Working capital loans for grocery and fashion kiranas in India: Current state and whitespaces

Abstract

The problem statement of the study deals with understanding the accessibility & usage of working capital loans for Grocery & Fashion Kirana stores and in addition, identify the white spaces & insights into the supply chain and credit availability. With the kiranas offering the efficient last-mile advantage for online commerce players, offering them working capital credit acts as an incentive for the former to be a part of the e-commerce eco-system. There are emerging players across different segments like B2B marketplaces, fintech start-ups & other commerce companies which have made a foray into this segment. This study was undertaken as a primary research through telephonic interviews with a sample of 79 retailers across 3 southern cities- Chennai, Kochi & Bengaluru with almost equal distribution between fashion & grocery segments. Key insights obtained with respect to each segment include a) Fashion:- i) Typically, inventory purchase is primary working capital requirement implying trade credit to be major & only source of finance used solely and is characterised by an average credit period of 30 days with dealer relationship or purchase volumes acting influencing availability & terms of credit. ii) Trade credit is mostly available but for purchases directly from weavers or designers, in which case cash & carry model is adopted. iii) Trade associations can be leveraged as a potential touchpoint to have a wider reach in Kirana community, connect & convince them to avail working capital credit facilities. b) Grocery:- i) Trade credit is the most popular source of finance and involves shorted credit cycles averaging 7-14 days in line with order placements by Kiranas. Cash & carry model is adopted for product lines like oil, rice & dal (to some extent) & fast-moving goods. ii) Since, these come under the ambit of essentials, they are not seasonal & hence was not affected even during COVID times, and in fact some faced increased demand due to additional purchase by consumers in fear of stock outs. iii) Post the nationwide lockdown, distributors preferred adopting a complete cash & carry model and B/C category retailers were impacted as they were forced to switch to cash purchases & FCFS due to shortage of supplies.