The ongoing digital transformation of corner kirana stores, tens of millions of stores serving 1.3 billion consumers, will be of great importance to everyone from Unilever NV and Procter & Gamble Co. to State Bank of India, the largest. country lender. It will also be important to Amazon.com Inc. boss Jeff Bezos and Reliance Industries Ltd. president Mukesh Ambani.
The two billionaires circle around a struggling Indian retailer. The Future Group founder took Bezos’s money, but sold his debt-laden business to Ambani when the pressure of the pandemic became excessive. Amazon is in the Indian courts to thwart the $ 3.4 billion sale, which could end up making Reliance’s hold on the consumer economy unshakable.
Away from this high-profile fight for the common Indian’s wallet, a different competition for control of what goes on on store shelves is setting up. Reaching small stores in a country of more than 660,000 towns and 8,000 cities and towns has traditionally been an uphill struggle for brands. Even Unilever, which has been in India for almost a century, can barely access 15% of all retailers directly. You need wholesalers to increase that reach to more than 80%, according to investment research and asset management firm Sanford C. Bernstein & Co.
Wholesalers trust your knowledge of (and trust) the retailers in your neighborhood. But these relationship-oriented networks are small and expensive. Opening them wide with digitization is the great opportunity. Leading the charge is Udaan, a startup that in five years has taken 80% of the business-to-business e-commerce market, delivering products it stores in 200 warehouses across the country to more than 1.7 million retail stores in 900 cities all. the days.
Suppliers receive their cash on time after Udaan takes their products. Retailers obtain credit that they would otherwise have obtained at high interest rates from wholesalers. It all happens in a smartphone app, helping small merchants build a track record of payment reliability. Banks and financiers gain the confidence to lend the necessary working capital, and brands gain less complicated access. From manufacturers and millers to farmers, pharmacists, hotels, restaurants and grocery stores, the platform has 3 million registered buyers and sellers.
As Vaibhav Gupta, one of the three co-founders of Udaan, says, “We have solved the problem of trust on the Internet.” The company is backed by, among others, Lightspeed Venture Partners, an early investor in Snap Inc., and Yuri Milner’s DST Global. It is one of the fastest growing unicorns in India, as startups valued at a billion dollars or more are known.
Sujeet Kumar, another co-founder, attributes some of the success to the 2017 goods and services tax. With multiple rates and high compliance costs, the GST is a cumbersome but uniform excise tax across India. Storage decisions that used to be driven by a confusing smorgasbord of local taxes are now driven by efficiency.
Mobile internet is without a doubt the centerpiece. Ambani entered the Indian telecom industry with its 4G network in 2016 and cut expensive data prices to where they are the cheapest in the world. The average kirana owner now has a smartphone and is not ashamed to use it. With a little training, lack of education is not a barrier to reshaping sclerotic business practices.
Disruption does not mean imitating the West. Kumar and Gupta were part of the team that built Flipkart as India’s answer to Amazon and left it two years before Walmart Inc. bought the e-commerce site for $ 16 billion. Amod Malviya, his third partner, was Flipkart’s chief technology officer. At Udaan, however, the founders have not copied a global template.
That’s because there are none. While wealthy e-commerce consumers may have similar preferences to their Western counterparts, the vast majority of price-conscious customers purchase everyday items in small quantities. “The kitchens and refrigerators are small, and the average shoe buyer pays 200 rupees ($ 3),” says Gupta. Since mobile commerce came to India before connected desktops became a thing, even the biggest buying decisions don’t start with elaborate online searches.
Udaan was built for the India where its founders grew up. Kumar came to the Indian Institute of Technology in New Delhi from Bhabua, the main city of a poor district in the poor eastern state of Bihar (annual per capita income: $ 630). The distance between Bhabua and Udaan in Bangalore is not measured in kilometers or miles, but in decades of progress that the mobile internet is trying to squeeze into years. As a supply chain specialist, Kumar does not seek to fundamentally alter behavior. You are simply eliminating inefficiencies to accelerate the flow of capital. This is crucial for retailers working on margins of 10-12%, half of what their peers in the West earn.
The business-to-consumer side of retail is deeply political and riddled with regulatory minefields. New Delhi’s noose around foreign-owned e-commerce – both Amazon and Walmart-Flipkart – is tightening as Prime Minister Narendra Modi pursues a more nationalistic economic agenda. Ambani has a clear advantage, but Bezos is far from giving up. The Seattle-based e-commerce giant recently announced a plan to manufacture its Fire TV Stick devices locally, supporting Modi’s Make in India campaign.
Will kirana become collateral damage in the tycoon war? Maybe not. Even by the end of this decade, when India’s retail market grows to $ 2 trillion, tripling since the data revolution was beginning, small stores will have a 65% share, according to Bernstein estimates. However, slightly less than half of your business will have been digitized by then.
Startups like Udaan will modernize the back end. By doing so, they will increase the value of the prize that Ambani and Bezos are competing for, for the showcase.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He was previously a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW, and Bloomberg News.
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