The lockdown that has been in force in varying degrees of intensity over the past three months has upset our domestic routines in no small measure. One of these is the routine for buying groceries and household needs.Up until two decades ago, Indians bought their groceries from neighbourhood kiranas. Then, modern retail came. Many Indians moved their shopping to supermarkets fully or partly. Supermarkets offered airconditioned shopping, more variety, ability to choose, and sometimes, lower prices. Sure enough, many urban kiranas modernised, by changing store layout to self-service,so that customers can themselves fill their shopping baskets. However, the view has been that kiranas are a dying breed, and the more efficient modern retail would inevitably displace them.
Experience during lockdown reveals a different picture.Most of the modern retail outlets were stocked out or sported many empty aisles during much of the lockdown. Customers who went to online versions of modern retail saw delays of several days in fulfillment and orders getting cancelled. In addition, in many instances there was a delay in processing the refunds. Money would often go into e-wallets which were much harder to use elsewhere.
Disruptions in supply chains was the common reason given. Neighbourhood kiranas on the other hand kept supplying their customers with what they need, without much of a delay. How come traditional retail managed to overcome the supply chain disruptions? We can think of several reasons why the kiranas turned out more resilient than modern retail.
Kiranas have been around for decades. In every region, specific communities are involved in the business of kiranas. Young members of these communities set up shop after getting trained in the business mostly in a relative’s shop. Growth happens through opening of new stores by younger members of the family. What all these give kiranas are deep ties. Not just among kiranas, but also deep ties with suppliers and other partners who form their supply chains. Rarely does a kirana owner sign an annual supply contract with a traditional wholesaler of,say, cereals. It’s just that his grandfather used to buy from the supplier’s grandfather. It might look like multiple kiranas in our neighbourhood are competing. Yes, they compete, for retaining their customers. Scratch the surface and we find them to be cousins, cooperating in a range of activities like buying and shipping, getting the best deal, knowing which wholesaler has stock and can fulfil fastor hiring an extra pair of hands. That’s deep ties at work. The result is that they are better able to adjust to shocks in supply chain.
Kiranas carry much less product variety, which has been cited as one of its drawbacks. But kiranas focus on those products and pack sizes that make up most of the sales. And less variety means less complexity in managing the flow of goods. Their business model is less complex for a few other reasons as well, such as smaller store size, less number of people working in the store and simpler processes. They also have lower fixed costs in operating their stores compared to modern retailers. Less complexity is another thing that makes kiranas more resilient.
The smaller store and in-store inventory mean that smaller stocking runs would suffice. These runs can be fulfilled through small vans, autorickshaws or even on the back of a bicycle. An economist would say that kiranas operate at a lower minimum efficient scale compared to modern retail. That’s useful when supply is limited as you don’t see ballooning costs because you can’t bring in stocks in larger lots, which is one of the ways the lockdown disrupted the supply chains for modern retail.
One could argue that kiranas were accidentally bestowed with features that are better suited for the business environment under lockdown. Well, the kiranas weren’t just lucky. There have been innovative as well.
When modern retail came to India about two decades ago, many urban kiranas quickly invested to offer its customers the benefit of self-service shopping in airconditioned stores. That the store owners went for smaller store size with limited variety and put hinges on the glass storefront shows that they weren’t blindly copying – they were adapting. When the government mandated that only non-airconditioned stores could open, the hybrid kiranas just opened the glass storefront and switched off the aircon.
When modern wholesale players entered the game, the kiranas were happy to buy from them, but did not fully do away with their traditional supply sources. Thus, while modern retail was mostly tied to modern wholesale, the kiranas were diversified into both modern and traditional wholesale, adding another string to their bow.
Kiranas, especially in urban areas, were first among neighbourhood businesses to adopt digital payments. Store owners have their UPI QR codes ready in their photo gallery, to be sent to customers who want to pay for an order placed over WhatsApp or phone. And one of the store employees will deliver at the customer’s doorstep. Kirana owners are typically part of WhatsApp groups of grocers and traditional wholesalers where information about availability and prices are instantaneously passed on. They have used technology to augment their deep ties.
Many of the hybrid kiranas – the self-service stores in urban areas, are combining the best of both worlds. They have adopted post-of-sale units that come with data analytics provided by aggregators and modern wholesalers, which allow them to tweak their stocks and store layout as well as push customised offers to regular customers. All this, without losing the advantages they have had being a kirana.
The resilience of kiranas is a testimony to the entrepreneurship of Indian business communities, and that’s what Reliance is aiming to tap into. The current form of kirana business model and processes weren’t consciously built to beat pandemic-driven disruptions, leave alone those caused by COVID-19. These have evolved over a long time, responding to opportunities and crises of various shapes and sizes.
Modern business, as taught in business schools, restricts discussions on business continuity to data backups and remote storage under hills. And that’s the reason why modern retail got bowled. Traditional business models have a lot to teach us, and we ignore these lessons at our own peril. As we look for ways to reverse the negative impact of the pandemic on business and society, and as our businesses seek to capture more local and global opportunities through Make in India, we will be better off picking up some lessons from our traditional businesses. Kiranas have a few lessons for us on how to stay resilient.
The article has been authored by Sai Prakash R. Iyer who is Adjunct Professor of Strategy at IIM Udaipur and Vinay Ramani is Associate Professor of Economics at IIM Vishakhapatnam.