Death of the kirana shop

According to an ET report today (based on a Nielsen study), modern retailers have been taking the lead in price cuts and are now able to exploit economies of scale.

Early this year, when escalating prices were crunching household budgets, modern retailers were more responsive in cutting or holding prices of day-to-day products than traditional retailers, thanks to their ability to check operational costs, bargain hard with suppliers and launch private labels.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

You can read this another way.  Modern retail is killing the kirana shop.  A small shop doesn’t have the scale (and hence bargaining power) to get lower costs from suppliers and will increasingly find itself uncompetitive with modern retailers – who offer superior shopping environments and lower costs.  Yes, this story still has some time to play out and the kirana shop still has some tricks up his sleeve – but we’re at the beginning of the end.  Even if the current generation of neighbourhood shops survive, it’s hard to see the next generation taking up the mantle.  More likely they will become a franchisee of another chain to leverage their assets and relationships.

So, in what way are modern Indian retailers better than foreign retailers?  A week back, a political party in India re-emphasized its opposition to foreign retail with the argument that “multinational corporations with their predatory pricing and large cash reserves can crush India’s existing retailers”

Umm.. isn’t that what modern Indian retailers are doing anyway?