Rise of qCommerce in non-metros could cause 20-25% of kirana stores to shut down

New Delhi: India’s traditional kirana stores are grappling with significant challenges brought on by the rise of quick commerce (qCommerce). 

According to Karan Taurani’s insights shared in the ‘Kirana vs. qComm Report’ by Elara Capital, the All-India Consumer Products Distribution Association (AICDF) has intensified its lobbying efforts, urging the Commerce Ministry to pass the Digital Competition Bill to safeguard these small retail outlets from the disruptive force of qCommerce.

Kirana stores have a presence of approximately 30 million stores across India but the advent of digital commerce — particularly qCommerce platforms, for instance, Zomato’s Blinkit — has severely impacted their business. 

Post-COVID, these stores have seen a staggering 25-30% decline in sales. The primary culprit behind this downturn is the aggressive discounting practices employed by qCommerce companies, which offer FMCG products at lower prices and with a superior user experience compared to traditional kirana stores.

The rise of qCommerce, characterised by ultra-fast delivery and deep discounts, has led to a significant erosion of the kirana market share. As detailed in Elara Capital's report, the margin for kirana stores has sharply declined from 18-20% pre-COVID to 10-12% now. 

ECommerce and qCommerce currently account for 10-12% of FMCG sales — up from 4-5% pre-COVID — many kirana stores are on the brink of closure. 

The AICDF warns that if qCommerce continues its aggressive expansion into non-metro markets, up to 20-25% of these outlets could shutter in the coming years.

AICDF is therefore advocating for the implementation of a Minimum Sales Price (MSP) regulation through the Digital Competition Bill. 

The proposed MSP would set a floor price for products, preventing eCommerce and qCommerce platforms from selling below this threshold. The association argues that such regulation is crucial to level the playing field and ensure the survival of kirana stores, which are integral to India's retail ecosystem.

The report further highlights that India, as a developing nation, must adopt measures to protect its traditional retail sector, unlike developed countries where digital commerce has already caused significant disruption. 

The implementation of MSP could potentially make India a pioneer in regulating digital discounts, but it might take 12-24 months before any such legislation is enacted.

While the AICDF's stance highlights the threat posed by qCommerce, it is essential to consider the broader competitive landscape. Modern trade firms, which have also contributed to the kirana stores' decline, have not been as disruptive. They have managed to coexist with kirana stores by providing a different shopping experience without the same level of aggressive discounting seen in qCommerce.

Moreover, attempts by kirana stores to adapt through digital channels have met with mixed results. Initiatives such as partnering with Dunzo for online sales have struggled due to disunity among retailers and distributors. Nonetheless, many kirana stores have embraced technology, including UPI payments and social media-based delivery, to remain competitive.

Currently, qCommerce companies derive more than 90% of their revenue from top metro cities and are testing waters in non-metro areas. They are expected to employ similar discounting strategies in these new markets to build consumer habits. However, if MSP regulations are implemented, qCommerce companies might experience slower growth rates and reduced profitability.

Conversely, if qCommerce firms succeed in expanding beyond metro cities with sustainable profitability, they could see substantial growth rates of 70-80% annually, similar to their current meteoric rise. The ability to scale effectively and maintain profitability will be crucial for their long-term success. 

As noted in the Elara Capital report, companies like Blinkit, which are already seeing significant market share, could continue to lead the sector if they manage to navigate these regulatory challenges successfully.