Amazon’s giant leap from global to local-eager to embrace humble Indian Kirana Stores
Amazon CEO and founder Jeff Bezos made two euphoric statements for India – the 21st century is going to be the Indian century and the 21st century will also mark the strategic alliance between India and America.
He envisaged these predictions through Amazon’s partnership with thousands of Indian Kirana storesacross the country, which will act as a delivery point. As the news featured on every news channel, it has evoked several mixed reactions.
Tens of thousands of Kirana stores scattered widely across cities, towns, and villages in India function and thrive irrespective of the growth of malls, departmental stores or even huge investments by global retail giants in the country. Yet, equally true is the fact that online businesses are on the rise reaffirming that e-commerce is and will be redefining retailing business. We examine in this context the nature of Indian small businesses and the growing global interest in it.
To understand the ‘global interest’ we dug into the retail details.
One cannot miss the vastness of the Indian small businesses, ie., the presence of the unorganized segment which accounts for about 88% of the total retail revenue. The Indian ‘Kirana stores’ which dominate the unorganized trade continue to score over modern formats accounting for over 80 percent sales for staples and Food and Beverage companies, in India. According to the World Bank and International Monetary Fund (IMF), India is the 3rd largest economy in the world in terms of Purchasing Power Parity (World Development Indicators, 2018 ).
No doubt, the founder of Amazon is fascinated by the presence and networking of the Indian Kirana stores! Well, during his recent visit to India, he made it a point to have the ‘Kirana experience’. He tweeted:
“In fact, I just visited a tiny Kirana store today which was an incredible experience. They do regular business but they also provide a space for online packages.”
Changing retail marketing
As the transition from offline stores to online stores in the retail industry takes place competing with the local Kirana shops and bringing them on board, the shift from unorganized retail market to organized retail market is expected to happen going forward.
In other words, the old stores will continue to exist but the share of the pie is now going to be distributed as retail trade is introduced to more and more technology. What it all boils down to is a greater emphasis on maximizing ‘right customer services’. There is also the possibility that the smaller players with their established network could soon join forces with the bigger players.
To tap the ‘huge potential of the Indian market’ Amazon has reinvented its ecosystem from product to delivery. A recent Google/A.T. Kearney study predicts:
Online retailing in India will expand to 175 million shoppers by 2020. E-commerce is widely expected to exceed $100 billion by that same year. Morgan Stanley Research estimates the number could rise to $137 billion.
Shrewd strategies and smart moves
India’s retail market is expected to grow manifold as more and more Indians come online to shop. The US-based Amazon is pumping in over Rs 4,400 crore in its various units in India including marketplace and food retail to be able to compete effectively.
The giant is making giant efforts. Eager to tap the Indian market, efforts are being made to build sourcing and delivery capabilities for food as varied as dry grocery, packaged foods, fruits, vegetables, protein foods, dairy, and other frozen products.
Setting up a sorting, grading and packing center for fruits and vegetables and a collection center to support this facility that will enable it to source fruits and vegetables directly from farmers and local ‘mandis’ are some mega moves that Amazon is making. To deal with daily essentials ordered online it is looking to build large delivery hubs for uninterrupted retailing services.
Not leaving any stone unturned, is another move by Amazon. For quick and smooth delivery of goods across Indian cities and towns, they are rolling out electric delivery rickshaws with an eye on pollution control.
Jeff Bezos, Amazon founder, told reporters at an event on his recent India visit,
“We are going to use Amazon’s size, scope and global footprint to export outside India $10 billion of Make in India goods by the year 2025.”
The amazon staff is confident that Indian Small and Medium Businesses can make an impact at the global level by joining hands. But are the SMBs and especially the Indian Kirana stores really ready?
The Indian Kirana dynamics
The local reality, however, is quite different. Local Kirana stores are the lifeline of the Indian retail system. They have been existing for ages. In most cases, they are operated traditionally by families and taken over by the next generation. The whole system works on trust and business credibility.
Kirana stores function on credit extended by traditional wholesalers and distributors which organized retailers don’t provide. The Kirana store economics has always worked on credit given by the distributor.
The distributor is also preferred as he is familiar with local customers, consumption patterns and product/package details and supplies accordingly. The apps don’t understand these needs.
The Kirana stores are also constrained by space and the adoption of digital technologies. While Amazon would need Kirana stores to function as end delivery points, the question is where to store the inventory. The huge investments being made by Amazon are for setting up ‘Amazon Kirana’ and ‘Digital Haats’ which will enable cataloging, imaging, digital marketing, warehouse space and logistics.
While digital literacy is a limitation for several Indian Kirana owners, transparency in business and shift to organized retailing is a challenge few Kirana stores will want to take. It will also take a lot to convince Kirana store owners of Amazon’s credibility.
All is not well
Not everyone is buying Amazon’s narrative around supporting India’s businesses.
The traders of the country have expressed their concerns as Amazon is a world-known habitual offender and is facing investigations in the US and Europe and also by Competition Commission of India (CCI) which is probing its business model, for allegedly flouting the FDI norms by indulging in predatory pricing, deep discounting and preference to select sellers. The company is also in the middle of an antitrust probe by CCI upon receiving a complaint from a traders’ body called Delhi Vyapar Mahasangh.
When Amazon announced a $1 billion investment for digitizing India’s SME businesses, the response from Indian trade was of mistrust.
“It is not an investment but promotional finance to Amazon India to crush retail trade” Praveen Khandelwal, General Secretary, CAIT said in a statement.
But Amazon is not looking back. It has been pumping in millions of dollars across various operations like a marketplace, infrastructure and supply chain management as well as marketing and promotion as it looks to strengthen its position in the Indian e-commerce market.
No business move is without self- interest. But in an era of globalization where local businesses can find global space, it is time for a developing country like India to weigh the economic positives of such trade offers from the likes of Amazon. Could all the stakeholders come together and steer such trade opportunities in favor of India by putting caveats? After all, a $10 billion dollar business offer does not knock our doors every day !!