Mom-n-pop stores still dominate Indian retail, real battle for dominance still some way off

Away from the limelight, millions of small shops account for 80% of India’s retail market. Reliance tying up with them to push its private labels and execute last mile deliveries could be a real gamechanger and give it an early advantage over Amazon and Tata.

Reams have been written about the no-holds-barred battle being fought in India’s retail market by Jeff Bezos’ Amazon and Mukesh Ambani’s Reliance Retail. If that isn’t mouth wateringly delicious for analysts, shoppers and investors, add India’s largest business house, the Tata Group, in India’s already hyper-competitive retail mix and you have all the ingredients of a heady corporate cocktail that promises to shake up how Indians shop in future, what they buy and where they purchase from.

There are also dozens of smaller players, including Wal-Mart’s Indian e-commerce play, Flipkart and several other national and regional companies that operate in the organised retail space in India.

Organised retailers account for a small slice of the market

Yet, the share of organised retail in India is only about a fifth of the total market. A report released by global consulting firm Deloitte on February 26, 2019 has projected this share to grow to 22-25 per cent by the end of the current year.

Juxtaposing this with Forrester Research data, which says India’s retail market was estimated at close to $900 billion last year, it means organised retail is worth about $200 billion a year in India – massive by itself but minuscule when compared to the $700 billion pie that India’s kirana stores (neighbourhood mom-and-pop shops generate per annum.

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India to have a $1.3-trillion retail market by 2024

The overall retail sector will grow to $1.3 trillion by 2024, the Deloitte report says. By then, these mostly tiny, small and medium sized retailers will generate a combined revenue of almost $1 trillion.

These shops sell pretty much everything that their larger rivals in the organised sector do – from food and dairy products to daily necessities, toiletries, clothes and apparel, fast moving consumer goods, consumer durables, household goods, furniture and almost every other item under the sum.

Scattered across India’s vast landmass, these retailers typically serve small neighbourhoods and capitalise on their personal relationships with their customers. In many cases, these ties are years-old, if not decades-old, the shops take orders over phone, provide free home delivery services and also sometimes provide credit till the end of each month.

Formidable opponents

That’s what makes them such formidable opponents for the organised retail players, who realise that they won’t be easy to dislodge even though many younger shoppers prefer shopping in clean, air-conditioned western-style supermarkets that are cropping up across urban India.

But the sector, which accounts for 8 per cent of employment in the country, according to the government’s investment promotion arm Invest India, is also politically important.

In an innovative business strategy, Reliance Retail is increasingly looking beyond the either-or binary between organised retail and these mom-and-pop shops and incorporating these into its gameplan for dominating the Indian retail sector.

In parallel to setting up its own distribution channel covering the entire country, Reliance Retail is also signing up thousands of retailers to act as its last mile distribution partners, wherein these shops buy goods from Reliance and use their strong local relationships to push sales.

This kind of a hybrid strategy has never been attempted before on such a scale and its success or failure will go a long way in determining the winner of the Indian retail war.

Private labels come of age

Meanwhile, another trend is also becoming apparent – the rise of private labels. These are the retailers’ own brands and typically compete with many of the better known products from other companies that these organised players sell.

The Future Group was probably the first to popularise the concept of private labels in India but it is the entry of Reliance Retail into this space that has set the cat among the pigeons.

Reliance sells a range of products like Sac Tac two-minute noodles that is about a fifth cheaper than market leader Maggi. It also has an in-house cola called Yeah!, which it targets at less affluent buyers and those buying such products for the first time. All of these products are 10-20 per cent cheaper than those of its rivals. And all these products share shelf-space in Reliance stores as well as the shops of Reliance Retail’s kirana partners.

These products are always manufactured by small and medium businesses that Reliance outsources this work to. This way, not only is it staving off competition from other deep pocketed rivals but also forging deeper bonds with neighbourhood shopkeepers who, effectively, become its last mile delivery arm.

Meanwhile, Amazon is plugging away relentlessly at India’s market even while the Tatas plan a big bang entry.

Thus, the various players are still in the process of putting their pieces in place in India’s retail market. The real battle will begin only after this phase is over.