Small is beautiful. Well, it was. Once upon a time. Today, life in the fast-track world of business and commerce is about scale. Big is beautiful, the model embraced by all. I talk of India today in particular. If you peek into the realm of commerce, it is e-commerce and D2C. If you peek into the food ordering and restaurant business, it is the big that dominates. Food-delivery apps are the norm, and no small restaurant can afford to be outside of it. If you look into the realm of public commute, cab-aggregator apps are the norm. The standalone autorickshaw or cab driver outside of this ecosystem is struggling to survive. I base this entire column on my recent research exercise, where I took random sample sizes from three distinct realms: The grocery business, fresh food outlets (restaurants) and the cab commute business (autorickshaws and taxi cabs included). The data summation is of India’s top eight cities.
The breaking news is the sad fact that every small business across these three verticals is battliing to survive. Being a standalone player in these three spaces is no longer a viable business proposition. This is particularly so when it comes to traditional nondifferentiated businesses in each realm. Take autorickshaw drivers in Bengaluru. The city currently has 3,55,000 autos.Competition is intense, and the ratio of autorickshaws to humans is rather dense. The small, standalone autorickshaw driver, who is not on a cab aggregator app, is fighting to survive. Therefore, every auto driver wants to be on an app because finding customers is suddenly that much easier. The app appropriates that task. Business happens. And for this business to happen, you need to belong to an app.
The restaurant business in the past was about establishing a set of in-restaurant diners who would come in seeking a great taste. Every restaurant had a set of items which no one else had. A Peter Cat in Kolkata had to be visited for something specific, just as an Arsalan was a mandatory visit for the best biryanis to try. Things have changed, however, today. The food-delivery apps are in with vigour. If you observe the traffic flow in Mumbai, Delhi, Bengaluru, Kolkata, or any of the eight cities we have studied, at lunchtime, 13 percent of it comprises food delivery aggregators.
The same is the case with your corner ‘kirana’ grocery outlet. You need to belong to an app that takes online orders and distributes them. Out here, however, life is more complex. The aggregator has decided not to distribute orders around to the kirana stores. Instead, the aggregator has invested in their own dark store. He procures stocks directly from the manufacturer, eliminating the shopkeeper as a middleman. The app is the middleman. In the bargain, kirana outlets in Indore have lost as much as 31 percent of their top-line business volume. In Chennai, the hit rate is a deeper 37 percent. Every city has its unique story about top-line volume loss.
On top of it, the top-line volume loss has put pressure on the small store and its margin. The small store owner has now reduced his prices to sell to those who still come to him as part of a desperate customer retention policy. In the bargain, his margin is down as well. A typical 12 percent margin on most fast-moving products has now decreased to 8.5 percent in Indore and 8 percent in Chennai. This loss of topline volume and bottom-line margin has impacted those employed in these stores. Job losses are the norm. Livelihoods are, therefore, under stress.
We then checked 107 traffic signals in the big cities. At lunchtime (between 12:30 and 2:30 pm), a whopping 13 percent of vehicles belong to food aggregator apps, and 14 percent to grocery delivery apps. The rest of the traffic belongs to you and me; nearly six percent represents the cab aggregator apps. That’s a lot of vehicles on the road that have replaced the small ones. Big is the norm. At any given lunchtime, 33 percent of vehicles on the road have a branded app as their aggregator for commute, grocery, or food delivery. We also see Urban Company evangelists on the streets, as well as a host of other niche brands (all app-led), but their numbers are still small compared to the biggest in the three realms.
Being small in a big city is no longer a sustainable business model. Small operators in all these spaces are under stress. Those who have joined the realm of the app aggregator are complaining as well. Their business is no longer as robust as it used to be, and the margins they were accustomed to in the past are a thing of the past as well. The app aggregator seems to be laughing all the way to the bank in their frenetic race to scale up. Small businesses, therefore, are under stress.
Everyone wants to be a part of the gravy train that the big app represents. If you are small, the best survival mantra is to hitch your small business wagon to a star. The star in this case is the app aggregator for now. The e-commerce, digital, and app-based delivery player, which offers both products and services, has taken small retailers, restaurants, and entrepreneurs to the cleaners. New business is not really happening. Instead, the aggregator of all these businesses has taken over the old business of the small player.
What we witness today is, therefore, a trend that is going to tilt our economy of traditional shopkeepers, restaurateurs and entrepreneurs. Money is shifting from small pockets to the big ones. The small pocket is looking emptier than before. This is likely to cause social turmoil as jobs continue to vanish in the largest segment of our economy, the small and self-employed sector. Now, how will this be sorted out? We will, for sure, witness protests from the small sector. There will be a clamour for protection. The unions will emerge to represent the causes of the small and the disenfranchised. As all this happens at the end of the affected, consumers will step forward as well, albeit in a slower manner. Consumers will suddenly want to protect the interests of the small. Till that happens in a big way, expect angst and suffering ahead.
Harish Bijoor | Brand guru & founder of Harish Bijoor Consults Inc
(Views are personal)
(harishbijoor@hotmail.com)
