Amid a general downturn in FMCG sales and fierce competition from e-commerce companies, owners of neighbourhood grocery stores, or kirana stores, are increasingly worried about their future. Since the advent of e-commerce giants like Amazon and the emergence of 10-minute delivery apps, the way Indians shop for daily essentials has drastically changed, leaving neighbourhood shop owners fearing for their survival. Now, quick commerce companies pose an additional threat to their business.
The government is exploring ways to support neighbourhood stores by revising the draft Digital Competition Bill. The ministry of consumer affairs recently raised the issue with the ministry of corporate affairs, which is currently assessing how the Bill might address these growing concerns, and considering further steps to include provisions that ensure fair competition.
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The draft Digital Competition Bill proposes ex-ante regulations for dominant digital enterprises, and the government is looking to expand its scope to include online marketplaces as well. The goal is to create a level playing field between online and offline businesses. As regulatory scrutiny over the growing dominance of online commerce intensifies, companies operating in this space are already working to incorporate neighbourhood stores into their business models.
The government has repeatedly expressed concern that the rapid expansion of the e-commerce sector could lead to job losses in traditional retail. Exacerbating the crisis for neighbourhood stores, e-commerce has quickly evolved into quick commerce. E-commerce gained popularity in India largely due to its convenience, but quick commerce takes this a step further by offering time-bound services. Consequently, many quick commerce companies are becoming direct distributors for major FMCG firms, sidelining traditional distributors and threatening the livelihoods of small retailers, according to the national distributors’ association, AICPDF.
The allure of quick commerce is such that many new companies are entering the segment. E-commerce giant Flipkart is a recent entrant in the quick commerce market with its service, Minutes, modelled on a kirana store concept. However, the company has also partnered with several neighbourhood stores, equipping them with the necessary supply chain technology to facilitate quick deliveries.
Kirana stores vs e-commerce
While e-commerce has attracted significant negative attention, its impact on offline retail is primarily concentrated in sectors like electronics (particularly smartphones), fashion, footwear, books, and games. On the other hand, traditional retail continues to dominate categories such as food, household products, jewellery, and beauty products.
Traditional sector still accounts for 88% of FMCG sales across India, including chemists, small stores, cosmetic shops, and others. So when mom-and-pop stores express concern over rising e-commerce penetration, their worries are more about future impacts than immediate ones. Currently, quick commerce is still largely confined to big cities, accounting for 8% of FMCG sales in the top nine metro areas.
The quick commerce industry argues that the government’s regulatory pushback is premature, given the sector’s nascent stage. While there may be some initial impact on neighbourhood stores, quick commerce companies are actively working to integrate these stores into their business models. However, according to quick commerce insiders, both parties may eventually find a way to resolve these challenges.
Yet, with the rapid pace at which quick commerce is evolving in India, it cannot be overlooked, despite its currently small footprint in FMCG sales. According to Redseer data, quick commerce platforms reported a 77% jump in GMV to $2.8 billion in 2023. In contrast, e-commerce platforms clocked $60 billion in gross merchandise value, a 22% increase from the previous year.
In many countries like Japan and several Southeast Asian nations, the quick commerce industry never quite took off because these countries are densely populated with convenience stores. For instance, Thailand has as many as 10 convenience stores within a one-kilometre stretch. Notably, these countries are digitally advanced, which rules out the argument that low internet penetration caused the failure of quick commerce in these regions.
The strong presence of convenience stores in these nations meant that quick commerce did not gain a foothold. In contrast, in India, a lack of convenience stores in metros may have contributed to the success of quick commerce. Another point highlighted by experts is that quick commerce primarily caters to a premium customer base, not the typical buyer who still prefers their neighbourhood stores for value.
India still has a large population that is time-rich and cash-poor, with limited buying power — a major challenge for quick commerce, which often requires a minimum order. As such, consumers in India rely on multiple channels to meet their diverse needs. To suggest that kirana stores have lost their relevance is an overstatement, at least for now.