Why kirana tech is so difficult to crack

HSR Layout is the abode of Kirana tech companies but what do these players do?

This little write-up is largely inspired by a recent article that I read on the Ken and my own experience in this field. This is purely an opinion piece and does not contain any material information.

So for those of you who are not familiar with this, kirana tech was in boom in the last few years thanks to the abundance of data packs made available led by Jio and also due to the digitization of payments and the advent of e-commerce into the B2B kirana space. There was (and still is) an abudance of optimism around this space due to the potential for digitization in a very scatted and unorganized segment (India has over 10 million kirana stores by some estimates)

Some of the business models in this space are (do not that many companies offer a combination of these services)

1. Lending by firms like Bharatpe, Udaan Credit etc

2. Payment and POS (point of sale) machines by firms like Pine Labs, Jiomart etc

3. Khata/ledger maintence apps like Khatabook, Okcredit etc

4. Pureplay e-commerce services for staples/FMCG such as Udaan, Jiomart, Jumbotail, ElasticRun etc

Now at first glance, this seems like a change for infinite possibilities right? Just imagine the treasure trove of data, lending requirements, improved customer experience etc that can be provided by these services.

However, the reality is that kirana tech is an extremely difficult business model to sustain:

1. The kirana store owner is generally very very price conscious. Unlike you or I (or even many other money minded Indian consumers) who dont see the difference between ordering something at Rs 450 vs Rs 500, kirana owners are very stingy when it comes to purchase prices. For example - if a sales agent goes to a kirana store owner to sell him a box of Fortune Oil, he will check the prices from 3-4 difference souces such as Udaan, Jiomart, the local distributor etc before buying the product

2. The scope for premiumization in kirana tech is very limited. B2C e-commerce has scope for premium products and pricing even if that market is also not beyond a few million users in India. However, most customers who go to Kiranas are there for day to day staples and not premium products (examples - niche coffee powders, international ingrediants etc which they would buy from a supermarket or e-commerce sites). Therefore kirana store owners dont need to keep premium products on their shelves (with a few limited exceptions).

3. Kirana store owners are genereally not tech savvy and cant easily adopt to various technologies such as apps and POS machines easily. Most are just to pre-occupied running their shop to be able to utilize these technologies effectively. The investment and time taken to educate them is not small. Unlike the perception made by the new-age media about kirana stores, most business happens via Whatsapp and Whatsapp stories are the new age avenue for digital window shopping (especially in apparel and electronics)

   

   

4. Because of insane competition and saturation in the market, the margins in kirana e-commerce are razor thin. Have you noticed why a kirana store owner rarely accepts credit cards? That ~1.5% margin is big deal for him especially when he makes only 5-10% margins on products depending on the category. For kirana owners, its all about ensuring that inventory turnover rate is high (i.e- he keeps selling his stock without too much delay) given the very limited scope to increase margins. In turn, the opportunity to earn loftier margins are even more difficult for e-commerce players. Large bulk packs (25 kg rice or 50 kg sugar) are far too commoditized to earn margins and higher margin consumer packs need very large outlay of brand premium (Aashirvaad Atta) or have target audiences that are buy from supermarkets etc
   PS- this is applicable to a some extent even for clothing/electronics wholesalers. In my days earlier in Udaan when I visited the field often, I have lost count of the number of times that clothing shop owners in Chickpet and Tirupur cribbed about the commissions charged for their sales “Sir, hum sirf 10% margin banate hai, hum kaise 5-6% commision de paenge”?

5. There is a huge resistance from the powerful lobby of wholesalers, distributors and commissions agents who sit in yards like the APMC yard in Yeshwantpur. They not only do what it takes to survive (cut prices sometimes even at the cost of quality) but also put up stiff resistance for the advent of e-commerce players into their space. Many a time, they simple gang up and threatent to boycott a rice miller or a brand of flour (even large companies like ITC hesitate to alienate them) if they supply too favourably (or supply at all) to an e-commerce player. They are in the business for multiple generations and also manage to develop a relationship with price concious kirana store owners

   

6. Lastly, lending to kirana stores is extremely tricky. While there is an abundant need for capital in this market (kirana store owners generally run on credit days given by distributors and that is why ensuring that inventory keeps selling is even more critical than margins that you make), there is simply no foolproof way (yet!) to safeguard the risk associated with late payments, defaults etc

This is not a piece that in anyway is critical of the players in this segment. I greatly admire the difficult problems that they are trying to solve and I am personally very content of being associated with Udaan for over 2.5+ years where a lot of novel innovation happened at rapid pace -fulfilling B2B orders is a very different beast as compared to B2C orders - especially for food. I can still talk endlessly on staples like rice, flours, oil etc and am amongst the first ones to understand the driving forces and second order effects behind the headlines such “India bans wheat exports”. However, the point I do want to drive is how B2B E-commerce and Kirana tech is a more difficult playing field than B2C e-commerce and consumer tech.