Retail Realities: Will kiranas evolve to stay relevant? - Moneycontrol.com
Jan 16, 2012
The key opposition to the UPA-II government's decision to allow 51% FDI in multi-brand retail has been from small local food and grocery stores across the country. These shopkeepers have a legitimate concern that their very survival could be at stake.
So CNBC-TV18's show Storyboard decided to look at the future of the kirana stores to see if they will evolve ways to be relevant to the Indian consumer and thrive or if they will be wiped out by the existing and imminent modern trade chains.
Joining Anuradha SenGupta in this discussion are experts from the retail consultancy; Next Practice Retail S Raghunandan and Rama Bijapurkar; Kurush Grant, Executive Director of ITC and Vinay Singh, managing director of Max Hypermarket in Bangalore.
Q: Why should shopkeepers not oppose 51% FDI in multi-brand retail?
Bijapurkar: Yes, but the kiranas haven't died to begin with. Ofcourse they have been impacted in the vicinity of wherever there is modern trade as well as in the newer areas like Gurgaon, Powai and parts of Bangalore.
The cost real estate makes it very hard for kiranas to survive, so a lot have already gone. Finally, a lot of the gen-next of kirana owners don't really want to be a shopkeeper; even they are going outside the business.
Q: So you are saying that we shouldn't be so worried about this protest that the kirana stores are mounting to FDI in retail and the political fallout that it's having?
Bijapurkar: In the past STD booths have come and gone, Xerox shops have come and gone, video parlours have come and gone; it is the cycle of life.
Q: Give us a sense of how ITC sees the kirana and the millions of small stores that are there in India and the modern retail formats that we have seen grow over the past decade or so?
Grant: Kirana and traditional retailing in India still continues to be the single largest outlet for sale of FMCG goods which we produce and market. The beauty is that over the last few years, there has been a growth of modern retail but it's been relatively small; estimates range from between 3-5% and across markets range from between 1%-15% in certain markets in the south.
Modern retail has been in India for quite sometime; modern malls were first setup by government of India years and years ago, whether it was supermarkets, Sahakari Bhandars etc. So modern retail competing with kirana and traditional retail has been something, which has been going on in India for years.
Q: But the scale is very different now isn't it?
Grant: Bulk of modern retail in India even today is still Indian. So, why does it make a difference whether there is FDI in modern retail or whether there is no FDI in modern retail?
Q: You have given us a sense of numbers, but what roles do they perform and how do you use them when you have a portfolio of products as wide as ITC does?
Grant: The one difference between the traditional kirana shops in India and the traditional mom and pop stores in the west is that the mom and pop stores in the west historically were relatively inefficient as compared to modern trade when they came in and hence could not compete.
Traditional kirana stores and traditional outlets in India are horribly efficient. They are very efficient and they have been able to compete very successfully with modern retail for a very long period of time. I think that's going to continue because they offer certain advantages to consumers which the classical modern retail does not. There is credit, there is home delivery, and there is convenience etc.
Q: What are the advantages that they offer the manufacturers, give me a sense of that?
Grant: They offer wide distribution, they offer nearness to consumers and they offer relationship to consumers which any manufacturer would want. We are a huge country, our demographics are massive and the geography which needs to be covered is absolutely enormous. If it wasn't for the fact that we have got thousands and millions of retailers all over the country, we would never actually reach the consumer.
Q: So, why is it that we hear retailers say that their business is not doing well because they are not able to cope with the competition that they are facing from these modern chains? This is despite the fact that companies like your and the brands you stock do see great value in kiranas.
Grant: Yes, there will be certain retailers who will obviously be affected when a neighborhood store comes up, but they will be equally affected if a newer kirana store comes up next door. At the same time, there are lots of markets with traditional outlets which have done extremely well and Delhi is a classic case in point.
The best case in point is probably Hyderabad, where modern trade has expanded dramatically, but the classical, traditional kirana and convenience outlets have themselves grown, modernized and become self service outlets to do remarkably well. So, it will vary from outlet to outlet.
Q: Over the past few years that SPAR has been in the country, especially in cities like Bengaluru and Chennai, what has the experience been where you have seen kiranas in the vicinity that you all have setup stores? Have they been competition to you because of various factors?
Singh: We are in seven cities, Chennai is not there at this point, but we have a fairly strong presence in the other cities in the South. In all the catchments where we have our stores, there is a strong presence of kirana shops. I certainly think that kiranas are a competition for us and we are competition for kiranas at a certain level. But in my own household I can't imagine existing without my neighborhood kirana store.
Q: So, the point you are making is that these protests that we see from kiranas is unfounded?
Singh: What I am really saying is that everywhere in the world the organized and the unorganized trade have coexisted and I see no difference in the case as far as India is concerned.
