This article is from Open Magazine.
By V Shoba
In the run-up to Independence Day, as armchair bargain-hunters raided the cut-price shelves of India's major online marketplaces, 32-year-old Sridhar Gundaiah sat in his warehouse-cum-office on the outskirts of Bangalore and wondered what to sell next. He already knew his customers: the 2.7 million small-town Indians connected to 10,000 e-commerce kiosks across the southern states. He had been selling them thousands of mobile phones every day, hundreds of jars of fairness creams, LED TVs and refrigerators, clothing and accessories. What would they want now? Solar lanterns perhaps, or the latest in domestic technology. Air fryers and dishwashers, anyone?
"Consumption is all about who you want to be. You could well be living in a village and still want to purchase an iPhone 6," says Gundaiah, the unassuming man behind StoreKing, an assisted e-commerce platform that seeks to bring the digital marketplace to 'rurban' India through kirana stores. How did he come to this sobering realisation? When he started up in 2012, Gundaiah certainly did not expect to be selling condoms worth Rs 40-50 lakh every month to small-town Indians. He then tested the waters with cosmetics and mobile phones--products consonant with the aspirations of an emerging nation--and slowly stirred in a mix of niche lifestyle goods. "On a whim, I designed a waterproof bag ahead of the monsoon, and ended up selling 90,000 pieces at Rs 500 a pop in the first week. It was overwhelming and it set me thinking about the impact I could make with an expanded network of stores," says Gundaiah, who has a hawk's eye for evolving consumption patterns in small towns. StoreKing now finds itself selling hundreds of microwave ovens every week as convenience cooking begins to take hold. Lifestyle products are a fast-growing category, although mobile phones and electronics continue to be among the most sold items.
India's virtual economy is fast morphing into a seemingly infinite Borgesian library. Estimated to be worth about $20 billion, 60 per cent of which comes from travel bookings, the e-tailing industry is expected to account for 2.5 per cent of India's GDP by 2030. But there are several pieces that are yet missing from the e-commerce puzzle. Even as valuations are frothing over, customer acquisition costs have resulted in companies posting titanic losses. Retention could prove just as troublesome now that they are starting to pull the plug on discounts and free delivery. In 2013-14, Flipkart reported a consolidated loss of Rs 720 crore on revenues of Rs 3,036 crore. Even with a registered user base of 40 million, it will be a while before it can make a profit.
It is in this precarious state that e-tail is shedding its pathologically cosmopolitan image and looking at demand from small towns to lead the way forward. With broadband penetration a limiting factor, it is embracing a mobile-first strategy and fortifying logistics networks through novel tie- ups, such as with India Post to cover up to 25,000 pin codes. But despite the frenzied campaigns to attract the next wave of customers, online shopping remains an exclusivist phenomenon. It started with the urban elite and cannot seem to look beyond India's 230 million mobile internet users. E-commerce has largely bypassed small towns and villages and failed the neo-middle-class living in these hybrid zones of developing India. A majority of them are unable to navigate the technological wilderness of shopping apps. They may not read in English, have email IDs or smartphones. But what if one could serve them through a trusted intermediary, an interpreter who speaks the digital language and understands their needs?
Most people in India need assistance with personal technology, Gundaiah points out. This is especially true of smartphones, which e-tailers have come to rely on to the exclusion of all other platforms. For first-time smartphone users, the circle of dependence on their vendor usually starts at the stage of installing apps-- either because they do not have Gmail accounts or are unfamiliar with the process. "In small-towns mobile stores, people pay Rs 250 for games like Candy Crush and Rs 200 for WhatsApp," says Gundaiah. "There exists a parallel economy of assistance and it is a lucrative one."
The ubiquitous touchscreen can seem opaque as a shroud to the uninitiated. Gundaiah's strategy is to assure them that it is a gateway to a grand emporium unlike any they have ever seen, and to lead them by the hand through its aisles. StoreKing tablets feature local language interface and do not have to be constantly connected to the internet. "E-commerce seemed the best way to make inroads into rural and small-town India because it could yield enough returns to sustain growth over the long term. The idea is to eventually become a point of contact for healthcare, education, content, banking and other digital services," says Gundaiah, a technologist who has dabbled in other startups and worked in investment banking in the US.
"We are looking at launching a state every 60 days, each with at least a thousand stores on board,"
It sounds like a sweeping avowal, but when he presented a business plan before Mangrove Capital, a European venture capital firm that has a track record of selectively investing in disruptive technologies like Skype, it pledged $5 million to StoreKing. Gundaiah knows he is writing the prehistory of an inevitable rural e-commerce revolution. It took him three years to establish a strong network of distributors and retailers in Karnataka, his home state. He has since ventured out into Tamil Nadu, Andhra-Telangana and Kerala. "We are looking at launching a state every 60 days, each with at least a thousand stores on board," he says. StoreKing stands a good chance of conquering unfamiliar geographies because it has effectively neutralised many of the challenges facing Indian e-commerce. For instance, it has entirely dispensed with last-mile deliveries. Orders are placed through, and delivered to, a neighbourhood store, with the retailer acting as a trusted surrogate. "We have reduced the logistics to a milk run," Gundaiah says. "The addresses remain the same, day after day, only the packages are different." StoreKing does not use third-party couriers, piggybacking instead on conventional trucking and distribution networks that have greater reach.
At a time when e-commerce firms are doing away with call centre support, preferring to respond to email complaints, StoreKing scales the trust deficit by turning the retailer into the guarantor, the contact point for after-sales service. "In rural areas, we don't even buy clothes from a store we are unfamiliar with," says 22-year-old Amudha Vani, a returning StoreKing customer. Hailing from a village in Tamil Nadu's Tiruppur district, Vani graduated in Commerce and moved to the outskirts of Tiruchirappalli nine months ago to take up a job as a saleswoman at a toys-and-stationery store. In December, when she wanted to buy her first refrigerator, a colleague told her she could buy it off the internet. "I was okay with not feeling the product, but I could not have bought it from an unknown seller," she says. Her neighbourhood StoreKing retailer introduced her to the strange new world of the internet, where she found "everything within reach: information, products and people." Vani has not stopped at buying a fridge; she is now saving up to buy a smartphone.
At the very least, StoreKing is a massive exercise in gathering market intelligence. At its best, it can change the topography of how things are sold in India. With over 10,000 orders a day and growing, and annual revenues of about Rs 300 crore, it finally has its ear to the ground. "We are evolving into a big data company. Brands are approaching us for insights into the rural market," Gundaiah says, citing the example of an FMCG major that gave him 5,000 bottles of a shampoo under development to distribute free. StoreKing is also a liquidation agent for brands like Nike that are looking to ply last season's stock to consumers who are less likely to care about ephemeral trends. Information is Gundaiah's stock-in-trade and mainstream e-commerce companies have tried in vain to acquire and to copy him, he says. He is now in talks with some of them to plug more inventory into StoreKing.
"StoreKing is a great platform to make extra money but basic products, like Cinthol soaps, started going permanently out of stock. Once you turn away a hard-won customer, he does not return,"
The rhetoric of disruption cannot, however, paper over the cracks in the narrative. Gundaiah started out with an inventory model and one of the reasons he decided to set up an office on Mysore Road was to be close to the warehouses of India's leading brands. It took him a while to discern the limitations to growth as a stockist and to decide to evolve into a digital marketplace. "StoreKing is a great platform to make extra money but basic products, like Cinthol soaps, started going permanently out of stock. Once you turn away a hard-won customer, he does not return," says Kaja Maitheen, a 30-year- old second-generation shopkeeper who runs a fancy store near Karur in Tamil Nadu. Maitheen has sold products worth Rs 1 lakh over his 10-month- long association with StoreKing and he is looking forward to an enhanced inventory, better payment processes and newer avenues to make money such as through online mobile recharge. The average retailer makes Rs 8,000-10,000 a month on StoreKing after investing Rs 15,000 in the tablet that comes pre- loaded with the company's app. Until recently, retailers could pay for each transaction upon receipt of the product while maintaining a deposit with StoreKing. "This model has changed and we now have to pay at the time of placing the order. We are asking customers for an advance and they don't like that," Maitheen says.
StoreKing has tied up with MobiKwik, an online recharge platform and mobile wallet company, to help iron out some of these issues. "Rural commerce is going to be a big business. We were looking to be a part of it when we came across Sridhar and his team, who have been whetting small-town India's appetite for consumption," says Mrinal Sinha, head of strategy at MobiKwik. "Moving cash across the rural economy can be a challenge since most users may not have a bank account or email ID. A mobile wallet that they can pay with and use to keep their money safe can solve this problem. All you need is a mobile number, to which one- time passwords are sent for authentication of payment," Sinha says. MobiKwik integration is being rolled out to 5,000 StoreKing kiosks as we speak. StoreKing has also forged a partnership with Facebook to help sign customers to the social network in return for a commission.
Innovation is the key to situating e-commerce in the Indian context, says Krishna Lakamsani, who runs iPay, an assisted marketplace operating mainly in Andhra Pradesh and Telangana since 2012, selling predominantly home and kitchen products. "There are villages within Hyderabad, for instance, where e-commerce cannot work without assistance," he says. While e-commerce majors were busy fighting for the juiciest slice of the urban pie, iPay and StoreKing have been feasting on an all-you-can-eat buffet of regional delicacies. "There is room for many more startups in rural commerce," Lakamsani says.
It takes a certain type of person to run a rural enterprise, says the mild-mannered Gundaiah. "The values you imbibe as a child leave an indelible mark. Growing up in Bengaluru, I watched my mother put out buckets to catch rain water. My father still runs a school for under-privileged children," he says. When Gundaiah returned from the US in 2006, he wondered why technology should be the privilege of the urban elite. "It was not a happy time," he says. He would find happiness-- in helping customers find new products, in watching his one-and-a-half-year-old son play in the mud as he once did in his native village near Kunigal, and in the troupe of 175 StoreKing employees that inches ever closer to the real India.