Budget 2022: Digitise Or Perish—What The Covid Crisis Meant For Small Retailers

It was March 25, 2020.

India went into a lockdown overnight, leaving 59-year-old Haji Iqbal in a quandary. His kirana or local grocery store had been in operation since 2002 and regular customers were calling incessantly with requests to deliver everything from rice to noodles.

Through all the stringent restrictions of the first wave, Iqbal tried his best to meet the demands. But logistics, ensuring adequate stock, and finding enough workers was a challenge. “Aisa din bhi kabhi dekhna padega zindagi mein nahi socha tha,” he said. (I never imagined I’ll have to witness such a day in life).

Iqbal’s sons, Mudasir and Umar, helped him where they could but eventually they started to lose business. Online grocery delivery firms such as BigBasket, Grofers, Swiggy, Zomato, etc., after an initial period of disruption, started to grab business.

"August-September tak sara customers chala gaya aur rozgar nahi ho pa raha tha,” he said. (By August-September, we had lost most of our customer base as they began ordering more from grocery apps).

Adversity often forces change. It certainly did for Haji Iqbal's store.

Iqbal himself was reluctant. “Internet mein sab kuch fraud hai,” he said. (Everything on the internet is fraud). His sons, however, saw the opportunity in going digital as the physical world was disrupted. From accepting payments digitally to accepting orders on WhatsApp and expanding into a new customer base via tech-enabled partners, Iqbal's store has been forced into an increasingly digital and formalised industry.

“Aaj mere paas Paytm, PhonePe sab hai,” he said. (Today I have Paytm, PhonePe and everything).

While scrolling through Facebook, Iqbal's son Umar came across an ad of LoveLocal which promised to digitally empower kirana stores. He scrolled past several times but finally decided to take the leap. That's because they offered their services for “free”, said Umar. Convincing his father was difficult in any case; it would have been tougher if there was money involved.

Eventually he did. Within four months, the store had seen a near 60% growth in revenue, said Iqbal. Home delivery requests have doubled as customers are placing orders via LoveLocal.

Alongside, digital payments too became the norm. People started asking “Paytm hai kya," said Iqbal. Most people wanted to pay online rather than in cash. And so Umar got his father a smartphone, too.

Today, about 60-70% of customers pay online for their daily household purchases.

Over a lakh retailers have joined LoveLocal platform since its launch in January last year, said its Chief Executive and Founder Akanksha Hazari. “Demand has been overwhelming since the onset of the pandemic,” she said, claiming that the company has been growing 40% month-on-month.

The platform facilitates 2.5 lakh transactions every month and expects this to rise to 10 lakh over the next 12-18 months.

“For years, kiranas have been skeptical about the idea of digitising their businesses,” said Prem Kumar, founder and CEO at Snapbizz. “They are worried about the product quality, price, and how difficult it will be to use it. That's now changing. But store owners over 40 years of age are still typically hesitant to embrace new technology, he said.

The Bengaluru-based startup, which converts the neighborhood kirana stores into smart stores with new age solutions, currently has a network of over 50,000 kirana stores across 40 big and small cities. Kumar expects to grow its merchant base 10 times by 2024.

Business-to-business marketplace for food and grocery, Jumbotail, has also seen unprecedented demand from retailers during Covid when demand for essentials has spiked and the broken supply chain led to problems for sellers and buyers. “From just 35,000 stores in Bengaluru in 2020, we have grown our merchant base to 1.5 lakh across 38 cities," its Chief Executive Officer and Co-Founder Karthik Venkateswaran told BloombergQuint.

But for all those who made the transition to the more digitised business reality of today, many others struggled.

S Poddar used to run a street food shop in Mayur Vihar. When the pandemic hit, his earnings fell to nearly zero from Rs 3,000-4,000 earlier. He had to pay rent and a Rs 40,000 loan he took for his son's education. Relying on his food retail business was no longer an option. And so he decided to shut shop and join an online food delivery platform.

The 42-year-old now earns Rs 10,000-12,000 a month depending on orders. His wife and old mother have started stitching to help out the family of five. Like Poddar, many of the debt-laden and rent-burdened stores shut down.

At least two lakh small businesses have shut during the first two waves of the pandemic, data compiled by the Confederation of All India Traders showed. "These businesses ran out of money and lack of access to working capital forced them to close their doors," CAIT Secretary General Praveen Khandelwal told BloombergQuint over the phone. "They diverted to services or other viable businesses and never returned to this industry."

This pain has been reflected in the fact that 39% of loans given out under the government's Emergency Credit Line Guarantee Scheme were taken up by traders including retail and wholesale, showed data from TransUnion CIBIL.

Across the broader economy too, while the pandemic has accelerated formalisation, it has left many in the informal sector behind.

Economists at SBI, who have tried to quantify the extent of formalisation in the economy, argue that the informal economy has shrunk to 15-20% of GDP in 2020-21 from 52% in 2017-18.

"Formalisation broadly is a good thing if you allow the informal sector an easy way to become formal," said former Reserve Bank of India governor Raghuram Rajan in an interview earlier this year. But forcing small businesses to formalise when the whole economy is being hit, basically pushes them to close down, said Rajan, cautioning that this will eventually hit demand for the formal sector as well.

While there is no clear data to judge the extent of this shift and its implications, stories of Iqbal and Poddar tell the story of this divergence.

Iqbal's business has soared. His yearly turnover has doubled to Rs 7-8 lakh, he said. But Poddar has had to shut shop and look for whatever employment he could find. “Humari majboori hai kaam karna,” said Poddar. (It is our compulsion to work).