With biggies like Reliance and upstarts like Dropshop going after retailers, you can expect your neighbourhood kirana store to start resembling a hypermarket
Despite the rise of ecommerce and hypermarkets, kirana stores account for 90% of FMCG retail sales in India. Their last-mile connection to consumers became even more pronounced amid lockdowns. They remain pivotal to India’s estimated $100 billion FMCG retail market.
If you can’t beat them, join them, goes the old adage. Amazon, Flipkart and Reliance are busy figuring out online-to-offline models to hook up with kirana stores for last-mile connectivity. But for many retailers, that would be like making a pact with the devil.
This is where smaller startups offer an alternative route to digitization for mom-and-pop stores that ostensibly gives them more control over their destinies. Bengaluru-based Dropshop provides a platform for retailers to order their supplies. For FMCG manufacturers, it’s an online distribution platform that allows them to serve more nooks and corners.
The potential transformation from a platform such as this, for both manufacturers and retailers, is from the data that’s captured, explains Udit Dhawan, co-founder and CEO of Dropshop, who was earlier a research scientist for Intel Labs. Retailers grapple with cash flow and depend on credit extended by distributors. But this is mostly ad hoc, based on relationships, without the tech and data for underwriting the credit.
Thus a platform like Dropshop, where transactions are recorded digitally, creates an alternative channel for rating and credit from NBFCs and banks, which could open up more favourable terms for many small retailers. “We are able to give credit to 90% of our retailers just by leveraging the data we have built on them," says Dhawan. Wider access to credit helps brands as well, because it’s the financing that often determines what’s put on the shelf.
Retailers also get more choice. Just over a year into its startup journey, Dropshop serves 11 brands, six of which are among the top 10 FMCG brands in the country and five are smaller, challenger brands, says Dhawan. “If you take mosquito repellents, you can get everything from Goodknight to patches for kids from Dropshop," says Preethi Shetty from Arun Cosmetics in Kalyan Nagar, Bengaluru, which now gets almost all its supplies from Dropshop.
At the other end of this chain are the brands that operate through multiple distributors and wholesalers and have little visibility on the demand and inventory on the retail side. “Even in urban areas like Bengaluru, brands are not reaching many retailers in time. We bring real-time visibility on what’s selling where and what’s not selling," says Dhawan.
For brands, it not only means reaching more retailers and increasing sales, but also insights on their products and consumers in a range of micro-markets. This is vital especially for emerging brands for whom it’s crucial to identify the right retailers where their products will have takers and not waste time in areas where demand is less. The data also helps a retailer decide whether to put a new product on the shelf.
Predicting consumption based on orders creates other possibilities as well. “We have been experimenting with some outlets to auto-replenish their stock," says Dropshop co-founder Rohit Fernandes, who has a master’s degree in supply chain management from Nottingham University and ran a logistics startup called Shippr.
The problem Dropshop is tackling is multi-pronged, with elements of logistics, demand-supply linkage and credit, where data can have an impact on each of the elements. It’s a multi-layered business that has been done in an ad hoc manner historically," points out Asutosh Upadhyay, investment professional at Axilor Ventures, which has provided seed investment to Dropshop.
Ahead of the times
One of the first to attempt this was German multinational SAP which started Project Ganges a decade ago. It deployed PoS (point of sale) machines in kirana stores and hooked them to SAP Hana on the cloud for data crunching and networking with brands and distributors. But this pilot in Bengaluru fizzled out after a few years.
“We were taking on too many problems without the ecosystem being ready for it," recalls Neelakantan Padmanabhan from the SAP Ganges team, who is now with sales tech startup Lucep. Padmanabhan saw startups tackle different parts of this value chain over the years after leaving SAP Labs in 2015. But the closest to the platform approach of SAP Ganges, according to him, is that of Reliance’s “new commerce" initiative which aims to digitize kirana stores with PoS machines.
The ecosystem is ripe for it with Reliance Jio’s huge investments to boost internet usage and the push from GST and covid for retailers to go digital. Now, with biggies like Reliance and upstarts like Dropshop going after retailers, you can expect your neighbourhood kirana store to start resembling a hypermarket.