand entering the retail space and how will they go about reaching the end consumers? nobody.

I can see the pain point of retailers and I would ask new entrepreneurs to talk to them about the challenges they face and what solutions they can provide as a business to protect their business.

Usually, the average size of a Kirana store in India is less than 150 square feet but here we will talk about medium-sized stores which are doing business of Rs. 5 to 10 lakhs per month. In this segment, you can find 20% of the shops in the city having 300 sq ft of shop space. Let us take this figure here for the purpose of our study.

I am taking the example of the Capital city of India,  Delhi. Here in Delhi, there are more than 25000 stores running in the different surrounding areas whose size is 200-300 sq ft and if we talk about all the Kirana stores below 100 sq ft then these figures are beyond uncountable, approx. 110000 stores are within 50 km. radius in Delhi

These 25000 stores are major grocery stores contributing nearly 60-70% of the total market size.

I have visited more than 1000 retailers and personally met them and also interviewed them about their business prospects, challenges, problems, and also their personal life, social life, etc. The results were out of the box and it is surprising how these people are managing their regular lives, dealing with more than 150 to 300 products having 1000 to 2000 SKUs and fitting them in their small-sized shop, having regular discussions with distributors/ vendors/salesmen etc. and the difficulty of hours really makes us think and so we can know the basics of their business.  

 Before we go ahead  Let's figure out their shop : 

 

Now we will talk about the problems and challenges that a Kirana store owner is facing: Based on the personal interview of retailers, I found that they are facing numerous problems and running their small shops almost seating on the future challenges.

• Space constraint
• Improper Product Assortment
• Hygiene issue - Lack of cleanliness
• Poor Time Management in Buying and Sourcing. 
• Decreasing Footfall
• Mishandling of Product expiry resulting losses. 
• Communication Gap Company to Retailer. 
• Competition from large format Retail stores and walk-through stores. 
• Change in Consumer Behavior
• Manpower Issue. 
• Promotions and Offers not available 
• High Density of Kirana Stores in one vicinity. 
• Next Generation is moving out of this business. 
• Lack of IT, not using computer billing & POS.
• Limited Working Capital.
• Food Safety compliance. 
• Do not want to keep records of bookkeeping and due to
• Lack of market knowledge. 
• Due to their stand-alone status and no apex body representing them to safeguard their business. 
• No Banking facility in terms of Credit line as a retailer does not maintain books of accounts. 

The problem mentioned above now leads them to  this picture:

They are facing more than 20 types of issues, so do you think they will have a solution for these problems or is there someone who says:

Last week I spoke with a senior executive at Walmart, they are in the process of developing a retail-oriented model in which they will provide their various products from their centralized centers, as well as create a credit line with banks or financial institutions. are planning to do., In terms of volume purchase discounts, QPS, and other offers they have started giving to the retailers. The sales team is going to the market and takes orders from the retailers. But even then, a major problem is the credit facility that retailers currently get from traditional distributors.

I have gone through various analyzes and since 2009 I am working on this project but there I have not found any solution to save their life. I mean when big retail players are opening their stores in almost every corner of the market, most of the retailers who have money and vision are converting their stores into modern outfits.

I have a plan that how they will be saved from such stiff competition and what kind of solutions will work for them. My concept  “Pragati” is almost in the business model stage and looking for investors who can give their 15-minute time to go through my business Plan. It will be more suitable for companies like Flipkart or companies who want to start retail offline to online.  A franchise model will give a uniform name to unorganized retailers, by giving this uniform name they will be open to the market.  They will have the power to drive consumers to their Stores.  Brands will be waiting for their turn to exhibit their products or get dynamic shelf space, more consumers can place orders from their nearby store and they will be delivered within 15 minutes. It will be Quick.  There will be numerous revenue streams if anyone can go through my model.

Their concern comes from the outer side but they are unaware of the inner flaws.  

Journey continued..................

04.10.2012 (published)

 

Layman's prediction for Staples in brands & Private Label and its Future

Indian Retail is going through a greater magnitude which is driving it through Kirana retailer's route to organized retail and further online platform. Based on my few digging in major 7 cities where I have personally seen how things are taking shape in various retail formats. One thing drags my attention to a serious development that starts with the big box retailers. Experienced from our past, the retailers and how in earlier days they used to sell merchandise from their shops.  

80% of products were sold loose, mainly all staples were loose. Except for a few national-level brands in Food like MDH, Everest, ITC, biscuit mfr, bread, and cookies, etc but the rest of all bulk staples have unorganized practice and being sold in loose form.

Going to Khari Baoli and Naya Bazar in Delhi was my routine so for me correlating things with developments going in the West was something intolerable. But, it has started invoking me to dig more about the packing of food products and bring them in the stream of Indian Kirana Retail.  It took me more than 7 months to envisioned the future of Private labels in food staples.  

Again on the investment front, I have seen that whether producing private labels will attract foreign investors or they will find it lucrative. 

Why this,  made me so specific to think about it and how it will take shape in coming days>

Let's put some lights on the present condition of Staples being sold in the market, retail stores, mandies etc. 

Source of Food:  All food items are originated from Agri produce, produced by the farmer and making sweat more lime so that we can get the things easily from our nearby stores. The journey starts from Farming Agri produce in a field. A farmer collects all its produce and travel to sell to a nearby APMC mandies. Mandi is an aggregator of local traders who buy from farmers at a very low cost, further adding semi processing cost elements, their margin etc. and sell to the manufacturer.  

The manufacturer produces identical products from the raw material like Sugar is from sugarcane and Rice from Paddy.  Finished products like main staples - Rice, Sugar, Oil, Wheat, Flour, Spices etc packed in bulk packaging and then send to Mandi traders, Wholesalers, Distributors. 

Retailers buy from Distributor, mandies and sell in loose form as per the requirement of the consumer.  during the whole process, bulk pack start from Mandi to Retailer where the idlest situation for products happened when it is lying in the retail store. There is no hygiene at all and the way it is being sold there are lots of health and economic issues. 

But on the same hand when we visit a organized retail store like going to Walmart, Metro, Big Bazar, More and many more things are positive in terms of hygiene and mostly found packed either in a plain pouch or in their private label. 

All such differentiation between a small retailer and big-box retailer is just a hundred feet distance, is this not an illusion? or it is not a matter of surprise?  So, Mount and Valley in the same vicinity. but it is part and partial of life and we continue our journey. from the same locality, there was such a big difference. I have seen small shops where poor consumers come to shop. I think, most of us who asked themself, retail experts, even do not know how a poor consumer buys their daily needs. 

I have stayed more than a week in different-2 cities including Bangalore, Chennai, Hyderabad, Raipur, Indore, Ahmedabad, Mumbai, Kolkata, UP's Meerut, and Lucknow, and few cities in Punjab there was no big difference in the status of a small Mom & Pop Store ( Kirana Retailer).  I have seen how a poor consumer approach a retailer for his needs.  He asked for weighing for Dal for Rs.10,  100 g rice, 50-gram sugar, oil for Rs. 5 and 10, and in this way buy almost all main staples under 100-150.  

This kind of comparison made me unrest, troll me all day and I start thinking why we can not pack a small size like a shampoo pouch is available in Rs.1 so why not we make available Dal even in a pack of Rs. 5/-.  Sugar for 10/-  etc.   Is hygiene is a legacy of the middle class or high-income group or rich people, whether available staples should not be packed even for the poor? 

It was a small thought but my entrepreneur mind made its billion-dollar business idea.  Keeping in mind the huge population of India where 70% are living their livelihood below a normal standard life. 

I start analyzing things from all inputs I get from various sources and finally start predicting that after 2014 or onward there will be a big change in the packaging of food products.    A 500 Billion grocery market of which 40% is staples need that kind of space. 

further, I have seen that consumer is also welcoming this move that they will get food in clean, hygienical manner, and even Govt is in sync with Fssai department to monitor food safety and ensure that maximum products will have a bright future in this segment.  When food staples come in packaging, it would be easy to fix responsibility by the food safety department and they can control adulteration in Food. 

On the other hand, the modern trade practice of FMCG brands is also going to hamper as most of the big box retailers started replacing various products from its private-label brands. The future group already started doing this, Reliance Fresh also started and all have a keen interest in this practice. For all big box, private labels are revenue and margin booster. Future group is projecting 20% revenue from their Private label in the coming years.  It is a big support for them. 

On the other side, MSME is going to start various incentive plans for manufacturers, various EPO, FPOs, PPC, and Cluster planning is going on to give direct supply chain from Farmer to Fork.  Lots of Developments are there at MSME level. 

Just check out?  following stakeholders in the retail ecosystem is aligning themself for the storm (Products). Products and products only. 

• Players from overseas > a greater interest in the Indian food sector,
• Local Players and regional players are going to give finest competition to all national level FMCG companies.
• Startups

• Investors
• Business Families
• NBFC  

I am predicting that after 2017  investors will infuse a heavy amount to promote startups and manufacturers who are going to develop food products in consumer packing. Create Value first - Valuation is a by-product that will help you to create wealth for a successful business venture. 

Future is there in private Label>

"Retailhaidetail" is my punchline where things should go in detail. 

Be in touch and write to me about your own thoughts about Indian retail. Are you okay with my above thoughts?

Writere : Balwant Singh Rana

Aug,2012, Delhi

Sources: economictimes.indiatimes.com/industry/services/retail/private-labels-owned-by-

Way to Organize Distribution in Grocery Retail – Syndication of Distribution

 

Way to Organize Distribution in Grocery Retail – Syndication of Distribution

Distribution in India:

Distribution in India is broadly fragmented but the only thing that is reassuring is that the distributors are operating their business with low operating costs. This is a major advantage of the Indian distribution system. A brand can reach the consumer by giving 4-6% margin by taking the distribution channel which is very less when compared with the distribution margin in developed countries. National FMCG brands are paying 4% margin to distributors and ~1.5% to 2% to C&F&SS, thus it is almost a funnel of ~ 6-8%.

Small-2 distributors manage 4-5 brands with their small infra catering to 300-500 retailers and investing 10-15 lakhs with an annual ROI of 18-24%. This is the acronym for most grocery distributors. For ease of understanding, I am categorizing Grocery (Kirana) which includes food and non-food products i.e. FMCG segment including staples.

Traditional distribution in India flow:

The distribution of fmcg in India is more or less organized but it still 98% of the funnel is channelized by the small distributors. As per the nature of Products & brands I have categorized distribution channels into three categories.

Classification of Distributors

1.       Organised & Centralised

2.       Organised & Decentralised

3.       Un-organised & Decentralised

Organized & Centralised:

FMCG companies in India are working in a very organized manner and with their strong system, they are doing last mile delivery through the systematic distribution system. Many established brands have robust distribution systems in their operational areas and are doing last mile deliveries through proper inbuilt systems. They have dedicated Distributors who are completing the supply chain for the state or a large area. India still needs such an organized and centralized platform for distribution but few companies like Procter & Gamble (P&G) are working.

P&G employs a large distributor that directly caters to thousands of retailers without any sub-distribution, thus it is centralized. Developed markets like UAE, Singapore, UK and USA, and Europe have organized and centralized distribution systems. A single company is facilitating last-mile distribution for various brands, but in India, we don't have much context to demonstrate that a single brand has one centralized distributor who has access to thousands of retailers at the state level over a large area.  Why centralized distribution could not pace up in the ecosystem, there is fear of monopoly. In such an arrangement, there is dependence on the single stake of the brand which sometimes becomes counterproductive if the distributor is not performing or there is some kind of rigidity, so most of the brands do not entertain centralization of the distribution system. This is a major constraint, so a single identity distributor could not gain popularity in the Indian retail sector, especially in Kirana.

 

Organized & Decentralised

In this range of distribution, brands appoint C&F or through company depots to appoint larger distributors, city-wise, considering the larger area. Sometimes in big cities like Delhi, Bangalore, Mumbai, and Jaipur they appoint more than one distributor, or in some cases one distributor caters to two or three cities, which varies depending on the business volume of the distributors. Hindustan Unilever (HUL) is following such a philosophy. An HUL distributor generally serves over 3000 retailers in a city which is a large number. In the case of HUL, the supply chains up to the C&F/Company depot is well organized but decentralized at the distributor level. It is a passive system but why not gain popularity in India? This question is valid. Again the strategy depends on the philosophy of the brand and how they want to reach the retailers. Decentralization of the distribution system has its advantages. If we take the example of Jaipur city. There are more than 10000 Kirana Stores in Jaipur District which are catered by 450+ Distributors carrying more than 350 Brand Companies (Local, Regional, and National Level Brands). So why other brands are not following this stream?  Still, they don’t want to create a monopoly or do not want to depend on their supply chain on a few distributors.

Un-organized & Decentralised

Distributors tend to be unorganized, not because of systems or processes, but because of their working style and infrastructure. A distributor generally serves 4-5 brands. Each brand has its own system and procedures and everyone has to follow the same for their endeavor. There are many distributors who have more than 5 brands. They have to work on different technology stakes and follow the procedures as per the brand. The sales team of the brand interacts with him regularly and he has to entertain them. He arranges their visits to retailers, he is the one who distributes POP content and works on various IT stacks. All brands have their thesis so they have to go with it. Carries their inventory, sales, and outstanding i.e. credit in the market. 98 percent of distributors fall in this category.

Why decentralized? This is the potential for brands to centralize or decentralize distribution. The brand is of the view that centralized distribution will not work and they do not have the appetite to reach out to a large network or at times they do not want to depend on a single distributor. 90% of the brands in FMCG employ more than 3 distributors in a large city (ie the size of the city in terms of population 1mn).

Now the question comes that when the brands are getting organized, their C&F system is operated then how is the distributor disorganized?

Just take a picture, it will be more convincing and self-explanatory:

98 percent of distributors fall under this category. No doubt they are the real heroes who are constantly working to make the products a brand. He is the person who has a good relationship with the retailers and without his help, no brand can reach the minds of the consumers. But from the above chart, you can see how a distributor is bound to work under great pressure. He has to carry maximum brands i.e. 4-5 brands, so he will be able to generate the desired ROI and meet his OPEX.

In the above chart, a distributor is holding four brands. So it has to deal with all the four brands in its area and serve 500 retailers or more or less. He has a small warehouse, two or three manpower inside the warehouse /accounts, one or two vehicles, and two/three salespersons. Everyone is managing the show together with a small infra. On daily basis, the ASMs and their SOs (Sales Officers) of the four brands visit their office and discuss with them the sales targets, market visits, promotions, etc., and MIS. His salesman goes to the market. Some are taking sales orders manually and others are on their Mob applications. All four brands have their own IT tools which the distributor has to use and accordingly provide the secondary sales data to the respective brands. This is how his daily routine works and he manages it slowly in a very unorganized way.

What he does in this form:

1.       Buy goods from different - 2 C&F locations or Brand depots

2.       Working on different brands IT stacks

3.       Various stakeholders viz Brand ASM / SO communicate with

4.       Carrying Inventory of All Brands - Average 15 days

5.       Manage All Logistics

6.       Lend money to retailers as per the nature of the products, the average credit period is 21 days.

Is there any better solution we can provide to distributors or how we can make them organize?

-------

In a developed world like Dubai, I have seen many large distributors doing direct-to-retail (DTR) carrying over 200 brands and 5000 SKUs, even more than 10000 Skus. If people are managing such a big show under one roof, then what is stopping us from doing the same thing in India? When a manufacturer introduces its brand in the market it has to first establish the distribution channel which is a time-consuming process. Once the distribution channel is in place, it struggles to place its product at the retailers again which is time taking process. Taking mind share of consumers, they have to go for various ATL/BTL activities which is again a time-consuming process. In doing so all their efforts go into establishing their brand in the focus market and it takes years to establish a name as a brand.

According to my market survey and analysis, I can see future prospects. The way new entrepreneurs are coming up with new ideas and going through the startup route, things will change dramatically after 2014. Many startups are trying to build horizontal distribution through technology-driven markets. They will have the principle of eliminating the middleman from the market and will do directly to retail. They will call it disruption but in my view, it will destroy the old values, and systems and wipe out maximum distributors from the ecosystem. Also, another concept will be Direct to Consumer (D2C) where brands will directly reach the consumer through e-commerce platforms. Again such a concept would hinder both the distributor and the retailer. But whatever the concept, if they are going to change the existing system they will only burn money. Grocery is not a technology business for retail. It is the physical movement of goods where physical activities are involved, so in my view technology will only empower or enable speed and enhance efficiencies and it will bring operational excellence in the system to the maximum extent possible.

I strongly believe in empowering the existing ecosystem. In one of my visions, I discussed with Mr. Sachin Bansal of Flipkart that they need technology to accelerate the market where they can hire existing distributors to do their last mile deliveries or they can go through retailers up to can reach. I started my project with the name of "Pragati” but somehow it was before time so I could not find investors. It was a blend of C&F  and distributors and named it “syndication of distribution” a kind of aggregation that will give “speed to market” and will give a large portfolio of retailers.  Just take an example to clarify the same.  

Shree BSR is a manufacturer of wheat products and manufactures Wheat flour, whole wheat flour, semolina, toast, and flour cookies in its manufacturing unit. He offers all the products under the brand name "Bhardari". Earlier he was selling his produce in bulk packing to the mandis or wholesalers. With the emergence of technology and change in consumer behavior, the philosophy of wholesale has been changed to consumer packing and manufacturers have started offering smaller consumer packs as per the requirement of the consumers. It does so and offers its products in consumer packing. They planned the distribution and accordingly appointed three C&F and two company depot, 150 distributors in 3 States. Recruited Area Sales Manager, Sales Officers, and many other officers and started burning money in marketing, his OPEX increased accordingly but again this whole process takes years to reach the last mile. BSR started this process in 1998 and till writing this post he was struggling in his operational territories and regularly encountered new competitions.  But, do you think we have so much time to wait in this technology age and fast-paced and changing landscape? No, if years ago it took 20 years for a product to come out & become a brand, but now it should take a maximum of five years to reach that level. The time is now for valuation; the value will create automatically. Increase footprint with speed, scale, and top line.

Now the question comes to mind that in this fast pace era how will we remove this gap of 15 years with our efforts and we think to establish a product in five years? Yes, it is possible but only with some innovative ideas and the right use of technology. The syndication of distribution as aggregation is going to do that.

How will this work? First, build a strong brand (Your company name) in the pilot city, build a strong IT stack, and start incorporating new brands or emerging brands. Recruit distributors and hire retailers under them. Take the example of Bangalore. Bangalore has more than 25000 retail stores in grocery. You can target to onboard 18000 retailers on your application, and assign 500/700 retailers under one distributor. This way you will have 35-40 distributors. Now you can add new brands with you and give 8-10 brands to each distributor. Brands will consider you as an organized C&F, they will stock their products in your distribution channel. You being an aggregator list all the products on your mobile application like Alibaba, Amazon in US and many others are doing in US and China.

You have retailers and distributors under your control, so just imagine how much power you would have. You can live with any brand in the Bangalore Kirana market maximum of two months. This will be the power of aggregation and technology. You will get many backend margins from your brand. Also once you have established all the brands in the funnel you can start working on their centralized marketing activities i.e. creating demand from consumers.

The aggregation of services is the future of Indian retail, especially grocery retail. Whether it is moving to B2B or B2C. Different terminology will be used in this section.

This kind of innovation will only lead to a boom in the market. Please share your thoughts with me and meet up for more brainstorming about the new developments ahead in the retail ecosystem.

I am available on +91-9968313005 (WhatsApp) email ranabhardari@gmail.com

Written on 8.7.2012.