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How Kirana stores can handle Organize Retail in India

Organize retail formats include departmental stores, hypermarkets, supermarkets and specialty stores. Any store having more than 500 sq. feet is counted in organized retail. There are more than 14 million retail shops in India, organized retail accounts for only 4-5%[i], but it is growing at 40% per annum.
Organized retail in India will grow faster as regulations loosen up. Government will sooner or later give in to demand of better FDI regulations, in favor of big corporate houses. Time is not far away when Kirana stores will walk the path of obsolescence. So how can these small stores save themselves?


SWOT Analysis

Kirana Stores
Organized Retail Stores
Strength
Well connected to community, Customized service, Near to customer
Bargaining Power, Allows customer to choose, Volume Sales, Financial strength, Bigger display area, Trendy
Weakness
Outdated, relatively costlier, Less display area, Higher cost per SKU
High operational cost, Not connected to community directly, Generic service
Opportunity
Growing population and demand
Growing young population, Mall culture, easing government policies
Threat
Organized retail, Costlier space, Mall culture
Small retailers, Government Policies

Value Chain Analysis
Kirana stores come in bottom of sells value chain whereas organized retails are position high on sells value chain. Organized retail commands greater margin than Kirana stores. Greater margins help organize retailer turn into discount stores.

                                          
 
Kirana shops will loose to organized retail if they don’t upgrade themselves. Their strength will soon vanish as more and more big shops opens up in locality. This is now happening in bigger cities like Mumbai and Bangalore. One of solution was shown by HLL, when it started “Super Value Store” (SVS) in 2007[ii].

Backward integration of Kirana Stores
Many solutions like formation of cooperatives, SVS has been proposed to help Kirana stores. None of the solution is scalable and sustainable. SVS was one-sided effort and didn’t helped Kirana stores in all SKU’s but only in related to HLL products.
Long-term sustainable and scalable solution can only be backward integration. Kirana store has to move up the value chain to make itself sustainable. 

Backward Integration Model for Kirana Stores


This model will increase not only Kirana stores margins but also will allow them to carry minimal stock, bigger display space. Also collective ordering will help them demand offers similar to big organized retail stores. With help of BKG they can source local available products like milk, vegetables, rice etc. at cheaper price, much like organized retail chains. BKG’s can make wholesalers obsolete.
Only assumption of this model is all neighborhood Kirana stores have similar offerings in terms of company, SKU’s. And has a web enabled mobile phone.

Cost Analysis of Implementation
One time Setup Cost
Fixed Cost
Desktop Computer
25
Software Development
20
Total
45 



BKS Cost (Monthly)
Operation Cost
Supervisor Cost
10
Van Operation Cost
10
Internet Charge
0.8
Labor cost
2
Total
22.8
Per Kirana Store Cost
0.228



























** All figures in 1000’s
Apart from BKS cost, each store will incur individual connectivity cost (Mobile or Internet cost)

Conclusion
Organize retail in India is still trying to stand on its feet’s. The sector is expected to see an investment of over $30 billion within the next 4-5 years, catapulting modern retail in the country to $175-200 billion by 2016, according to Technopak estimates. [iii] Future of organized retail looks bright but at cost of Kirana stores. If Kirana store don’t upgrade itself, its future looks bleak in India.
















[i] www.ibef.org
[ii] http://www.financialexpress.com/news/hll-enters-retail-battle-partnering-small-grocers/189035/
[iii] http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf
www.mbahack.com

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