01 Nov 2019 21:36 IST

Can India’s ‘convenience’ stores stand up to competition from abroad?

Our kirana stores score big on real estate and manpower costs, as well as their personalised service

Convenience stores, by definition, offer convenience as their core value proposition. This is mainly in terms of the convenience of access, as such stores are usually close to one’s place of residence — a typical corner store. Often, convenience stores can be found near the entrances of large malls as well.

The convenience of access extends to their working hours too; most convenience stores operate on a 24x7 schedule, seven days a week. Such stores, therefore, offer a limited range of products that are more suited for immediate consumption or for sudden requirements, unlike grocery stores, which stock the full range of household goods and groceries.

7–Eleven is one of the largest brands of convenience stores in the world, and operates based on a franchise model. 7-Eleven is set to enter India through a tie-up with a leading retail group.

The kirana stores

But wait a minute! Don’t we already have convenience stores in our country? Those small stores that abound in almost every neighbourhood and can be found in any place in India! The stores that open in the morning and close late at night, only when the shopkeeper is sure there is no chance of even a single shopper coming to the store. They might be known as kirana stores but seem to offer the same value proposition. They might not be open 24x 7, but that is because of the shopping behaviour of most Indians. Such stores would quickly adapt and remain open if they found shoppers coming in 24x7.

The two major constraints faced by such small, standalone stores pertain to volume aggregation and management capability.

Such stores are serviced through the distributor system, and their purchase volumes give them very little elbow room to negotiate for better deals. This creates a level playing field from a brand’s perspective but hinders these stores’ capability to maximise margins. Therefore, they have very little scope for modernising their operations.

The bigger challenge is that they are often single-man armies, where the owner ends up doing everything, with minimal help from a few unskilled/ semi-skilled staff or sometimes a member of his family. Needless to say, the shopper experience they offer is minimal and is largely oriented towards home delivery and such convenience factors.

Favourable cost-structure

However, what works tremendously in their favour is their cost structure. Two of the biggest cost aspects for any retailer are real estate and manpower costs. These standalone stores score big on these two aspects because of a significantly lower cost base. Ultimately, this is their biggest competitive advantage, apart from their personalised and relationship-oriented service. Another favourable factor is their ability to cater to changing local demand. They can source and provide products and brands very specific to the needs of their catchment.

So, in this context, what might happen when an international brand like 7-Eleven comes into the market is something to watch out for. Although it is likely to enter with its strengths of volume aggregation, and so on, several challenges remain in the Indian retail environment.

It would be interesting to watch whether the convenience store chain is able to achieve a dominant position, or if it will struggle to get established, or just be content with being an equal to the small, standalone stores.