FMCG companies tighten kirana store supplies amid profitability pinch from q-commerce platforms’ growth

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For decades, kirana stores were the bedrock of India’s retail ecosystem, providing neighbourhood convenience, affordability and accessibility. But today, these soap-to-staple sellers stare at dwindling profitability. They are facing a dual threat: from rising e-commerce sales and fluctuating consumer spending. The ongoing situation has left leading fast moving consumer goods (FMCG) players such as Dabur, Marico, Hindustan Unilever (HUL),and Godrej Consumer Products grappling with the challenge of balancing loyalty to traditional distributors and simultaneously adapting to the growing demand for tech-driven solutions.

FMCG majors are streamlining their inventories

The companies, which reported weakness in their general trade (GT) networks, have swung into action by streamlining their inventories. Dabur, for instance, acknowledged the challenges faced by its GT partners. The company’s management highlighted that the increasing share of alternate channels has put pressure on the profitability of their GT channel partners. In response, Dabur has undertaken a one-time strategic initiative to rationalise inventories. The move eroded Dabur's  top line by 5.5 per cent in the quarter ended September 30.

"We have undertaken one-time strategic initiative to rationalise inventories and enhance their profitability. Though this one-off proactive measure resulted in a temporary dip in sales, this was necessary step to enhance the profitability of our GT distributors and ensure long-term health and hygiene of our business," said Dabur's Chief Executive Officer (CEO) Mohit Malhotra during a  call with analysts after the company's earnings for the second quarter (Q2) were announced.

Dabur's stockists are unhappy with the rise of quick commerce (q-commerce). Q-commerce platforms such as Blinkit require fast replenishment, and their dark stores only keep a three-day inventory, which stockists can’t fill. "You have to bypass the stockist and go to them because their terms of trade and their want of products is such which only company themselves can fulfil," Malhotra added.

Parachute-maker Marico, too, emphasised on efficient stock management. "We continue to be partnering with them [kirana stores] in terms of ensuring and it is in our interest that you have a viable GT system. So, as and when the need arises, we will do it. See, keeping stocks is a kind of an inefficient way of usage of capital," said Saugata Gupta, Managing Director (MD), Marico.

Similarly, Godrej Consumer Products stressed on keeping stock levels in control.  "These are the kind of way to drive for efficiency in urban GT because while it's doing badly, it still remains a very large part of our business," said  Sudhir Sitapati, MD, Godrej Consumer Products, after the Q2 earnings were announced.

 Q-commerce platforms disrupting retail business

Q-commerce platforms are rapidly transforming India’s retail landscape, with $1.28 billion in sales expected to shift from traditional kirana stores to these digital entities this year alone, according to a recent survey by Datum Intelligence. Popular names such as Zomato's Blinkit, Swiggy's Instamart, Zepto, BigBasket and Jiomart — known for delivering products within minutes — are rapidly becoming primary online retail channels. Data shows that around 67 per cent of kirana stores have reported a drop in sales since the emergence of q-commerce.

Consumer goods giant HUL stressed the importance of growing their presence in general trade, while also tapping into high-growth segments such as modern trade, e-commerce, and premium products to maximise growth across different regions. The HUL management flagged that the core focus remains on maintaining strong ties with kirana stores and traditional distributors. HUL, the industry leader, derives two-third of its business from general trade.

Over the past few years, new retail channels —particularly digital-first models such as q- commerce and e-commerce — have transformed the Indian retail landscape. A recent industry report by All India Consumer Products Distributors Federation (AICPDF)  highlighted that around two lakh kirana shops have shut down impacted by the rise in q-commerce platforms. Kirana stores, located in metropolitan areas, bore the maximum brunt.

Kirana stores are integral for FMCG companies as they remain a dominant channel, especially in Tier-2 markets and beyond. They offer companies an extensive reach to customers who may not have access to modern trade channels or e-commerce platforms. Since the rise of q- commerce platforms, nearly 46 per cent of  buyers have reduced their purchases from kirana stores, signaling a paradigm shift in consumer behaviour, as per the available data.