India’s Kirana Stores May Suffer The Fate Of Once-Ubiquitous Telephone Booths

The All India Consumer Products Distributors Federation, that represents four lakh packaged goods distributors and stockiest, has recently raised alarms, urging Union Minister for Commerce and Industry Piyush Goyal to investigate the unchecked proliferation of quick commerce platforms and its potential ramifications for small traders.

Their concerns are not unfounded. Data suggests that the share of modern retail, including online commerce, which is currently below 10%, is set to cross 30% over the next 3-5 years. Much of this growth will come at the cost of traditional retail.

"Unless the government takes on an activist role to support the smallest of business owners, the shift toward large corporate formats is inevitable," according to Devangshu Dutta, head of retail consultancy Third Eyesight.

Casualties Of The Boom

Madan Sachdev, a second-generation grocer operating Vandana Stores in eastern Delhi, has thrived in the recent years, adapting to the digital age by taking orders via WhatsApp and employing extra hands for home delivery.

Despite having weathered the storm of competition from giants like Amazon and BigBazaar, he now finds himself disheartened, as his monthly sales have halved to about Rs 30,000, all thanks to quick commerce.

Sachdev is worried about meeting expenses such as rent, his children's education, and other household bills. He finds himself at a crossroads, uncertain about how to modernise his store or adopt new-age strategies in order to attract customers in an increasingly competitive market.

India's $600 billion grocery market, a cornerstone for quick commerce, is largely dominated by more than 13 million local mom-and-pop stores.

Retailers like Sachdev are also seeing a steep decline in their profit margins from FMCG companies, which now hover around 10-12%, down from the 18-20% margins seen before the Covid-19 pandemic. The consumer goods companies are instead offering higher margins to quick commerce platforms so that they can afford the price tags.

Quick deliveries account for $5 billion, or 45%, of the country's $11 billion online grocery market, according to Goldman Sachs. It is projected to capture 70% of the online grocery market, forecasted to grow to $60 billion by 2030, as consumers increasingly prioritise convenience and speed.

Many of the mom-and-pop shops are family-run and have been in business for generations. Yet they lack the resources to modernise and compete effectively with larger chains. Modern retail businesses, including quick commerce, begin with significantly more capital, thanks to funding from corporate investors, venture capital, private equity, and public markets.

"They can scale quickly and capture market share due to a superior product-service mix, larger infrastructure, and more robust business processes," said Dutta.

Moreover, their ability to engage in price competition poses a challenge for small retailers and distributors, making it difficult for them to compete.

"This is something that has happened worldwide, in the largest markets, and I don’t think India will be an exception," Dutta said, adding that it would be incomplete to single out a specific format of corporate business such as quick commerce as the sole villain in this situation.

"India is a tough, friction-laden environment at any given point in time, including government processes which don’t make it any easier," he said.

Peer Pressure

Data from research firm Kantar shows that general trade, which comprises kirana and paan-beedi shops, have grown 4.2% on a 12-month basis in June, while quick commerce grew 29% during the same period.

Shoppers are becoming more omnichannel, rather than gravitating towards one particular channel, said Manoj Menon, director- commercial, Kantar Worldpanel, South Asia. "While the growth [for quick commerce and e-commerce] might appear to have declined compared to a year ago, a point to note is that the base for these channels has significantly grown. Therefore, achieving this level of growth is still commendable."

Consumer goods companies such as Hindustan Unilever Ltd., Dabur India Ltd., Tata Consumer Products Ltd., etc., have acknowledged the salience of quick commerce to their packaged food, personal and homecare products. The platform currently comprises roughly 40% of their digital sales.

"We are working all the major players in the quick commerce space and devising product mix and portfolio. This is a very high growth channel for us," according to Mohit Malhotra, chief executive officer, Dabur India.

Elara Capital analysts have pointed out that the share of quick commerce is expected to rise to 60% in the near future with e-commerce and modern trade turning costlier for FMCG brands than quick commerce. "The larger brands tend to make better margins on quick-commerce platforms versus e-commerce due to lower discounts on the former," it said in a report.

However, it is too premature to draw a parallel between kirana and quick commerce in terms of competition, given the significant size difference.

The average spend per consumer on FMCG in kirana stores stands at Rs. 21,285 annually while the same is Rs. 4,886 for quick commerce, according to Menon.

Quick commerce is still an urban phenomenon. In contrast, in rural settings, where internet penetration is still catching up and access to large retail chains is limited, kirana stores continue to thrive.

According to Naveen Malpani, partner, Grant Thornton Bharat, while the growth of quick commerce is undeniable, this channel is not poised to replace traditional retail, which still has a wider reach in the country. "It will complement older models, filling a niche for immediate, smaller purchases. Also, a 10-20-minute delivery may not have a strong market pull in rural markets where distance and time are not much of a concern."

Yet many others believe, even in these areas, the challenge is palpable.

The small businesses are beginning to feel the sting of same slow decline that once befell the ubiquitous telephone booths in the era of mobile phone, according to Sameer Gandotra, chief executive officer of Frendy, a start-up that is building 'mini DMart' in small towns where giants like Reliance and Tatas have yet to establish their presence.

As rural customers slowly start to embrace digital shopping and seek more variety, kirana stores must adapt or risk becoming obsolete, he said.

Besides, the popularity of quick commerce is set to challenge the dominance of incumbent e-commerce platforms, especially in categories such as beauty and personal care, packaged foods and apparel.

“Quick commerce is primarily operational in metros and tier 1 markets, which is impacting the sales of traditional companies in these areas. However, if quick-commerce players were to extend their operations to tier 2 and tier 3, it would even challenge companies such as DMart and Nykaa, and would pare sales and profitability,” noted analysts at Elara Securities.

Frendy's Gandotra believes the journey for kirana stores is not a lost cause, but it requires strategic interventions. Many kirana store owners struggle to integrate point-of-sale systems, inventory management software, or even digital payment solutions. These stores need to embrace technology.

Another aspect is the need for policy support. Regulations to ensure fair competition can prevent monopolisation by large retailers. Additionally, subsidies, tax benefits, and grants for infrastructure improvements can help small businesses adapt to changing market dynamics. With renewed support, kirana stores can continue to be the backbone of Indian retail.

Nonetheless, there will be some who'll be left behind during this shift. Analysts at Elara Capital warn that the swift rise of quick-commerce platforms, combined with aggressive discounting, could wipe off 25-30% of traditional grocery stores.