Burning is earning? Is it a good fit for our startup ecosystem

How can one justify the burning
by the startups? I don't want to mention the name of startups or B2C commerce
players who are trying to bring discount war and luring consumers just for
nothing. Is this an innovation?

Take this incident that occurred
in the city of Jaipur.

Four days ago, my neighborhood
friend told me about a start-up that is delivering #saras and #amul milk at a
discounted and below market price, providing a 7-day free milk scheme. I tried
to go in to find out more about it and when he showed me the transactions it
was actually there. He bought milk for 350 rupees free of cost in 7 days. and
later, he continued but with a discounted price. Saras milk price is Rs. 48 per
Ltr for toned milk and for fat, it is Rs.62. He is still getting Rs.2 per Ltr
discount from the market price ie. price at Saras booths are selling at. 

This is what the consumer is
gaining from such #disruption.

Yesterday I went to a nearby
Saras stall to buy milk for myself. I started the conversation just to find out
what he thinks about these new milk delivery startup/e-commerce players.
Suddenly he burst into great pain. He said that two months ago his daily sales
were 35,000/-and about 250 customers used to come and buy milk at his stall,
but now these numbers have dropped to 22,000/-per day. what was your intake? he
said, due to inflation, people started consuming less milk, and that's why his
daily sales numbers are going down. But he wasn't aware of the online customer
drift. I told him the real reason why he is affected.

This is how the market works and
there no one can control the market forces to be favorable, but at what cost
are these developments happening? Saras is the milk brand of Rajasthan dairy
cooperatives which has more than 5,500 milk stalls supplying milk to more than
0.7 million families in Jaipur city and more than 5,000 small retailers.

Just to facilitate or for the
sake of adoption, these startups are doing quite a bit of burning. Just for the
sake of offers, end consumers are buying milk from them. Even if a family has 5
members and they all have smartphones, one after the other they are using the
offer in the same place. It means that a family is getting 35 days of free milk
because they are offering a 7-day free milk program. Is this a way to create
loyalty? or adoption or customer acquisition cost?

We all know that the Indian
ecosystem is different and it is full of diversity. Amid such uncertainty of
the diverse mindset of end consumers, how long do we think about customer
stickiness? and at what cost by giving a big dent in the traditional ecosystem.

It would be wise if such startups
are getting profit out of such activities then fine but they also know that
their efforts are not real and just an act of building a funding story. I am
worried about the traditional players who are there for decades and earning
bread and butter for their families. 1/3 of India's population is living below
the poverty line. Millions of Retailers, Wholesalers, and distributors are the
backbone of our retail ecosystem. These are the 12-15% contributor to national
GDP and even they are contributing up to 10% in generating employment.

The ecosystem of Indian grocery retail:
Estimated Retailers 12-13 million, Wholesalers 300K+, Distributors 30+, and
more than 5K national brands and thousands of regional and local brands.
Altogether they are driving a retail economy of USD 800 billion and would be
more than $ 1.2 trillion in the next five years.

We need to redefine the
definition of #disruption. Do we really need #quickcommerce #homedelivery of
milk #fruitdelivery? Is it really needed to have merchandise in 10 minutes? It
would be better to walk to your nearby retailer and buy from there. This will
be a healthy movement for the body, society, and for the nation.

We need to bring ideas,
innovation, and efforts to empower the existing ecosystem. We should not create
threats to them but tune with them and align our business model in such a way
that brings efficiencies and empowerment for the traditional ecosystem players.

Being a retail professional, I am sure
that the traditional ecosystem will get more wings to grow in the near future.
Here the only thing is that MSME or SME needs to bring more clarity that how
they are going to formulate policies for traditional retail ecosystem players.
The Department for Promotion of Industry and Internal Trade (DPIIT) should also
bring in some strict norms so that online players operate in a regulated
environment and do not affect traditional players just for the sake of
discounts and promotions. Also, all retail associations should work in the
right direction and should safeguard the interest of traditional ecosystems.
Organizations like #rai and #cait should act as the apex body but seems they
are more inclined towards these giants and nurturing them by doing nothing for
the traditional ecosystem.

Even domestic e-commerce players should
also bring under the disciplinary ambit of DPIIT and they should not be allowed
to start a discount war on their websites.

This also applied to brands. Brands
have to bring discipline in channel management & bringing uniform PTR so
that every connector in this ecosystem can earn their share of profits. This
would be a red flag for national brands whose PTR is in the hands of price
cutters. If they fail to harmonize channels, they will be locked out and
replaced by the regional players.

This is a layman's write-up.

#retail #grocery #Stores #retailers #Rai #Cait #DPIIT
#groceryretailer

 

Business fundamentals sidelined by the startup ecosystem

We are regularly updating our knowledge on various aspects of our business,
its facts, and figures. Since we are professionals and working in business
environments so there we have to be equipped with the current affairs of our
ecosystem. 

💥I am working in a Kirana startup
ecosystem and also heading a startup in B2B grocery retail so there my daily
routine is to keep myself updated with the latest developments and maintain the
information flows. Like me, there are many professionals who are closely
following the stream. Things are related to startups, investors, and the
ecosystem. No doubt things were moving in the retail ecosystems since 2014
onwards in the right direction and a big buzz is there in terms of investment
and turning startups into unicorns. Startup definition in layman's language,
Startups are those who do execution with speed, and how fast they were able to
achieve the status of a unicorn or smart valuation was the basis of
success. Huge money was pumped by the VC funds, angel investors, family
offices, and HNIs which helped more than 75 startups turn unicorns in the last
three years time. I am fully convinced of the things that were brought in
by the innovators. But, We are bound to certain fundamentals and basic Laws,
so the same is applied to businesses where things are very much driven by few
fundamentals. The fundamental law of business is to earn profit from business
activities through whatsoever practices. Let's jump to the preamble of this
article " Ignorance of Fundamentals by the Startups and how they sidelined
it" 

👉Startups and investors both started working on some easy
conversion approach which led towards meanless directions somewhere. I am
going to let you understand the fundamental approach in layman's style. This
will surely match with the ongoing practice of the ecosystem stakeholders. A
few things remain constant which we called by fundamentals so the same
is applicable to Startups and investors both.

Inside of Investors and how they forget to apply
fundamentals of investment: 

Investing is simply the process of acquiring assets that you hope will
grow in value. Investments can include owning a home, owning a business, owning
real estate, or having money in savings accounts and CDs at a bank or credit
union. Investors in the startup ecosystem have some different theses.
Investors do have many theses to work on but again they are concluding their
decision that out of 10 investments they will succeed to get a handsome exit in
2 or 3. This means 7 or 8 investments will go in vain and will be a failed
decision. Here somehow they are breaching the fundamentals of investing and
driving them in the direction of such thoughts. Here my question is why
out of 10 investments, 2 are getting successful and some many cases even this
is also not. And if such things are there then what is the use of evaluating
the startup, asking for an Investment Deck, and carrying strict Due diligence? 💥and

If the startup
business model is so convincing, disruptive, and scalable then how things go
negative in near future? 

This shows that the fundamentals were not analyzed before
shortlisting the startup and evaluating them or what about the business model of the
startup they believe it will run and will do best in near future. Why am I
stressing about this? Every business has certain set rules which have to be
followed religiously, these rules are the basic principles of that business
stream. I am not talking about completely IT-driven business models or ideas
that can operate certain businesses on the cloud with nothing physically
running on it. 

But, again if there is the physical movement of goods and services in the
business model like it is in grocery eB2B retail then one cannot ignore the
fact. An investor needs to differentiate those things while finalizing startups
for further-stage investment proposals. If any real business is growing on the
ground then it will take time to reach a level i.e. to reach a scale or
become profitable. There are no shortcuts to making them successful overnight
or say in two, three, or five years. awesome? How can a VC expect 100X returns
or 20X, or 10X? Just think about the cost of that money investing in a startup
for a given period of time and calculate the return. The shortcuts are
good if they help to save time and money but business fundamental works on
certain laws.

The calculation of interest over market risk and its return is the soul of
investment. A 5x return is logical if the primary work is done thoroughly by
the investors before investing in a startup. If you being an investor don't
believe in the idea or you are thinking that 80% of the investment will be
completely devastated and you will make your money from the rest of the
investment in Multi X returns then don't invest.

Investment is not
gambling and investors should not be gamblers  

My above thoughts would give a contrary impression of the present scenario.
But, let us not forget that the current landscape of investment in the startup
ecosystem is mount formation. Currently, the law of 👀FOMO is
operating in the ecosystem and no one wants to be left out of the race. This
show of changing caps is in the stream. Early-stage investors want to hand over
the hat to the big one and this goes on till the startup either succeeds or
fails. One needs to think deeply. The same is going with
startups. 

Fundamental of business that startups
are not following. 

Startups too have some shortcomings or failures on the ground of applying
basic fundamentals in their business model. There are startups that are really
working on some problems at large and through their innovative ideas, something
good has been built. We can talk about #Zarodha #Groww #cardekho
#Shopify #Swiggy #Zomato. They definitely brought
disruption in their area of exploration. In a true sense bringing disruption in
the segment is a kind of outcome by the Startups. If we analyze deeply the
inside story of successful startups, we will find that they are totally
IT-driven businesses and without their stack or involvement business processes
can't take place. I would categorize them as Startups working on the cloud. However,
in the case of Swiggy, Zomato, Dunzo, etc and other delivery startups will have
profitability challenges but they are creating adoption and consumers take them
as granted. Again fundamental of these businesses has to be taken care
of.  

Business fundamentals
are logical and have the compulsion to fit them in the business stream before
ideation, implementation, and execution. 

If your startup is involved in the physical movement of goods whether it
belongs to grocery retail or other retail formats, you have to inbuild them on
your own to tune with some set of market conditions that are prevailing in the
market and no one can bypass them. The cost of changing existing
conditions is very high. Let's understand this equation through a real-time example. 
Startup ABC is working in grocery retail. They got the idea of building an
online marketplace for grocery retail, Built a high-stack IT solution for the
stack holder. It is a seller marketplace model. The model is called eB2B
online marketplace, onboarded thousands of Kirana Retailers on their IT
platform, and started reaching them through Mobile App. This is a kind of
Direct to Retail Model. Why they thought of bringing this kind of change
into the ecosystem as a new idea and how it helped them to raise money? Definitely,
Startup ABC found some gaps in the market, Problem was large so they started
working on a solution. Filling up the gap and finding solutions. In their
pitch, the startup is working to empower Retailers by way of providing them
with one umbrella solution as a Supply Chain Aggregator. DTR model removed the
middle distribution channel resulting increase in margin. This is how a new
idea takes place and the same is with other eB2B startups or even B2C or D2C or
Agri startups. In these kinds of startups, there is the physical movement of
goods involved at each stage.

Now, what happened wrong to this business model? I don't want to mention
the name of startups working in this segment. You know them, but the
question, again and again, is why they are not making profit despite raising
huge money, even burning the entire amount, and also scaling to other
territories like crazy. They tried to convince investors that their business
model is scalable and profitable. 

Here is the answer, they failed to incorporate the fundamental of such
businesses that they tried to disrupt through the innovative business model and
intervention of costly IT tools. What are those fundamentals: 

1. Lack of
   Business Mindset


2. Half of
   knowledge is dangerous 


3. Trying to
   change the traditional miniature practices of market 


4. Managers
   are driving the low-margin business in high profile style


5. Burning
   money on adoption.


6. IT-driven
   business is for unfriendly IT users like Retailers seldom use.


7. Founders
   are highly paid without bringing profit to the organization  

A lack of a Business mindset is the first fundamental
requirement for a business. The founders should have a business-mindedness or
else they will become puppets in the hands of the investors or their KMPs. Mere
finding a problem in a certain area and working on it through KMPs will lead to
a possible failure. A business mindset founder protects the business by
predicting near-future trends based on his inherent capabilities. This helps them
to align their business strategies on time. In the current startup ecosystem,
founders are not of that mindset or I would say most of the founders are
technocrats. They firmly believe that an IT-driven business model will scale
and will be the valuation driver. The business cannot be projected the way IT
can run it. It has to go through the market conditions and accordingly needs to
be coordinated with the business owners.

Half knowledge is dangerous: Skill-driven founders are willing to
disrupt retail based on some logical business verticals, but for physical
business, they must have a deep understanding of market conditions and business
terms in the first place. The skill set is more likely to be the first choice
of professional investors as they have the ability to grow a loss-making
business and increase valuation and even turn it into a unicorn. Half the
knowledge of market practices by the founders is dangerous and ultimately the
ground-level work does not synch with the projected one, resulting failed
venture. 

 Trying to change traditional business
practices: Let's talk
about grocery business or FMCG business in India. Both streams are being
carried by a series of middlemen. The margin spread is there to feed all of
them in their stage of execution but that is too much narrow. In the FMCG
business- Brands distribute their products to retailers through CFA, SS,
distributors, and then retailers. Retailers further sell to final
consumers. In the staples stream, this is done through local mandis, traders,
and wholesalers/ Semi Wholesalers.

What is the harm in it if one is trying to bring solutions for the
retailers and provide them with one umbrella solution? This question will come
to the readers. But, a major point here is that the basic principles of
traditional practices were violated. Generating margins is a big deal in
grocery retail but an existing traditional channel of distribution is making
money from this low-margin spread by keeping its shows on a low profile.
“Remember – the cost of running a business through managers is always a costly
affair but running it through existing owners is always cost savvy and
effective”. Distributors, SS & retailers are owners of their businesses.
They are working in a very low profile and master of earning profit from its
thin margin basket.

Another main reason for not making a profit is: Squeezed
margin - Brands are
not giving preference to such startups as they do not want to disturb their
existing channels, however on the same way, they do not want to lose the
opportunities that these startups are bringing, however here they are not
sacrificing on the margin side. In some cases, they did so but again had to
roll back their decisions amid strong opposition from existing channel partners
as channel conflicts broke out.

I am giving stress on this point because this is one of the major
aspects and practices where startups are hammering. As an eB2B startup,
you have asset-heavy operations in terms of heavy opex, cost of setting up
systems, and processes. based on analyzing the financials of existing eB2B
players. How they will earn from a thin layer of margin is again subjective but
if someone is there who is bringing operation excellence and capabilities will
definitely earn profit and make their startup a real business.  

Managers are driving the low-margin business in a
high-profile style:  The managers are managing the show of the low-margin
business of various startups as they are not working with the existing middle
distribution channel where the owners are working. Getting work done through
managers is always expensive, whether the traditional distributors are working
at a low cost and earning profit and matching ROI. Setting up systems and
processes always attracts a good number of cost components. Metro Cash &
Carry, Walmart, and other heavy Capex and Opex run models are examples.

Burning money on adoption. India is not a country where we think
of bringing change in all spheres as we are living in different walks of life
where there are different demographic changes in our religious thoughts, food
habits, tastes, customs, and even in society. The business model of a startup
is based on certain principles of optimization. It refers to the process of
changing the product in which it is made, to meet the needs of customers in a
market other than that in which it is made. This means changing products to
bring about customization in the long run and that brand has to spend heavily
for free sampling or up to a level where demand can start spontaneously. But,
India is a country of diversity, and spending to bring about adoption is a
costly affair. No one can change the behavior of Indian consumers. A startup
always failed to meet the hyperlocal requirements or they are not able to align
with the diverse requirements.

IT-driven business is for unfriendly IT users like
Retailers seldom use. Startups
are getting funded based on their IT stack as VCs are investing in startups
where IT is the product and the main driver of the business. But, one-third of
India's population is still struggling to meet their daily needs. As per the
current data, only 43.5% of mobile users are using smartphones. 40% of grocery
retailers are using basic phones or they are using basic features of
smartphones. This means that people are still unfriendly towards smartphones.
Startups are trying to bring use cases where their end consumers can start
using their smartphones to order goods. This adoption happens when we talk
about B2C marketplace but it is not the case in B2B. What if you are working on
a solution that the end user is not using. According to a market survey, only
30 out of 100 retailers are using B2B startup App to order merchandise, with
the rest relying on the foot-on-street manpower of those startups.

Founders are highly paid without bringing profit to the
organization:  The fundamental crunch is once again seen in this, & and the founding
team and KMPs take home a large amount in terms of salaries. The basic rule of
business is that promoters should take cash from the business for their
personal use only when the business is making a profit or can take a minimum
amount to run their family's daily bread and butter but in most cases, startup
founders are using to build their personal wealth. Most of them are enjoying a
hefty amount of salary, accommodation etc. This is a layman's argument about
how a loss-making startup is letting its money go out of its cash flow.
Startups are struggling to get funds but founders are investing in other
startups as angel investors. Startups like Paytm, where investors' money
evaporated within a year of their IPO launch, but individual founders are
running their own personal wealth funds and investing in startups. 

There are many other points to elaborate but a question always will be
raised by professionals why is the ecosystem not following the basic
fundamentals of business? Investors and startups need to think about the basic
rules and fundamentals. Disruption is not what comes with success rather it
disturbs the existing ecosystem at large if certain basic principles of
business are not followed. And the cost of disorganizing the existing system is
huge which eventually leaves ashes of burning money behind with a tag of
failure.

Ignorance of fundamentals is tantamount to ignorance of the law which will
not bail you out on the basis of ignorance of the law. The same logic applies
in the business where the ultimate objective is to make a profit. And making a
profit from the business is always an art and some fundamental principles have
to be followed.

We are operating in the Food & FMCG grocery retail ecosystem in India.
As an emerging organization, we carry the business fundamentals and startup
mindset of innovation in our business model. Our focus is on building a
technology-enabled platform for brands, distributors, wholesalers, and
retailers. Taking the grocery retail ecosystem with us at every step for their
empowerment so that we can contribute to building a $ 5 trillion ecosystem in
the coming years.

A Layman write-up is written by Balwant Singh Rana, the Kirana Retail
professional

written on: 18.11.2022, Jaipur, Rajasthan (India)

 

eB2B startups & their challenges

The last three years were very much dynamics because of the fortified events of developments going on in the retail sector in India. Startups were getting huge funding and at the same time, Investors were enjoying the curry. Investors' big love remain with the tech startups and were ready to burn the money like crazy. 

But now the scenario is changed. There is a list of eB2B players who raised billions of dollars during the last 3 years. Most of them become unicorns. Expanded to other cities like crazy. Some of them infused millions of dollars in setting up distribution centers, employing a big army of manpower, burning millions on marketing, and building up losses.  Retailers were in the middle of every eB2B startup. 

In this movement, more than a hundred startups are working in bits & pieces in their territories but few of them could succeed to play at the national level.  If I count on fingers only three or four startups are working very closely in Grocery retail.  Some of them are working in 28 locations i.e. states including 200 cities and more than 10000 pin codes, and some are working in one or two states but all have the same set of problems that they are encountering in their daily operations. 

I will not mention the names of those startups working closely in eB2B grocery retail but yes you will understand who will be all about.  First of all, I will try to explain the need for eB2B players in this ecosystem of grocery retail and will discuss why they are not able to provide the so-called solutions.

The emergence of Technology:  Till 2012 speed of the internet was paced mildly by the broadband connections and had limitations of reach to many tiers 2 and tiers 3 cities.   We can't say that e-commerce was not there at that time.  Most of the B2B players were using web applications so they were sticking to their seats only and thus could not find it more aggressive.  Startups like Indiamart, TradeInida, and many other e-commerce players were the pioneer of their time.  Still, Indiamart is doing good. It is all about the vision of Promoters. Transactions started taking place with the availability of Chinese smartphones in the Indian market. Retailers and consumers started using the best features of these phones. Marketplace models like Amazon and Flipkart started onboarding sellers on their platforms. end Consumers started ordering merchandise through Mobile Applications.  This has given a big momentum to the B2B players and they started focusing on technology.  A fever of investment cartels started coming to India from Silicon Valley from 2013 onwards. VC i.e. Venture Capital funds cartel employing IIM Alumni as their fund manager and they started collaborating with Technocrats. A kind of lobby was built, however, it is not that true as the founders of Oyo, and Paytm were not from that background but yes 70-80% of startups and investors are from top B-schools.  Last week I met a former founder of  Payment QR fintech. He said that if you are not from IIT or IIM or from Oxford or a top funding company you will not get funding. It is sure that 99% of the chance is that you will not be entertained by investors. This is a big cartel of like-minded people. and like-minded is all about being from the same community. But, my mindset was not to take it with me so why should it happen. I am a businessman carrying a business mindset and I know how to run a profitable business so I know about it. How fresher who came from IIT or IIM  know about business sense. But, I can't discuss this here as it is a different matter and thought.  

Startups started working on Ideas and started disrupting the existing markets. There was only one feature that was working at that time - Technology led startup or Tech Driven founded by the IIT-ians or technocrats.  The focus was given to the Retail sector keeping in mind the size of the market and opportunities.  The thought behind eB2B commerce was to disrupt the market through direct reach to the retailers and that had happened only by way of eliminating the middlemen. But, what made them start these business models in India.  Let's work on this. 

Why eB2B players entering Grocery Retail

Indian retail market is huge in size.  GDP of the entire African countries included with many European countries is equal to the Indian Retail market size. A market of USD 800 billion itself a huge amount to count and out of which 60 % market is grocery retail. As per the market sources, this size will be more than USD1.3 trillion by 2030 or more.  More than 14 million retailers represent the market. Indian retail mainly in FMCG is channelized by a robust distribution system.  More than 35000 distributors are working in FMCG & Grocery sector carrying brands of more than 5000+ manufacturers. The traditional system of distribution was carrying the middlemen like CFA, Super stockiest, Distributors, and wholesalers. The retailers were their customers. Indian traditional distribution system is robust and it got these wings after years of hard work and innovations.  FMCG companies like HUL, P&G, Dabur, Nestle, and many more have robust distribution systems. 

Now, startups started working on this segment by way of creating efficiencies.  What were those efficiencies? 

• Reaching Direct to Retailers
• Eliminating middle man
• Technology-driven - Mobile Application in the hand of retailers & their FOS.
• Data Analytics

They found that retailers are facing various issues like dealing with multiple distributors, uncompetitiveness, price discovery, ease of reordering, not getting the benefit of bulk buying, and Not getting proper credit in managing vendor Payments, expiry, and space almost they find that retailers need to be empowered in a way of giving them centralized supply solutions.  This is the problem they are facing in a big way. Providing Centralise Supply to Retailers is the solution and giving Sellers/ Brands a one-stop distribution solution that they don't need to go behind traditional distributors. This way brands can save money, time, and energy working.  As such, there is no issue in the business model. Technology is giving wings to it and everyone can manage their stuff.  This way their target customer is Retailers.

Year 2017 onward we have seen many big names in eB2B, some of them started working as marketplace models, some started as standalone direct-to-retail models, and others started on hybrid models. Few of them were category masters. At the time of their investment pitch, they said their technology-driven business model always remains Asset light. But, later on, eB2B players started working on Asset heavy model i.e. setting up distribution centers in metro cities.  I have seen that few have a DC capacity of 3 lakh sq feet in one location, they started employing thousands of salespersons to drive their DTR sales to retailers.  Huge infrastructures were built in the name of the Asset Light model. I would say that investors have no idea about the business they just bet on the business model and they do believe in technology-driven models and burning.  I am taking readers to the actual scenario which is the backbone of any company working for a profit. following calculations will give some light on the factual status of business these eb2b players are doing.  

We can understand this through an example: This study was done taking one eB2B model in the center of my study. I was closely watching the whole operations of an eB2B marketplace startup.  They started their business in 2017 and later on after receiving huge funding they moved to other cities very aggressively.  An average 50000 sq feet distribution center facility is built up in one city and today they have more than 40 cities where they have physical warehouses/ DC.  Setting up their own DC has a different cost and taking them with 3PL has another cost as some go fixed and others go variables. 

Let's have tentative figures:   I will try to explain them through the below-mentioned table. 

(Capex taken higher side, which includes verticals shelves, Pallet Trucks, etc) 

The above calculation will give a visual clarification that why eB2B players are not making money. This calculation I have worked out for one location i.e. One city like Delhi or Indore or Jaipur. 

If you talk to them you will find that they are working on 11% -15% opex cost/revenue and in return generating GP 3% to 6%  if we take benefit of business growth.  

Now, Let's bring some light on critical things which are hampering their growth as well as profitability. 

The problem faced by eB2B Players

eB2B startups have huge coverage, they have thousands of retailers on-boarded on their Applications, also thousand of Feet on the Street ( FOS) visit retailers daily. They have competitive pricing, availability, and convenience in providing timely deliveries but still, they are not making money. Why? 

Every eB2B startups claim to have millions of Retailers on their Application, having a presence across 10000+pincode, and for attracting investors, they are dividing States into Cities so that they can show their milestone in a larger prospect.  But again what is wrong with their financials.  Few challenges are there which is choking their bottom line irrespective of having million-dollar top-line numbers.  Let's put a light there: 

• High Operating Cost
• Product Mix Issue
• Restrictive Behaviour of FMCG companies
• No Credit Facility to Retailer. 

High Operating Cost:   eB2B startups or any startups who want to scale their business, need to go with the system and process. And when any organization goes with the system and process there is always a cost associated with it.  Proper functional departments must be in place which in turn stamps with a heavy cost. However, operating cost is a business element and business has to leverage it but due to the improper projections, they are employing manpower in a big way and paying them high salaries. cost of retaining every employee is high as has to give other benefits too and also infra cost is too high. Most of the infra is managed by 3PL but is not able to use full capacity. Only 40-50% capacity is being used but fixed cost is there to make it high operating too.  The cost of delivery is too high as MOQ is not adhered to by the retailers. In the above calculation, I have taken 50/- per order selling & distribution cost which is too low but again they are not getting sales to the MOQ. 

Product mix issue: No doubt they have sitting on a very high operating cost.  However, it can be covered if revenue to the tune is generated but again improper product mix is melting the bottom line.  If you can analyze the product category mix you will find that retailers are using them only for main staples like Oil, Ghee, Sugar, Pulses, etc which is again a convenient buying to retailers because they are getting everything under one roof.  Staples is only contributing to the top line so having up to 80% contribution in their revenue, but if you go by the gross margin level you will find that staples in bulk or in a popular demanded brand are very thin. like Oil and Ghee for a popular brand, no one can earn more than 2%  except for market volatility. The same is with Sugar and Pulses. Majorly traded in bulk packaging.  If one has 70-80% contribution of Oil & Sugar in their revenue then you can imagine the bottom line. Apart from this 2% is the RTV cost including the in-transit damage to the merchandise. 

Restrictive behavior of FMCG companies:  Since FMCG companies have a robust traditional channel in place so their FMCG brands do not want to disturb the GT market for these players, however, they want to sell on eB2B but they never compromise on pricing. In one incident, Parle company fought a case with one B2B startup and denied giving them their products. It is their helplessness to buy at their Price and then through a discount from their end, they sell on their platform. demanded product is the requirement of these startups because there is something needed that shows engagement with retailers otherwise, retailers will not entertain or will use its limits. They need FMCG national-level brands so that Retailers give space to salesman to stay at their counter and can cross-sell other merchandise. How they will sell new brands having high margins or can build a healthy category mix. You can see the contribution of such products.  

Credit to Retailers:  Since startups are working on systems and processes and they are more dependent on technology-driven stuff so they have limitations somewhere. May be from the business model side as they got funding on it and they can't let open the credit in the market. All are selling their stuff against COD or through some fintech arrangement like channel funding. But, it is true that Retailers will not buy any products except demanding one against cash. Even FMCG distributors are providing credits to retailers. Local Mandies especially for staples are providing 5-15 days of credit to retailers. Retailers are buying stuff from eB2B players. This is one big factor that they will not be able to generate more revenue from retailers without giving open credit. Open credit means based on trust. Like local distributor and mandi traders has for them. 

Above are the pinch of problems I tried to figure out.  But, I have a concern that without disturbing the existing distribution system startups from eB2B will not scale their business but they will not make money.  For making money they have to work on a different scenario. Still, they will remain eB2B but few things will be aligned otherwise they will never make money.  

Last year remain investor dry weather in India. They understood the fact that burning will not bring earnings even in the long run.  Retail will only use these eB2B platforms for their best selfishness but never contribute to scale.  Disturbing the existing ecosystem is a costly affair for them and if they don't take them with their journey, they will be finished mid-way. 

eB2B startups have to adapt a few things which will help them to sustain themselves. My best advice for them is to pivot the business model in the right direction and don't think to disturb the existing channels. If possible think about how you can associate with them and take them on your journey. 

I am working on this, creating a scalable and profitable business model.  

Regards/ Baalwant Rana

My Books - A Soul Friend

                                                                         Books

Books are packed with knowledge, they give you life lessons, and they teach you about hardships, love, fear, and every little thing that is a part of life. Books have been here for centuries and contain the knowledge of our past, civilizations, and cultures.

 

How we treat friends and who are our friends.  This is not a difficult question to ask.  We all have friends. Love for animals in Europe and US is mostly seen for Cats, for them, cats are their best friend but for a few of them not all. for many, they treat dogs as their best friend.  This goes with living creations but there are some amazing things about non-living things like cars, Phones, TV, bikes, houses, etc.  

Yesterday, I was watching a famous TV serial " Tarak Mehta ka Ulta Chasma".  You must know about the Poppet Lal. He is in the character of a journalist. He always carries an Umbrella with him. He is treating his umbrella as his best freind. In one episode, Poppet organizes a birthday party for celebrating the tenth birthday of his umbrella. At this event, Poppet was mocked by his guest as it was suspense kept by him and guests were of at no clue whom birthday Poppet is celebrating, but when a member of Gokuldham society came to know that this birthday party is organized by Poppet for his Umbrella they laugh at him saying how an umbrella can be a friend of someone. Strange for those who take it as a kind of psychological imbalance.  but for normal people it is fact. Friends are friends, we can't compare them with their shape, and size. We like their sentiments and belongingness. The same is with our mindset. 

In the same reference, we must have heard many times that Books are our best friends.  I can say that they were right.  Books are best friends because it helps us to learn new things about life and life behavior. We learn academics from these books, learn spirituality and read stories of our past, and history. Books help us make our future the best we want. 

There are a few books which I like the most : 

1. Think and Grow Rich
2. Rich Dad Poor Dad
3. As a Man Thinketh
4. The Power of Your Subconscious mind

Here is a little library of my choice. 

During covid time  I bought many books and in fact, I got time to read them all.  I never read books 5 years back but when I first read the Book " The Power of your subconscious mind, I learn and understand the importance of books in my life.  When you sit in your chair and take a book soulfully, you will see the magic. You will feel that someone like a teacher is sitting in front of you, guiding you on the subject and you are following his instruction.  This way Books are the silent Guru, the mentor.  

I am managing my books in my way in the following tabular form. Stating the name of the book, its author, MRP , Nos of Pages, and  Number on the book. I put numbers on each book so that I could know if any books is not on the shelf.  This is my way of keeping.  Maybe your way is more systematic and IT-driven. 

The purpose of demonstrating the books here is to show how important they are to me and how I used to keep them on my reading table. 

Benefits of Reading Books: How It Can Positively Affect Your Life

• Strengthens the brain.
• Increases empathy.
• Builds vocabulary.
• Prevents cognitive decline.
• Reduces stress.
• Aids sleep.
• Alleviates depression.
• Lengthens lifespan.

Books are the best companions of human beings, which enrich our minds with knowledge. Reading good books can help you change your perspective of looking at the world. They also help us positively look at things and enhance our imagination and thinking skills. Reading books also helps us increase our vocabulary

Every day read 10 pages of your favorite book and share your views on Linkedin, blog, and Facebook. Send your story to me on my email " parjakalyanm@gmail.com  or send me Whatsapp on my phone: +91-9968313005. I would love to hear from you and write back to you. 

  

Convenience Store's battle of survival

Preface

The retail ecosystem is witnessing development happening in the retail sector worldwide. Indian retail size is huge which was around $425 billion till 2010 and now as of 2022 estimated to be $800bn. CAGR 6.5% over 10 years period.  The next 5-10 year projections are also again going with 10% yearly growth. Market sources are predicting $1.3 Trillion by 2026 and so on. Especially last five years made it a  direct uprise which was due to dramatic change in consumer behavior, startup enthusiasm, use of technology, and yes a big thanks to investors for their burning money for making noise, making unicorns, and helping startups to make their ideas live on the ground and thought about bringing disruption. 

As a retail professional this is what I was admiring during my first interaction with Sachin Bansal of Flipkart in the year 2012 and I came to know how big is Indian Retail, specially Grocery (Kirana) retail in India.  This was the first experience that made my way into retail and soon became a learner professional.  I had started visiting Kirana Shops and tried to envisage the ecosystem that was working to make them active and so on demand.  

I was looking after backward integration of the supply chain, mainly developing the products and making live the thoughts that how I will transform the staple from its trading in "Loose" to packed in attractive packaging, i.e. hygienically packed products can be made available to high-end consumers. 80% of the merchandise in main staples were traded in loose/bulk size. Traders were selling in bulk packing of 25kg & 50kg to retailers and retailers were selling to consumers in loose using paper bags or cloth bags. In the beginning, there was less interaction of mine with the front-end sales, but soon I realized that without going into the market I will not get innovative ideas, and also will not help me to know the developments that were going on in the market. We have to learn what are the market sentiments going on, who are the new players entering the grocery, how big the competitor landscape is, and many more. So, I started visiting people, places, and product manufacturing units. That has given me a very open-minded view of the market,  and also help me to learn a lot about the ecosystem of Kirana that was working and came to know who are the stakeholders. 

I completed my graduation in 1998 and after that joined a Delhi-based export house as an account clerk. They were into the manufacturing and export of menthol and were one of the largest importers of pulses. Later, I was given the task of selling pulses in 1 kg pouches as an area salesman. I was given the sales beat of South Delhi. Me and my colleague Sweta used to visit the assigned sales beat shops regularly.  I came to know about Kirana retailers first time and could know their importance in the retail ecosystem. They are the brand ambassador who is providing retail space for thousands of products and promoting them to their nearby vicinity, their close heart customers. They helped FMCG companies establish their products as brands.  Earlier we rarely used the brand because at that time people used to say that we need a such and such product of this and that "Marka". Marka, though an English word, was used in the ecosystem as Hinglish.

From here the role of Retailers starts. Let's see how they play their role and what kind of sacrifices they are giving every day. 

Can you imagine the share of Kirana retail in India, Let's say upto 2010?

Market Share of General Trade, Modern Trade &  E-comm:  

Segmentation started happening in the market after 2006 when Future group and many other hypermarkets started their operations.  They created better visibility and helped enrich the consumer experience. FMCG companies started working on the segmentation of trade terms and customizing taking into consideration General Trade, Modern Trade, and E-com Trade. 

Contribution of General Trade:  

As per the current status, more than 12-14 million retailers are contributing 85% of total Retail, still, they are unorganized. As of date consumption size is more in Urban areas but now unbelievable growth is seen in the rural market.  GT market will expand in rural areas with more speed. FMCG companies are working on various supply chain options. Retailers too have various options in terms of managing their sourcing. More focus is required here to make them organized and take them to the mainstream. The general retailer is now changing by way of giving new looks and feel to their shop. and trying to tune with the new development but the speed is slow.   

Contribution of Modern Trade: 

General Retail was 99% in the hands of stand-alone Kiranawalas but as per the market news, it was 95% till 2010.  I still don't know who was among the 5% at that time who were organizing the retail. 

If, I talk about Subiksha (Stared in 1997 and journey up to 2009 with 1600 stores), 6Ten (REI agro initiative started in 2007 journey upto 2014, 750 stores), Big Bazaar (Future Group started in 2002, said to have more than 1388 stores in all formats closed town operations in 2021) , Reliance Fresh (having 13450+ stores), More (an Aditya Birla initiative, started operations in the year 2007, having 575 stores), Vishal Mega mart  ( Open the first store in 2007 having 400+ Stores Pan India ) Spencers (Started in 2001 an initiative of RP Goenka, having 135 Stores,  Walmart, and Metro C&C they were having a small presence in terms of revenue, coverage, and penetration till 2010. In a few districts like Jodhpur and Jaipur National handlooms has a good presence and give tough competition to nearby kiranawalas and other retail formats. 

Here mentioning Walmart and Metro C&C names because they are deemed to be B2C stores, and mostly end consumer buy from them but their data is misleading in terms of B2B representation.  Why I mentioned the names of these Giants because they have started selling groceries from their stores but more or less they are affecting the Kirana Stores by way of selling to deemed consumers.  So, we can't say that they are not disturbing the existing Kirana business. But till 2010 there were not such big contributors who can drive the organized market, especially in the Grocery segment, that's why I kept it 95% till that period. A swing start happening in the market right from 2012 and onward.

D-mart started the first store in Powail, Maharastra in 2002,   As off date i.e. 2022  Dmart has the strength of 294 stores in 11+ Cities , and penetrating like crazy, going to be one of the leading retail chains in India. Dmart is one of the big retailers that are affecting the business of Kirana retailers and other general stores. 

Also, corporates are foraying into modern trade like Sanjay Gohrawat's Localmart in Gujarat. Every city has a few stand-alone supermarkets who are contributing upto 10% of that particular retail market

 As per recent news, one Mumbai-based business conglomerate Darwin is also planning to open its Retail Chain in the name of DP Retail.   In the southern part, we have Ratnadeep having 100+ stores.  

These modern trade formats contribute 10-15% to the total retail segment. But, if we talk about only grocery then it should be around 5%  ( we take an example of the total retail market. it is estimated to have around $800 billion, so with the 15% share of total retail we have $100- $120 billion led by these offline stores i.e. modern trade formats) which is something like a bite from the big pie of which 85% still is with unorganized retailers.

a market survey by https://www.statista.com

Market start teaching new terminology to the FMCG companies and soon they realized that Modern trades in the form of Chain stores are the future of Grocery retail in India, so they start developing different product assortment, pricing, and promotions strategies for modern trade and so on. 

Contribution of E-Commerce Trade

B2C E-Commerce  -Consumer-centric ( with new catchy names like Social Commerce, Hyperlocal, Omnichannel etc) having $ 84 billion contribution in total retail. 

Same time e-commerce taking consumers in their center is spreading like crazy.  Amazon and Flipkart are the marketplaces where brands start selling products across categories, even groceries are the target segment. on the other side, B2C grocery platforms like Jio mart, Grofers, Dealshare, Citymall, and Milkbasket are among the startups having a consumer-centric approach. We call them direct to consumers. D2C etc. 

Don't get confused by their name as convenience stores, priority,. Hyperfocal, omnichannel commerce, social commerce, and Q-commerce, the purpose is named, how to sell products directly to consumers. 

Quick - commerce  new terminology of E-commerce

Developments are there in the grocery market in a big way.  Now it is time for Q-commerce like Zepto, Blinkit (earlier Frofers), Swiggy's Instamart, and many more to have an area-specific presence. but Zepto, Blinkit, and Instamart are the national players having a presence in major cities. They are providing quick delivery services, i.e. on click. Consumers get the stuff in 10-15 minutes.

Just have a look on the data side,  still, e-commerce has not reached up to $100bn size. 

In the name of disruptions, we can see these developments. 

I am not criticizing their start and existence. It is good that retail is developing and growing day by day.  But, one thing that we have to consider is how much magnitude of the thrill is required to disrupt the existing ecosystem. We have to accept that :

India does not need retail, retail is here from centuries  but the only thing is how can we modernize it by empowering their existing setup, way of doing business and connecting them with the consumers.. 

No doubt, In today’s times when the preferences of the customer are changing, there’s a need for change in the working and operations of these unorganized or traditional store owners. Kiranas or traditional store owners play an important role in the Indian consumption ecosystem. These store owners have been friends with their customers, keeping an eye on their needs as well as adapting merchandise buying in line with the seasonal and festive needs of their customers. Even today if we go to our nearby Kirana store, he’d know the pulses we buy and the brands we use. 

Here we have the above statement for our Kiranawalas but on the contrary, we are trying our best to disturb them by way of modern trade & e-commerce, social commerce & Q-commerce. Hope in the near future there will be some other commerce may be Virtual Commerce based on meta. I call them enemies of Kiranawalas.  They are the culprit who wants to swallow them alive and without any pain in the mind. 

Still, 85% of retail is driven by the small Retailers, we call them Mom & Pop stores, Kiranawala, etc. etc., and their contribution even to GDP is outstanding. contributing up to 10-11% in GDP  and also generating up to 8% employment in the country. 

As per the market data soon retail will have $ 1.2 trillion size. There will be opportunities for all stakeholders but the least will be for Kiranawala i.e. Kirana Retailers.   As per my survey, I did from the Jaipur market.  One D-mart store contributes 30-40% to the downsizing business of nearby Kirana Stores. So whenever news comes in the market that D-mart is opening stores in the such and such locality then you can see the pain in the eyes of retailers and a kind of unrest about losing business. They are afraid of D-mart because it will kill them in business terms. One major player Jio-mart is on the same verge but so far he is wearing the tiger leather and seems friendly with Kiranawala trying to establish himself as a B2B player but the truth is different. 

The same is with Q-commerce players who are giving 10-15 minutes deliveries to the end consumers, they are taking the big pie from Kiranawala business. Because end consumers come down to Kirana stores only for their just-in-time requirements i.e. impulsive buying which are now replaced by the Q-commerce players.   

This is the fact that these developments in e-commerce or by big offline retail chains are killing Kirana retailers and the magnitude of such activities is increasing day by day. I carried out a soft survey on a few A and B class outlets in Jaipur.  I know most of the retailers for a long and doing business with them. Earlier they were generating monthly 10-15 lakh business. Now situated is different,  competition from the B2C and big box retailers more stronger than ever,  and Retailers has to lose heavily and they are now generating 5-7 Lakh per month. Customer footfall is decreasing day by day. Almost 50% reduction in business has been recorded in last two year. A huge change in the name of disruption is going on. 

Courage of retailers

I will congratulate to all store owners that they stood strong against the tough competition. 

If they still survive it is because of their personalized relationship with the consumers otherwise they will have to shut down their stores long back. These are the market forces where one individual can't do anything or can't oppose the changes.  Changes are unavoidable and everyone has to be part of it..

Remedies to safeguard Retailers

Few questions need to be answered by themselves. 

• How they can be brought under one Name?  
• Is centralized supply system will work for them so they will get competitive products. 
• How about the product activation platform so they can be organized? 
• What will be their role if they are treated as a hyperlocal partner for products under D2C brands?
• Is digitizing will help them
• What about if we use their store as a product promotion platform?

So far Indian Retailers are getting confused day by day as lots of trumpets are buzzing in the market by the startups but they have some sort of good things which are helping them to stay in the market. 

Existence of Kiranawala or retailers

It means Kiranawalas will remain there forever like they are in the US, UK, and UAE markets. UAE retail market is still dominated by retailers or nearby groceries.  It would be earmarked by saying that by 2030 the contribution of modern trade & e-Comm will reach 40%. Due to the increase in consumption market size will also increase exponentially and touch above $1.8 Trillion.  It means 60% market still will be in the hands of Kiranawala so panic of that magnitude is not but yes retailers have to adapt to the changes. They have to find the answer themself and with an open mind should establish the best practices. They should take benefit from the competition. 

Balwant Singh Rana

15.8.2022 

Writer is a cofounder of startup working for the empowerment of Kirana retail. Critics will always speak if truth shut the mouth.