Kiranas, the neighbourhood stores that have been an integral part of Indian life for generations, have weathered countless storms. From the rise of supermarkets to the advent of e-commerce, Kiranas have consistently adapted and evolved to remain relevant. Now, they face a new challenge: the rapid growth of quick commerce.

The Indian quick commerce market has been experiencing explosive growth, expanding at a staggering 75-85% year-on-year and projected to reach US$ 5.5 billion by 2025, according to the Redseer Report. (source) This surge has led many to question the future of traditional Kiranas.

However, Kiranas have defied expectations and continue to dominate the Indian grocery retail market, holding a substantial 90% share. (source) This resilience can be attributed to their unique strengths and their ability to cater to the specific needs of Indian consumers.

Historically, the debate about Kiranas' survival has been ongoing. Back in 2011, when modern retail chains like Reliance Retail entered the market, many predicted the demise of Kiranas (as highlighted in this screenshot from a 2011 Economic Times article). However, despite the intense competition, Kiranas not only survived but thrived.

The secret to Kiranas' enduring success lies in their ability to seamlessly integrate into the Indian retail landscape. These neighbourhood stores have a natural fit with the consumer preferences of Indian shoppers, who often prefer high-frequency, low-average-order-value purchases.

Let's delve deeper into the factors that contribute to Kiranas' resilience and explore why they continue to be a dominant force in the Indian retail market.

Indian Consumers have always been about Smaller SKUs

India has a unique retail landscape, characterized by a vast population with diverse needs and budgets. A significant portion of the population, particularly those in rural areas and lower-income segments, often face financial constraints. As per 2022-2023 statistics, someone earning Rs. 24,000 per month earns more than 90% of the population. This means that 9/10 people you come across while walking on the road, earn less than Rs. 800 per day.

This demographic reality has led to a strong preference for smaller, more affordable product units. The concept of sachets, popularized in the 1980s, exemplifies this trend.

By offering products in smaller, more affordable quantities, sachets have made a wide range of goods accessible to a broader customer base. Today, from shampoo to masala, sachets account for a substantial portion of the Indian market, demonstrating their enduring appeal. Kiranas, with their focus on stocking a variety of products in smaller quantities, are ideally positioned to cater to this demand.

Today, the demand for smaller, more affordable products continues to grow. Major FMCG companies have recognized the potential of this market segment. Over 55% of Britannia's revenue comes from LUPs (low unit price) products, while Parle and HUL also generate a significant portion of their sales from Rs1, Rs5, and Rs10 packs. This trend highlights the enduring appeal of smaller SKUs and their ability to meet the specific needs of a wide range of Indian consumers.

To gain further insights into the demand for smaller SKUs, we spoke with several retailers across India. Here's what they had to say:

“Mere yahan Haldiram ke namkeen ke, Kurkure ke 5 aur 10 wale packs, Britannia aur Parle ke 5/10 wale packs, masala brands jaise Everest aur Rajesh ke 5 wale packs ki sale badhi hai” — Retailer from Vadodara

“Jeera wala cold drink, Frooti ke 10 wale packs, namkeen aur chips ke 5/10 wale packs ki sale badhi hai” — Retailer from Nashik

Retailers also mentioned categories like toothpaste, detergents and bathing soap were seeing an increase in demand for small-size SKUs.

SKUs Assortment in Quick Commerce

To financially make sense, quick commerce often focuses on larger SKU packs to achieve higher average order values (AOVs). As a result, many smaller SKUs are not available in quick commerce apps.

A Case Study: Dairy Milk Chocolate

We searched for Dairy Milk chocolate on both - quick commerce apps and Kirana stores, using a low-to-high price filter. The results were striking: while Kirana stores offered a wide range of Dairy Milk chocolate options, including Rs 10 and Rs 5 packs, these smaller SKUs were completely absent from the quick commerce apps. This highlights the significant SKU gap in the quick commerce market.

Customer Personas

Breaking Down the Customer Personas

While quick commerce platforms may appeal to certain customer segments such as Aditi from Bandra who prioritizes convenience, Kiranas continue to be a preferred choice for many Rahuls, Rams and Ritas. The enduring appeal of Kiranas lies in their ability to cater to the diverse needs of Indian consumers, from budget-conscious shoppers to family-oriented individuals.

The prevalence of customer personas like Rahul and Rita, even in tier 1 and 2 cities, highlights the continued relevance of Kiranas in the Indian retail landscape.

Who is Losing Market Share to Quick Commerce?

While quick commerce has made inroads into the Indian retail market, its impact on Kiranas is relatively limited. The majority of consumers who have adopted quick commerce were already using supermarkets, suggesting that Kiranas have maintained their customer base.

This price comparison demonstrates the competitive pricing offered by Kiranas, especially for essential staples like onions. This price advantage is a key factor in attracting and retaining customers, especially in budget-conscious segments

Interview with Retailer

A Kirana's Perspective on Quick Commerce

Q: What is the average order value on a daily basis?
A: It changes throughout the day. In the morning, it's usually around 150-200 rupees for milk, bread, and other daily products. In the afternoon, it goes up to 300-400 rupees due to customers buying curd, oil, or ice cream. After 6 PM, the average order value shoots up to 550-600 rupees as people do bulk buying after work.

Q: How often do customers visit your store?
A: Some customers come daily, while others visit weekly or monthly. It depends on their individual needs and preferences.

Q: Is there demand for home delivery?
A: About 40% of our customers ask for home delivery. We offer this service in cases of emergency, like if there's no one at home, or if the customer has a large order that's difficult to carry. We also deliver during less busy times, such as afternoons.

Q: How do you take orders?
A: Customers can send messages, voice notes and give us a missed call so we check. They can also inform us in person and have their orders packed for later collection.

Q: How has quick commerce affected your business?
A: Quick commerce platforms like Zepto and Blinkit have definitely impacted our business. They offer promotions, discounts, card payments, and fast delivery times. They also have a much wider product range, including baby and animal products.

Q: How are you coping with the competition from quick commerce
A: We focus on stocking local products and smaller brands that are not easily available on quick commerce platforms. We also sell loose products that sometimes have better quality at a lesser price compared to branded products.
We emphasize personalized service, easy returns, and competitive pricing. We believe that our strong relationships with our customers and our understanding of their needs give us a competitive advantage.

Will Quick Commerce become profitable?

The average order value (AOV) at a dark store is typically between Rs 450 and Rs 500, compared to Rs 100 to Rs 200 at a neighbourhood kirana store (JMFL, Feb '24). This significant difference highlights a key challenge for quick commerce platforms.

To sustain profitability quick commerce platforms often rely on:

• Higher AOVs: This can be achieved by promoting larger order sizes or expanding into non-grocery categories. However, customers at the bottom of the pyramid (which is huge!) typically make smaller purchases, making it difficult to reach the necessary AOVs. Additionally, non-grocery products are often considered premium and may not be impulse purchases.

• Dark store efficiency: Dark stores require a high volume of daily orders to be profitable. An average Indian customer tends to buy daily but in low volume, making it challenging to reach the necessary order volume.

• Additional fees: Some quick commerce platforms impose additional fees on smaller orders to generate higher revenue, further deterring budget-conscious consumers. For example, a customer might be charged a delivery fee of Rs 20 for a small order of Rs 50, making the total cost significantly higher than what they would pay at their local kirana.

These challenges make it unlikely that quick commerce platforms will be able to profitably expand to reach a significant portion of the Indian population, particularly those at the bottom of the pyramid. While quick commerce has its place in the market, it is unlikely to displace Kiranas, which continue to be a strong force in the Indian retail landscape.

Conclusion

Kiranas' enduring appeal lies in their unique blend of personalized service, community connection, and affordability. These factors resonate strongly with a significant portion of Indian consumers.

Kiranas' deep-rooted presence in local communities has fostered trust and loyalty among customers. This personal touch, combined with their understanding of local needs and preferences, has made Kiranas an essential part of the Indian retail ecosystem.

While quick commerce platforms have gained traction, Kiranas' ability to cater to the specific needs of a large segment of Indian consumers ensures their continued relevance. Their focus on smaller SKUs, competitive pricing, and the option of credit aligns perfectly with the preferences of budget-conscious shoppers.

As India's retail landscape continues to evolve, Kiranas will undoubtedly play a vital role. Their ability to adapt, innovate, and leverage their unique strengths positions them as a cornerstone of the Indian retail ecosystem.

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