Accelerating the digital journey of the kirana store: Why we invested in Brands of Bharat

Accelerating the digital journey of the kirana store: Why we invested in Brands of Bharat

Pushpak Singh runs a kirana store that attracts customers from all corners of the small Punjab town where it is located. One of his hottest selling products used to be a detergent made and sold locally. One day, without warning, the company that manufactured it shut shop. He stocked alternatives from national and other local brands and, with time, his customers shifted to them. Even years after the brand was no longer on shelves, customers would still ask for it. This made Pushpak realise the pull local brands have.

From pickles to biscuits and detergents to floor cleaners, the market is crowded with hyperlocal household brands that people readily connect with. The fact that these brands are available at lower cost and form factors are only a few reasons why they are so popular. Their familiarity of taste, convenient sizes, or the fragrance of ingredients also keep customers returning.

It is this market that Brands of Bharat wants to capture. Through their 25 Taka (Pachees Taka) app, Brands of Bharat onboards retailers such as Pushpak. It lists items from locally available brands, which retailers can order on the app while also earning a 25% margin for themselves.

Like Pushpak’s, there are an estimated 12 million to 20 million kirana stores across India. The average monthly revenues of a kirana store, typically less than 100 sq. ft. and catering to customers in a 3 km radius, are between Rs 1.5 lakh and Rs 2 lakh. The small, unorganised brands have always found customers locally, and off late, there has been a marked increase in their growth within local markets compared to national brands. Some estimates find that local brands account for 20% of total fast-moving consumer goods (FMCG) sales in India, and are loved by households with income of Rs 30,000-50,000.

Brands of Bharat, founded in 2019 by Udit Dhawan, Ravi Teja and Rohit Fernandes, aims to make this segment, sought after by consumers locally, valuable for retailers. It wants to transform FMCG brands for Bharat. Think of it as an online conduit helping small brands distribute products to a network of retailers.

What ails the kirana store network?

Local brands often have the right product market fit (PMF), quality, and price, but distributing them is difficult because of unviable economics. For distributors, the minimum cost of fulfilling an order is around Rs 90 and margins are ~10%. Back-of-the-envelope maths will tell you that an order value less than Rs 1,000 will not cover costs. Average order values (AOVs) in smaller towns and cities are low. So many local brands struggle to scale beyond $1 million in annual sales.

Where does this leave small retailers or kirana stores? Without a good distribution network for local brands, they are forced to stock less appealing products. Further, because they usually cannot purchase large quantities, smaller retailers are unable to get discounts and better pricing, pushing down their margins.

The major needs of kirana stores are small quantities of a large number of units, high fulfilment reliability, margins above 15%, and credit from their supply partners.

Enter Brands of Bharat.

Business model and team

Brands of Bharat has adopted a “house of brands” model, focusing on small and regional brands by leveraging its proprietary technology-led distribution network. It partners with or acquires local FMCG brands to distribute product SKUs on its 25 Taka app.

At a broad level, the app’s users are kirana stores less than 100 sq. ft. in size, operating at a 12-15% margin. It offers them an impressive 25% margin. But how?

● Owning the distribution and SKUs of the local brands means the distributor’s margin is no longer an extra cost.

● It operates a network of warehouses and logistics partners to control and manage high-service quality and timely delivery. This results in higher AOV and viable delivery economics.

The team leading Brands of Bharat brings complementary skill sets that have enabled the company to onboard 15,000 retailers as of August 2023. Udit brings data-driven thought from his previous stints at Intel and Dozee. Ravi dons the analyst hat from his earlier experience with JP Morgan, and Rohit understands logistics from his time running Shippr, which was an intra-city delivery network. The trio also brings a nuanced understanding of FMCG distribution and its associated stakeholders including kiranas and brands. They are well-placed to scale and operate the Brands of Bharat network.

Our thesis

Kirana stores remain the primary channel for cost-effective last-mile distribution of local brands, serving 96% of India’s groceries, a market expected to grow to $1.3 trillion by 2024. But the segment has been notoriously slow to adopt technology.

We believe that by combining technology-led, direct-to-retailer distribution with a house-of-brands approach, Brands of Bharat will, over time, be able to create significant value with a portfolio of mass-market brands that have scaled.

This model fits with our focus on the Next Half Billion (NHB) users. Over the next five years, we expect Brands of Bharat to help over 5 lakh kirana stores become digitally savvy and more lucrative. In the process, it will lift up the millions of NHB directly and indirectly employed by these SMEs, and that is why we invested.