E-commerce players have realised limitations of deep discounts

Sanjesh Thakur, Partner, Deloitte India, opines that in recent times, e-commerce players are trying to leverage Kirana stores as a part of their distribution chain. So, the future for the kirana stores looks exciting with the fusion model of being a direct to consumer outlet plus offering a last mile fulfillment.

IBT: What is your view on the unique attributes of the Indian kirana store ecosystem? What has enabled it to survive the test of time, even as the Indian retail landscape has been in a state of constant flux?

Sanjesh Thakur: The Kirana store ecosystem has stood the test of time and is an important channel that cannot be ignored by manufacturers. Even with the hyper growth of e-commerce and organized trade, Kirana stores have found a way to co-exist and still be relevant to most FMCG manufacturers. By industry estimates, there are about 12-15 million Kirana stores in India and a large share of the consumer spend (90%+) still resides with Kirana stores. When it comes to consumption of daily grocery items, Kirana stores cater to ~137 cr Indians vs ~12-15 cr Indians who rely on e-commerce and modern trade formats.

Convenience (order on phone, same day free delivery, credit for long term customers), highly localized assortment relevant to the catchment and a deep understanding of customer needs are some of the unique value propositions of Kirana stores that are highly valued by consumers. These value propositions have helped cement the position of Kirana stores as front runners, when it comes to trade in India and build a loyal consumer portfolio.

IBT: What are the key issues that kirana stores are facing with the entry of e-commerce players? How has it affected their business model and sustainability?

Sanjesh Thakur: To attract customers, e-commerce platforms started offering deep discounts. However, over time, they have realized that to retain customers, offering deep discounts might not be the best way forward given the huge cash burn.

Manufacturers also realized that over time, price disparity between e-commerce and brick and mortar was not helping them maintain a consistent brand experience.

In recent times, e-commerce players are trying to leverage Kirana stores as a part of their distribution chain. Two leading e-commerce players recently have onboarded 10K+ retail outlets to help with order collection and last mile fulfillment. A recent deal between a social media platform and an Indian mobile service also banks on empowering 3 crore Kirana stores by connecting them to consumers via a popular chat application. So, the future for the kirana stores looks exciting with the fusion model of being a direct to consumer outlet plus offering a last mile fulfillment.

Further, a growing number of hyper-local, local and regional aggregators have also helped kiranas broaden their customer base. These aggregators connect consumers to their preferred store or let consumers order what they want and the aggregator finds the closest store where the product is available.

IBT: What advantages do Kirana stores have vis-a-vis e-commerce players? How has the Indian customer pattern transformed across economic classes over the years, when it comes to buying daily essentials?

Sanjesh Thakur: E-commerce and the increase in internet penetration has definitely impacted consumer behaviour globally and in India. Buying decisions are made by consumers even before they visit retail outlets to purchase products.

When it comes to buying essentials, the young working middle class population has adopted e-commerce faster than any other strata of Indian consumers. One of the prime reasons for this adoption is the flexibility and convenience offered by e-commerce platforms. The Indian consumer is extremely price sensitive and hence an e-commerce platform is the first place that consumers visit to explore offers and discounts.

Due to COVID, there is also a shift in consumer behavior and spending patterns. According to Deloitte’s global consumer tracker survey, the spending patterns of the consumers have changed over the last twelve weeks with 55% of respondents willing to spend a lot more on less discretionary items like groceries and 52% on everyday household goods. Also, intent to use digital services has seen a rise with 44% respondents very likely to use it for groceries

IBT: What technological interventions and operational changes can help kirana stores be in sync with the times, be more responsive to consumer needs and effectively compete with the larger players (online and offline)?

Sanjesh Thakur: Majority of the Kirana stores hardly use any technology. The biggest drive in POS modernization was Kirana stores adopting mobile wallets during demonetization.

E-commerce players partnering with kirana stores will enable a scaled digital platform across India that will enable:

(1) Development of localized and regional consumption insights
(2) POS management
(3) Inventory management and visibility
(4) Digital payments
(5) Integration with the wholesale Suppliers and FMCGs for a lean B2B Supply Chain
(6) Allow store owners to monitor and manage business performance easily through a mobile app
(7) Enable them to participate in e-commerce by becoming a seller on the integrated digital retail platform of India

This would be a win-win situation for both e-commerce players and kirana stores.

IBT: What will be the challenges and critical success factors for e-commerce companies looking to partner with these kirana stores in a big way?

Sanjesh Thakur: E-commerce players will need to invest time and capital to digitally enable a sizeable population of kirana stores. Given that kirana shop owners are still reluctant to use technology, a significant amount of training and hand holding would be required to streamline operations. E-commerce players will also need to build trust by offering a great value proposition to the kirana store owners.

IBT: How has e-commerce aligned with traditional retail in the developed world? How will India’s journey be different?

Sanjesh Thakur: In developed countries, large format/big box retail made it difficult for local mom and pop shops to survive. However in India, government regulation, paucity of space and the USPs offered by Kiranas have helped kiranas survive and thrive.

Given the large consumer base and high degree of variance in consumer preferences, all channels including Kiranas will remain relevant in India. Partnerships between Kiranas and e-commerce platforms will be symbiotic and will help Kiranas and e-commerce grow.


Sanjesh is a Partner with the Risk Advisory practice in Deloitte India. As a leader of the Consumer Industry within the Risk Advisory practice, he brings with him diverse experience and insights from advising companies in the area of business process transformation, performance management, corporate governance, business and financial controls. In his 20+ years of career, he has led over 100+ mandates, both in India and international markets advising multinational, domestic and middle market companies across sectors such as retail & wholesale, FMCG, apparel, consumer electronics and Manufacturing. Technology enabled processes & risk management has been his focus, while spearheading initiatives to deploy tech-solutions such as predictive risk analysis using Risk Sensing, Continuous Controls Monitoring (CCM) and advance analytics for performance improvement and risk management for companies.

Sanjesh’s insights are valued by leading business publications, industry associations, business forums, such as Retail Association of India (RAI), ACIIA, and Deloitte CFO Forum. Sanjesh is a Chartered Accountant and a Certified Fraud Examiner. He holds a Bachelor’s degree in commerce and is an alumnus of the prestigious Shri Ram College of Commerce (SRCC).

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