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Food and grocery retail has been a very traditional space with Kiranas contributing to ~97% of all sales. With increasing disposable incomes driven by rising affluence, rising urbanization, changing family structures, internet penetration and rapid proliferation of several super and hypermarkets across the country, Modern Trade is expected to double its share to 6% of total sales by 2021.
However, the standalone local supermarkets and specialists (Fruits & Vegetables focused outlets) are expected to outpace the national and regional chains due to their deep knowledge of local needs and aspirations across product and service offerings.
Despite lower trade margins, kiranas have better overall margin structures than Modern Trade due to lower selling costs and overheads. Indian shoppers loyalty to modern trade is determined by discounts and offers. This has further tightened contribution margins across the industry. Incremental pressure on the margins and customer wallet is heaped upon by e-commerce companies with disruptive business models and discounting practices. Private labels have become crucial in creating loyalty and enhancing margins. It is equally critical for Modern Trade to have a low cost and highly efficient supply chain to manage operations.