StoreKing lets Kirana stores order goods through an app, eliminating the distributors’ salespeople from the equation altogether. The idea of StoreKing is that, instead of having the retailer source goods from multiple distributors, StoreKing will be a one-stop-shop distributor. We have chosen to work only in rural cities where brands have limited reach through traditional distribution, says Sridhar Gundaiah, CEO of StoreKing.
Companies like Paisool, meanwhile, have a hybrid model where it gives a PoS to a retailer to capture customer data, judge demand and, based on that data, sell the required goods to the Kirana store.
Buying Direct Goods
Since Paisool understands what customers are purchasing, it can perfectly optimize supply to suit an individual Kirana’s needs. Also, it aggregates demand across the various Kirana stores and buys directly from producers, cutting out the middlemen. “We can improve margins on those products for retailers,” says Paisool CEO Raj Subramaniam.
However, none of this is easy. Players like Paisool, StoreKing, and others like ShopX and Mobisy’s Distiman need to tie up with various brands, set up warehouses, and undertake logistics costs.
StoreKing, for its part, has tied up with over 145 brands. “Small brands are open to selling to these startups. A few mid-range brands, too, will work in geographies where their distributor network is weak. It is the large brands that will baulk at selling to them as they have existing networks,” says Anish Basu co-founder of Shotang, a startup that recently pivoted from selling to Kirana stores.
But while large FMCGs may still be unwilling to play ball, it is this approach that has the most potential to completely change the way FMCG firms work. “The entire organization of an FMCG is structured around the distributor model. The idea of a super distributor could potentially trigger layoffs and restructuring of the organization,” says the senior executive.
Role of the E-Commerce
In this regard, e-commerce giant Amazon and online grocer BigBasket are terrifying prospects for the FMCG industry. Today, the two companies, as part of their B2B businesses, let kiranas order from their apps, upending the usual distributor system entirely. For now, though, Amazon’s B2B operation—Amazon Business—runs only in Karnataka.
Startups, too, are wary of these, choosing to operate in niches and rather than taking on Amazon or BigBasket. This includes dealing with rural areas like StoreKing or dealing with unpackaged goods like Paisool. No surprise then that VCs are approaching the sector with caution.
So far, only about $40 million has been invested in startups serving Kirana stores, according to startup database Tracxn. StoreKing alone has raised almost half of this—$19 million. “No startup has come up with a go-to-market (store acquisition and onboarding) that scales cheaply. All players can onboard, at most, 30-50 retailers a month. That is not very efficient,” says Pratik Agarwal, VP at VC firm Saif Partners.
Also, FMCG companies sell close to $44 billion worth of goods, and it seems like there are very few gaps left in the system to exploit, says Arpit Agarwal, Principal, Blume Ventures. This is compounded by the fact that Kirana stores already work on thin margins, he adds. Suresh Satyamurthy, CEO of B2B E-commerce startup Tarnea, agrees. The Bengaluru-based Tarnea sells its PoS offering to pharmacies, rather than Kirana stores.
“The economics of automation works out better in pharmacies. The margins for FMCG retailers are only 3-5%, but in pharmacies, it’s 20%, so it is more amenable to automation,” he opines. In addition, he says, the level of education among people employed at Kirana stores also creates a literacy barrier,” he says.
Both the models—of helping kiranas sell and buy more efficiently—have their own distinct challenges. However, Blume’s Agarwal believes the PoS model has a better chance of driving efficiencies in Kirana stores since all it needs is afoot on the street approach to increase sales. Given that Blume and other investors have invested $30million in SnapBizz, mPaani and Zopper, Agarwal will be hoping he’s proved right. The real winners though are the Kirana stores, whose collective might could finally find them their place in the sun.