Pashuram Verma was surprised to find a vendor from India’s biggest conglomerate outside his small kiosk in Mumbai, which sells everything from buns to eggs to cigarettes.
The seller said he represented JioMart, the online store of Reliance Industries of Mukesh Ambani, India’s largest company. He encouraged Verma to order products from the e-commerce site and offered discounts on cookies, which the merchant typically purchases from a distributor.
“My company is too small for something like JioMart,” he hesitated.
But 11m shops like Verma’s, known as kiranas, account for the vast majority of the Indian retail market, which by some estimates is the fifth largest in the world. Reliance has already disrupted the telecommunications sector and moved into retail, but is now looking to supply mom-and-pop stores, threatening to undermine a system that has existed for decades.
Deep discounts offered by JioMart and rivals such as Udaan, the country’s first business-to-business online platform designed to provide kiranas, are bad news for the 450,000 distributors who represent fast-moving consumer goods groups such as than Hindustan Unilever and Nestlé. This network of vendors has traditionally supplied the kiranas with consumer goods, visiting stores once a week to take orders for restocking.
“The whole fraternity is in distress,” said Dhairyashil Patil, national chairman of the All India Consumer Products Distributors Federation. “Their livelihoods have been called into question.”
Mom-and-pop stores accounted for at least 85% of India’s fragmented retail market, said Kanaiya Parekh, retail specialist at consultancy Bain, adding that they “are still by far the dominant force where you go”.
India’s retail market was worth around $800 billion in 2019-20 and is expected to reach $1.5 billion by 2030, according to consultancy Technopak. E-commerce accounts for less than 5% of sales in the country despite the pandemic surge, according to Bain.
Ambani transformed Reliance from an oil refiner into an energy-to-telecommunications conglomerate and became Asia’s richest man. His overhaul of the business included the expansion of the company’s retail unit, which includes thousands of stores, Reliance’s own product lines and its e-commerce unit.
Bhavin Satra’s kirana started buying products from JioMart, which was launched in the spring of 2020, due to the heavy discounts. Merchants buy from the JioMart Partner app as well as JioMart’s B2C store – whichever has the best price. “It’s not about service, it’s about price,” he said, comparing JioMart to traditional sellers. “It’s much, much cheaper. . . almost 20 or 30%,” he estimated.
Udaan was launched five years ago and has an 80% market share in online kiranas sales, according to a report by wealth manager Bernstein. But while Udaan was the first to act, Patil said it was the arrival of the biggest player JioMart that had distributors baffled.
“After JioMart entered, things went very south,” Patil said. “You rarely see that these companies have deep pockets and that venture capitalists are investing in these companies.”
“So they burn money,” he complained. “The average distribution margin is 3-5%. And these people make a reduction of 15% ”.
The changes are a problem for major consumer brands. “The whole competitive advantage of fast-moving consumer goods companies is the network of distributors they have, even in today’s digital world,” said Angshuman Bhattacharya, who leads consumer products in India and the retail practice at EY, the professional services group. “Remember that e-commerce represents between 3 and 8%. For most consumer businesses, the remaining 92 comes from traditional distributors.
Seeking to protect themselves from what they claim to be unfair prices, distributors have waged their fight against manufacturers. After sending letters of complaint, Patil’s federation threatened in January to stop selling certain products made by Hindustan Unilever and Colgate-Palmolive in Maharashtra, India’s second most populous state.
Hindustan Lever said it was committed to guaranteeing distributors a “fair return on their investment”.
“General Trade (GT) continues to be our biggest channel and our distributors (redistribution stockists) are and will remain our valued partners in our quest to meet the needs of our consumers across India,” the company added.
Colgate-Palmolive said it was “committed to forging productive partnerships with our distribution network to serve consumers.”
Bhattacharya said price parity is something that “companies will really have to work to make sure no one gets hurt in the overall process.” Hindustan Lever and Colgate-Palmolive met with the federation and the strike was averted.
Kiranas also faces online challengers who could steal their customers. These include fast delivery companies such as Dunzo, which bring essentials directly to customers. Reliance Retail Ventures this month bought a 25.8% stake in Dunzo for $200 million.
But the kiranas also deliver, and many offer their small-scale logistics capacity to larger companies. Mom-and-pop stores now make about a third of monthly deliveries for Walmart-owned Flipkart, the company said in September.
Satra has started selling to customers via WhatsApp, but others remain skeptical about connecting online. A few blocks away, Verma turned down JioMart and opened an account with Udaan, but he has yet to place an order.