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?

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4 Responses to Death of the kirana shop

  1. Srini says:

    I dont agree here … Kirana shops are still doing good business. Shopping at a large retail store is a pain as there is not much parking available and we end up shopping things we don’t require. It also has other effects …for example, one has to buy a LARGE storage or refrigerator to store the excess bought. Contrast this to the corner of the street Kirana guy who pretty much stocks everything latest (qualified by the demographics of the locality). One can walk across to buy stuff ..good for health as well , no parking problems and more importantly it is just in time and saves on additional expenditure on bigger storage 🙂

    My submission is that retail is still a fad and it is prudent to shop at a Kirana store !!

  2. Premnath Murthy says:

    Its interesting isn’t it? I cant speak authoritatively on how local kiranas are facing up to the organised retail threat – but I can sure share some of the re-engineering that I think some have done to their business model:

    – more focus on home delivery – more housewives are encouraged to send a “list” or “phone” and the delivery chap on a bicycle or motorbike delivers all goods in a very short time, even late in the evening
    – accepts “returns” and “exchange” much easier and quicker
    – they sell “less than MRP” and this is higlighted – obviously he doesnt have the scale to bargain, but then he doesnt have retail overheads to that scale either.
    – I understood from an executive at one of the organised retail players that losses due to pilferage / shoplifting etc are often upto 3% of sales at an outlet level – no one is willing to share real numbers.
    – increasing numbers at kirana are accepting plastic, for higher value transactions, without surcharge etc

    While the policy makers argue, the kiranas are attempting to retain their share of the market by playing on accessibility, personalised service, and easier transaction experience, hoping to bridge the gap they have in terms of variety, choice and shopping experience. I think most realise that the threat of organised retail is real, and here to stay. So they are attempting to survive or even thrive, by changing the older way of doing business.

    I feel the Kiranas arent dead yet, nor are they going to give up the fight easily. At least for some time to come they would still be the preferred source for monthly foodgrains and pulses etc, and for known branded products.

    Time will tell whether or not their attempts would succeed.

    I completely agree with you about the opposition to global retailers.

    Regards

  3. Raj Bhatt says:

    Amit:
    I tend to agree with Premnath.

    My local kirana store offers me 5-10% discount off MRP on all packaged goods. That pricing is lower than any organized retail store (and equal to the pricing of organized cash-and-carry stores like Metro). The discounts are higher for grains and are comparable to organized deep-discount stores like Total.

    In my household, the fresh vegetables/fruits purchases are from organized retail like Reliance Fresh (since they seem happy to sell at a loss 🙂 ) and we continue to use the local kirana store for packaged goods.

    The advantage (other than lower price) is proximity to the home, and home delivery (if needed). The disadvantage is that one needs to stand patiently in line at the store front till the helper boy addresses your order (if you choose to pick up at the store).

    I think Kirana stores will survive because of their superior utilization of store space, and low overhead.

    Organized retail grocery stores, on the other hand, other than Future Group and a few select others, are deep in losses (Reliance Retail, More, Subhiksha to name a few).

  4. Sunil Gupta says:

    Take a look at the above URL for a complete synopsis on how the convenience sector needs to readjust to take kirana along.

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