Most of us are aware that Indian grocery retail is an enormous market of $400 billion. We also know that there are over 15 million merchants, including micro, small, and medium. But very few of us know that these merchants belong to different segments, making this space fragmented.
Merchants can be categorised by store format, store size, product assortment, end consumers, financial capability, and digital affinity.
This article talks about an untapped $25 billion market of mid-sized grocery stores. The segment has been overlooked amidst Kirana digitisation as it is sandwiched between the two- large-format modern retail chains and small format Kirana stores.
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Mid-Sized stores are very distinct from Kirana. They are of walk-in format, give printed bills to customers, keep three times the product assortment than a Kirana and range between 500 sq.ft. to 2,000 sq.ft.
They are, by and large, GST registered and have already invested in hardware and siloed billing software. They do their best not to be counted as Kirana and instead call themselves mini supermarkets. These stores have got aspirations and want to punch above their weight. They have already graduated from being a Kirana and have high expectations regarding technology, supply and margin.
The majority of the ecosystem has been addressing Kirana primarily because of the large market size and the vast scope of improvement. Digitisation started with low-end technology, which was meant for Kirana but hardly improved to address the retail segment with high digital affinity.
Despite being an early adopter of technology, this segment struggles with day-to-day operational hassles. The available tech solutions are fragmented or siloed and address pain points in a particular area.
They do not enable complete automation, which is a key ask from the segment. Most of the players have taken a one-size-fits-all approach. The segment demands a tailor-made tech solution that seamlessly connects all major touchpoints such as buying, selling, and operations.
They need auto stock replenishment; instead, they have B2B apps to punch orders manually. Ironically, such an integrated tech solution is at the disposal of only large-format modern retail chains. Mid-Sized stores are still deprived of technology like SAP and Oracle.
These stores operate in the modern trade format but have not realised their potential because of their stand-alone nature. FMCG companies classify them under general trade.
General trade distributors do not keep all modern trade assortment and have low fill-rate to offer. The ordering process is manual and inefficient and dependent on salespersons or fleets on the street to take orders from stand-alone stores.
The modern trade channel cannot cater to the segment due to lack of a tech-enabled ordering mechanism and low order value. Modern trade distributors do not run salespersons to take orders from stores. Instead, they receive purchase orders from modern retail chains with the high order value.
They have a non-lucrative margin that ranges between 10% to 12%. Modern trade format commands extra margin for added visibility and share of shelves from FMCG companies. But such schemes are never offered to stand-alone stores.
Sometimes, even general trade schemes are not fully passed on to stores as distribution is not transparent. Some of the FMCG companies are working on direct ordering apps, but it still does not guarantee a high margin consistently.
These stores do their best to upgrade to a better way of doing business, but their best is not enough because of the lack of scale and integrated technology. As long as they remain stand-alone stores, they can neither significantly increase income nor automate their end-to-end operations.
A modern retail chain is treated as a key account and benefits from higher-margin, better fill-rate and extended credit period from FMCG companies.
Mid-sized stores are always in a dilemma because no one has ever tried to solve the segment's pain points. They either are spoiled with several options that do not work the way they want or find themselves helpless many a times because of a lack of options.
Several DIY (Do It Yourself) tools available in the market do not do work as they are fully occupied with daily repetitive and manual activities such as inventory management, re-ordering of stocks, follow-up with offline suppliers and comparing prices across B2B apps.
Lately, the FMCG giants like HUL and P&G have started recognising the most overlooked segment of mid-sized stores. The terms like " New Modern Trade (NMT) stores, Mini-Market (MM) and Individual Self Service (ISS) stores have been coined. However, a tech-enabled mechanism needs to be in place for the betterment of the entire segment.
In a nutshell, this segment is the most emerging segment of Indian grocery retail because of its high willingness to upgrade. Mid-sized retailers aspire to reap the full-stack benefits of a modern retail chain and their modern trade format is a great plus. They need exclusive supply guaranteeing high margins and integrated technology to make their dreams come true.
(The author is Founder - Gully Network Retail.)
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