Post Covid-19, Kirana Vs. E-commerce war has rekindled

February 20, 2023

Government of India just did a sharp U-turn on allowing non-essential e-commerce to start- ostensibly under pressure from traders\' lobby. Expect howls of protests from very well educated, voluble, highly funded start-ups who have been forced to shut down.

But an even more important debate is brewing. For years, many \"experts\" have called India\'s Kirana Store based retail model as obsolete, inefficient and keeping India from getting truckloads of FDI.

But since the lock down has been announced from March 24, the messy neighborhood kirana store has become messiah !! Like a magician they have produced the goods you need the most (along with humble bhajiwala- that is another interesting story). Their shops are like \"Akshaypatras\" somehow managing to get inventory that billion dollar valuation start-ups like Grofers and Big Basket cannot manage.

How is that possible? How these Non-AI/ML driven, paper based, simply dressed humble folks have outfoxed the Softbank/Sequoia set?

So I talked to my Kutchi friends many of whose community members run these shops traditionally for decades to find the secret sauce.

Some of the \"findings\" (as if we never knew) are:

  • Most Kirana have a small warehouse nearby - in lower cost back alley- where they always kept 3-4 weeks of supply of various items. Thus, when lock down was announced they started slowing the flow and ensured they were minimally stocked for days
  • Kirana shops have deep relationships across multiple supply chains. They have a clear idea of which manufacturer is supplying what to whom and what trucks are moving- using a technology called WhatsApp. They are thus able to gain a visibility into when next lot of Aashirvad Atta will arrive and when they can offer Fortune or Dhara Oil.
  • For Kirana owners, this is a matter of survival. As owners they have no million dollar salary to forego as alms to the underlings. SO they gathered family and came out in strength to manage their shop, home delivery, suppliers etc. They see it as an opportunity as well as service to their long term clients.
  • Labour. Most kirana have men working with them for years if not decades. They do not pay well or give fancy ESOPs (last heard - no delivery boy too got ESOP from Flipkart). But they assure job guarantee, a safety net, loans for key life occasions. These men have not gone back to home towns and some are living inside shops.
  • Low overheads. With shops that are mostly owned and minimal space, their operating costs have always been low. Thus, if they can run the show, they can survive. There is more cash and carry than usual from distributors, but they sell in cash too so they have managed money supply.
  • Long term commitment. There is not \"Pivot\" in their business model. Only thing they can do to survive is run the show- efficiently and as long as they can. They have developed \"Deep domain expertise\" and do not need any computational models to calculate margins, profitability, ABC classification of inventory. Its in their blood.

There are over 15 million kirana stores in India as per Forbes India article. Assuming an average employee strength of 2 people plus owner- that is direct employment of 45 million people and 150 million souls if you count families. That is more than population of Japan and 50% of USA and 40 times of New Zealand- just to put in perspective.

But more importantly- from supply chain point of view- that is 15 million Pick-up points and Inventory storage locations- built over decades if not century. That is 15 million \"micropreneurs\"- self-funded (They do not understand the word Equity Capital), debt free, with positive cash flow and profitable.

So start-ups can have their sunshine and toast their valuations. But this country will always run on kiranas.