Small grocery stores are making a comeback despite growing ecommerce demand

Small grocery stores are seeing a resurgence in business, with sales returning to pre-pandemic levels and higher product stocking, despite consumers' continued preference for shopping online and through modern trade, a report by the Economic Times (ET) said.

While small stores, or kiranas, are doing well, industry executives say that many markets in urban and semi-urban India are witnessing a balance between traditional trade and new channels. FMCG firms stated that they would continue to focus on direct distribution in both urban and rural areas.

Growth in traditional trade

NielsenIQ reported 1.9 per cent volume growth in traditional trade, led by small grocers, in its March quarterly update. Modern trade, which had been growing at a positive rate, surged at the fastest quarterly rate in the January-March period, at 14.6 per cent.

"For the first time in a year, we saw a turnaround in traditional trade, with 1.9 per cent consumption growth (on a very large base) driven primarily by grocers. For more than a year, small shops (traditional trade) were under duress," said Roosevelt D'Souza, NielsenIQ's India customer success leader.

According to company financial data, modern trade and e-commerce now account for more than a fifth of total sales for most FMCG firms, including Dabur, Parle Products, and Tata Consumer Products, with e-commerce growing at the quickest rate.

For Tata Consumer Products, the contribution of ecommerce increased from 7.3 per cent in FY22 to nine per cent in the financial year ending March 31. Modern trade now accounts for 14 per cent of total sales. While modern trade increased by 21 per cent year-on-year (YoY), ecommerce expanded by 32 per cent.

For Hindustan Unilever (HUL), digital now accounts for 30 per cent of revenues, up from 20 per cent a year earlier. The figure comprises orders placed through e-commerce sites, its 14 direct-to-consumer websites, and the Shikhar app for B2B orders.

Increasing distribution of products in small shops  

Despite the rapid rise of modern trade and ecommerce, FMCG companies said they would continue to focus on direct distribution in both urban and rural areas, primarily targeting local grocers. Nestle SA stated in its latest annual report that growth in India has been driven by "increasing distribution of products in small shops" throughout major markets and towns.

Coca-Cola's India unit increased product availability to over 300,000 retail locations in the quarter ending March 31, 2023, according to the Atlanta-based firm. While traditional trade still accounts for more than 90 per cent of FMCG volumes, the channel declined during the pandemic as customers shifted to grocery e-commerce.

Marico CEO Saugata Gupta told analysts that general trade would remain a major channel in the future, despite the fact that it has been underperforming in recent quarters due to a significant chunk of that being in rural markets.