Kirana stores: The need to go cashless
Sirish Kumar Gouda
Sirish Kumar Gouda

Feb 18 2016

Kirana stores: The need to go cashless

Kirana stores: The need to go cashless

It is tough to imagine a world without retail outlets given the significant part they play in our lives. In India, retailing is next only to agriculture in terms of the total workforce employed. As per a KPMG report on Indian Retail, there are more than 14 million retail outlets in India and the size of the retail sector is estimated at INR 31 trillion in 2013-14. While organized retail has been prevalent in many developed and developing countries, in India unorganized retail constitutes about 92 % of all the retail activity. While cities have organized retail outlets, unorganized retail stores in the form of push cart vendors, melas, haats, mandis and kirana stores are present in a majority of cities, towns and villages.

What is a kirana store?

Kirana stores are outlets that serve their neighbourhoods, are usually less than 500 square feet (area) in size, stock limited variety of items and are largely managed by the owner with negligible hired help. These ‘mom and pop’ stores are usually not part of a chain and are sole-proprietorships. They sell groceries which comprise branded packaged items along with a few loose items. These stores usually have fixed supply chain models involving sourcing from wholesalers in bulk and selling in smaller quantities.

These stores are located near residential areas and have very high customer retention as the owners are part of the close community in that area, providing benefits such as free home delivery, credit facilities, and flexible working hours.

Kirana stores have also evolved over the years to sustain the onslaught of booming e-commerce businesses (in urban and semi-urban areas) as well as the organized retail which have deep pockets and can lure the customers with discounts and promotions. While some of the kirana stores have tied up directly with e-commerce firms to reach larger number of urban customers (like Amazon Kirana now), others have indirectly expanded their businesses by working with Common service Centres (CSC) and firms like Connect India to increase their customer base.

What does going cashless mean for kirana stores?

Majority of transactions in kirana stores are cash based transactions. This is mainly because these transactions are usually small ticket transactions and customers as well as the kirana store owners feel more comfortable with these transactions. Before the advent of mobile payment systems, cashless transactions had to be processed using a combination of POS machine (card reader) and a debit/credit card. These systems are costly investments for store owners as they usually have to pay a transaction fee (around 2 %) to the card reader issuing financial institution (which again gets distributed among other stakeholders in the payment supply chain). Also, some of them are afraid of conducting a wrong transaction which could affect both the customer as well as them. Others are apprehensive about being tracked (by the government and becoming a part of the tax base) if they adopt cashless modes. Some merchants also provide credit facility to the customers and feel that would be difficult if they adopt cashless transactions.

However, the benefits of going cashless over the long term would offset the initial investments and discomfort that the kirana store owners might have. The benefits, as mentioned below are manifold.

  1. When transactions between the merchant and the customer happen by the means of cash (and usually without receipts), the merchant has very little knowledge of the depleting inventories and he has to rely on his memory to place future orders with his suppliers. As they move towards more cashless modes of transactions, all transactions will be recorded and simple solutions can be built on the top of it that can help the merchants manage their inventories effectively

  2. Apart from helping them save costs through better inventory management, the merchants have an added advantage of better cash management. As they no more have to store cash that gets accumulated over the day, separate storage and security facilities need not be maintained.

  3. Cashless transactions automatically get reported in the merchant’s bank account. This also builds a transaction history based on which the merchant can avail loans/overdraft facility easily from financial institutions, which can be used in further development of his/her business.

  4. Even though the kirana store owner might not able to provide credit facility, he can certainly pass on some of the cost benefits that he is realizing to the customers. This way he does not have to worry about retention of customers as well.

The cashless payment ecosystem has changed a lot in India over the last few years. With the introduction of IMPS and other third party mobile payment systems, the consumers are empowered with easy to use and low-cost payment solutions. Consumer adoption of mobile wallets is on a high with a current customer base of around 125 million (as per a study by RNCOS). Also, given the government’s financial inclusion initiatives such as the bank accounts opened through Pradhan Mantri Jan Dhan Yojana (PMJDY) and the newly licensed payments banks, it would be easier for everyone in the system to adopt cashless modes of transactions. The other benefit from these newly licensed payment banks would be that each kirana stores would become a bank by itself. Assuming that kirana store owners in rural areas are relatively well-off and would be able to maintain some amount of cash, they could act as a cash-out points in rural areas where ATMs are far and few. This would be an alternative source of income for them.

Having said that, a lot depends on the consumer and his/her behavior. Government and related bodies should not only sensitize the customers but also provide incentives (such as tax breaks) for them to adopt cashless transactions. Given, the huge chunk of contribution of kirana store supply chain in the GDP, it would be a win-win for all the stakeholders to move towards a more cashless economy.

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