10 reasons why Reliance and Facebook find Kirana stores attractive
For Reliance’s retail plans and Facebook’s plan to create smart and actionable communities in India, the Kirana store offers the billion dollar opportunity. Here is why.
- If you aggregate all the Kirana stores across India, they account for over 80% of the overall retail industry in India. That is largely because, the Kirana store brings local flavour and a personalized touch to retail. Also, their legacy dating back to over a century gives them a clear edge.
- Reliance estimates the value of the new retail to be worth $700 billion that can be effectively tapped with a combination of reach, capital and the innovative use of technology and community. That is where a closer alliance between Jio Mart and the WhatsApp model could integrate effectively.
- The big change in retail came about 25 years back when large malls like Shoppers Stop, Pantaloons and others came into the retail fray. They soon integrated groceries also into their offerings coming into direct competition with Kirana stores. However, in the last few years, these malls have been hit hard by high rentals and diminishing footfalls. The situation worsened with COVID-19 which resulted in an indefinite shutdown of malls.
- The next big change came about 6 years ago when a combination of mobile commerce and generous VC funding allowed the setting up of ecommerce stores. They not only passed on steep discounts online but also set up their own distribution and delivery franchise. However, this ecommerce space has faced its own regulatory challenges as the government views this sector as a direct competition to the Kirana Stores.
- What Facebook and Reliance are now talking about is the fourth phase of retail that includes the integration of the Kirana stores into the digital ecosystem of Indian retail? Apart from selling their own wares, kirana stores can also double up as the fulfilment and pick-up outlets for Jio Mart as an additional source of revenue. That is where Kirana stores fit into the scheme of things.
- In the entire Reliance Retail scheme of things, grocery business has been identified as the driving force of the $700 billion opportunity. Most of these Kirana shops are grocery based and directly fit into the overall retail philosophy of the Reliance Group. Reliance admits that it could be a win-win situation for Reliance Retail and for the Kirana Shops as they can finally look forward to sustainable revenue flows from the business.
- According to Reliance, the big challenge for most of the Kirana outlets is the management of inventory. They either end up investing too much or too little in inventories and this makes their performance sub-optimal. Reliance proposes to use its M-Pos to centrally manage inventory for the millions of Kirana stores across India. This would be a great help in a grocery retail business which is still 90% unorganized.
- Where does Facebook fit into this Kirana story? Facebook estimates that irrespective of the state of the economy, the interface between a customer and the grocery story is inevitable. Facebook wants to use the ubiquitous WhatsApp network owned by them to connect customers and shop owners and then ride the Reliance Network for the fulfilment and the execution of the order.
- For Facebook, the biggest take away from the Kirana network will be to better monetize the social reach of Facebook and WhatsApp. Facebook has nearly 30 crore users in India and this is likely to increase along with the doubling of internet penetration by 2022. But revenues per Facebook user in Asia is less than 1/10th of what it earns in the US and Canada. A direct interface with the 3 crore Kirana stores will give Facebook direct access to its local client base and help better monetization.
- Finally, this is how the entire model gels. The Reliance digital network will be used to on-board 30 million Kirana Stores across India and integrate and optimise them through centralized inventory management. Facebook will then leverage the viral power of FB and WhatsApp to help monetize the experience. How this arrangement actually fructifies is something we will know in the months to come.