Madhur Singhal and Sushman Das
On April 22, Facebook announced an investment in Jio Platforms Ltd., for $5.7 billion (Rs 43,574 crore) which will potentially impact both of their business trajectories immensely. The immediate focus of this strategic partnership is India’s 10 million kirana stores — a terrain as difficult as promising, and which has challenged many a wise man who has attempted to crack it.
In 2016, Jio Platforms was launched as a ‘one-of-a-kind’ digital platform, which is valued at $65 billion today and ranks among the top five companies by market capitalisation in India. All the while, Reliance Industries has reinforced its e-commerce leadership intentions by building a platform above the telecom and retail store backbone. What is interesting is the strategic e-commerce road map it has laid out through its partnership with Facebook, which owns WhatsApp that has a 400 million user base in India.
E-commerce in India is a story that has truly come of age. The early 2000s saw companies such as Indya, India world, SifyShopping start up, and get wiped out with the dotcom bust. Today, we see multiple home-grown upstarts fight fiercely with foreign entities for market share. As one of the world’s largest and fastest-growing markets (e-commerce is growing 4X faster than the overall retail industry), e-commerce penetration in India is expected to rise to 6.2 percent (FY23) with total sales of $62.3 billion.
While ‘branded’ categories such as fashion, consumer electronics, appliances have gone online — a large percentage of the Indian population still shops for a wide variety of their daily essentials from their neighbourhood store or kirana shop.
For the white-collared, upper-middle-class, credit-card wielding India this might appear like a distant past memory, but the fact is about 90 percent of the Indian retail market is unorganised, where most of the sales take place through kirana stores or stand-alone outlets. Less than 2 million Indians buy their groceries online. Online grocery has only 0.1 percent penetration in the overall food and retail sector. India has about 8000-plus towns and more than 650,000 villages — India’s largest hypermarket chain Big Bazaar is present in 120 cities, while every village would have 1-2 kirana stores.
What the above means is that ‘organised’ formal e-commerce play in daily essentials in a vast majority of the Indian market (especially non-metros, Tier-II and Tier-III cities, villages) is non-existent.
Given this, retail and e-commerce is expected to change in the near future and these are some of the ways it could:
- India (especially in Tier-II and beyond) will selectively skip modern trade as we know it (supermarkets/hypermarkets). We will see a leap from the traditional kirana store to one that is enabled by technology and is part of a larger platform, say JioMart or Amazon.
- The big players, in an effort to retain customers, could hot up competition through a new round of deep discounting/promotions.
- Point of Sale (POS) machines and digital management of inventory could common fare in most kirana stores. Assortments curated by ‘local’ customer preferences rather than distributor push will become standard.
- This will be influenced by the extent to which a kirana store becomes a virtual hub of demand, supply, and transactions. We can expect to see ‘master’ kirana stores which will not only supply the immediate neighbourhood, but also cater to a wider catchment. Technology will help entrepreneurial kirana store owners leapfrog.
- Platforms, such as JioMart, will be the most valuable link in the value chain for suppliers and customers. Large volumes of data will enable wider assortments, just-in-time fulfilments, and curated promotions, even for customers in Tier-II/III cities and villages.
- Operational costs related to procurement will come down and kirana stores using such e-commerce platforms will see improvement in metrics such as inventory turnover and returns on capital invested.
- High-quality local and regional manufacturers will finally have an opportunity to distribute more widely. Smaller FMCG players have been long constrained by distribution from scaling their product offerings. Platforms such as JioMart will enable ‘rapid testing’ of products across geographies and good products will scale.
- In the long run, best players will drive synergies and will have to co-operate, as customers will interact with different brands (product/retail/last-mile supply). It is less likely that a player will have everything in a geography.
- Interoperable platforms are more valuable, and we expect to see the bigger players leveraging this. Do not be surprised if you find yourself buying a Tasty Fruit jam (Big Bazaar private label) from a kirana store you located on JioMart and the order is delivered by Ekart Logistics (Flipkart’s logistics arm).
- With an increasing formalisation of the economy, bargaining power (especially in consumer goods) will shift back to the manufacturers from the physical modern trade retailer. Inventory in platforms (and kirana units within them) will be managed based on strategic partnerships between a manufacturer and the platform.
Given the above possibilities, the JioMart-WhatsApp collaboration comes at a tipping point in Indian e-commerce, and can be the watershed moment everyone has been waiting for. We see the synergy being deployed in three areas. One, in the most recent quarter (Q3 FY20), Jio grew its subscribers by 32 percent (YoY). This has largely been aided by effective distribution channels spread across India. The same momentum will be deployed to scale JioMart. Two, the attempt to be India’s ‘super-app’, especially in commerce. While various players have made headways in areas ranging from payments to lending based on transaction data, the Jio Platform (JioMoney, WhatsApp Payments) could leverage data to help small businesses with various products ranging from working capital loans to facilitating easy consumer payments. Third, as the next wave of growth gets led by one of India’s most mature business houses, we will not be surprised to see a distinct shift from cut-throat competition to collaboration among players in which both customers and businesses have a win-win proposition.
The Indian retail space is ripe for disruption and there has never been a better time to be a part of India’s digital revolution for the kirana store. Across the nook and cranny of the country, kirana stores and SMEs are at the core of the next wave of e-commerce growth. It will be aided by technology making it a nerve centre of India’s e-commerce and digital payments revolution. In doing so, customers will be offered a combination of convenience, choice, and customer-centricity making e-commerce truly a mass-market business in India.Madhur Singhal, is Managing Director, Praxis Global Alliance, and is the consumer and retail leader. Sushman Das, is Consultant, Praxis Global Alliance, and a member of the consumer and retail practice at the organizations. Views are personal.