Assignment

Synopsis of the case:

BBA 2413 Bachelor in Business Administration
Microeconomics First year/ First semester
Name- Samir Chhetri LC00023000378
The case study is about the Kiranas and super markets. In this case Amar Singh, who has his own
vegetable stall in Mumbai explains why he sells foreign origin products, such as broccoli and
iceberg lettuce. He said he has to keep the customer in his grasp, he has been trading for 20 years
and is not worried about the entry of big super markets. 11 millions traders like Amar Singh are
protected in India, the country complex rules have made it difficult for supermarkets from
developed countries to enter the Indian grocery market. And also, India’s supermarkets account for
only 2% of food and grocery sales and are struggling to make a profit. Revenue has become low
due to rise in rent

This maybe because in India 70% of people lives in rural areas, kiranas are popular in India. Kirana
and stalls are often described as neighborhood stores as because it is embedded in their local
communities. Many kiranas have been run by the same families for generations. Due to it, they have
strategies and deep understanding of the local market and also have good relationship with their
customers, customers are also loyal to those kiranas as because their parents and grandparents used
to buy from those kiranas. Kirana and stall owners also offers credit to the customers to help them
balance their budgets and can even obtain products not normally stocked, they even offer free home
delivery services. Those kiranas who are established long ago makes benefit from prime store
locations but modern supermarkets struggle to find a store area too.

When we see the result of a survey of customers in the largest cities in India, it shows that there are
mainly four types of stores that customer buys the vegetables and groceries. These are Stalls and
Kiranas with home delivery, Online Groceries, Stalls and Kiranas and Supermarkets. This survey
shows that only 25% of customer prefers to shop in stalls and kiranas that provide home delivery
service. Another one is Online groceries store which is least preferred by the customers. Next one
shows that 50% of customers prefers to shop from stalls and kiranas and it is the most preferred by
the customers. Last one is super market, more than 25% customers prefers to shop from
supermarket.

Question) Analyze the market structure in which Kiranas are operating in India and evaluate
whether the entry of big supermarkets in India would lead to the decrease in the significance of
kiranas with reference to the above information.

1
BBA 2413 Bachelor in Business Administration
Microeconomics First year/ First semester
Name- Samir Chhetri LC00023000378
Ans) According to the given information in the case, the market structure in which kiranas are
operating in India is Monopolistic competition. Monopolistic competition is the market structure in
which large number of firms produce and sell the close substitutes goods but not perfect substitute
goods is called monopolistic competition. In other word the market stricture with some
characteristics of perfect competition and some characteristics of monopoly is called monopolistic
competition.

Features of monopolistic competition:

Large number of buyers and sellers- Under monopolistic competition there are relatively large
number of firms each satisfying a small share of the market demand for the product.

Product differentiation- The product of various firm working under monopolistic competition are
not the same but are same because their products are similar and close substitutes of each other

Freedom of entry and exit- Under monopolistic competition the new firms can produce only new
brands or product varieties which may initially find it difficult to compete with the already well-
established brands and product varieties.

Product production- The products of different firm are differential. They are close substitute but
not perfect substitute. Each firm has a degree of monopoly.

Market power- Every firm has market power; they make their own decisions about their products.
So, they decide what price to sell their product at and how many to sell.

Monopolistic competition is the market structure which combines the features of both Monopoly
and perfect competition. Under monopolistic competition there are large number of firms each
having small portion of market share and so does in India there are many kiranas operating locally.
Under Monopolistic competition the firms itself is a price maker they make their own decision and
the kiranas selling groceries in the India also rate the price of their products. Thus, from the above
reason it can be said that the market structure in which kiranas are operating is perfect competition.

With reference to above information, the entry of big supermarkets in India would not lead to
decrease in the significance of Kiranas. In this digitalization era everything has changed, digital
technology is changing the world in ways that no one would have been imagine a decade ago. But
kiranas remain everlasting, they have proved extremely durable. According to the information given
2
BBA 2413 Bachelor in Business Administration
Microeconomics First year/ First semester
Name- Samir Chhetri LC00023000378
in the case, it is mentioned that India’s has many complex rules that have made it difficult for
supermarkets form developed countries to enter the Indian grocery market but on the other hand,
there are no barriers or rules and regulation that would made difficulties for kiranas to enter in
grocery market.

When we talk about credit facilities, Kirana offers credit facilities to their customers in which
customer can pay money after some days or weeks depends on customer. Kirana offers credit
facilities to help customers so that they could balance their budget and can even obtain products that
are not normally stocked. But if people are buying goods from supermarkets, they must have
money, supermarkets does not offer such facilities. These days most of the customers want delivery
services. Both Kirana and Supermarkets provide delivery but kirana offers delivery service with no
charge, on the other hand supermarkets adds additional charges for home delivery services. Thus,
people will prefer to buy goods from kiranas instead of supermarket and it is the reason why the
entry of big supermarkets in India would not lead to decrease in the significance of Kiranas.

Kirana stores are operated in a small space, these stalls does not required much space to establish so
it is easily available in residential localities where people can easily go and purchase goods whereas
supermarkets needs huge amount of space to establish, they are fixed located in certain places so,
people will prefer to buy goods from near their localities instead of going to supermarkets and it is
one of the strongest reasons why supermarkets would not decrease the significance of kiranas. As
Kirana stores are embedded locally and thus they have a better understanding of customer
preferences. But for supermarkets, as they are situated far from local area so it will be difficult to
know and understand about customer preferences, they are not aware of the local goods for the local
customers.

Another key reason the kiranas will not be affected by the entries of supermarket is that, in India
there are many caste and religion and kiranas are maybe related to some culture groups which can
affect the market because people belonging to same culture will not boycott the kiranas. It has
mentioned that supermarkets may offer little cheaper goods than kiranas but they can not match the
qualities of kiranas and thus customers will prefer good qualities and fresh products. In India
kiranas are often described as neighborhood stores as because they are operated in local
communities and many of kiranas have been run by the same families for generations, they have a
deep understanding of the local market. As many of kiranas are run by the same families for
generations, most of the customers are loyal to the shop and have good relation because their
parents used to buy goods from these kiranas and thus they are emotionally attached and they will
3
BBA 2413 Bachelor in Business Administration
Microeconomics First year/ First semester
Name- Samir Chhetri LC00023000378
prefer kiranas instead of supermarkets. And the major point why entries of supermarkets will not
affect kiranas is, when we see the profit gain by the supermarkets, India’s home grown
supermarkets accounts for only 2% of food and grocery sales. It means supermarkets does not gains
more profit and they are struggling while selling food and grocery whereas kiranas gains more
profit which shows that kiranas of Indian grocery market are not affected by the supermarkets. And
the key point, it is also seen that one of the India’s biggest supermarket company, Reliance Fresh
has recently closed some shops around Mumbai as they could not compete with kiranas.

Also, if we see the results of the survey of customers in the largest cities in India. It is seen that
Stalls and Kiranas provides service to very large percent of customer. They provide service to
nearly 50% of customers which means nearly 50% of customers prefers to buy goods from kiranas
and stalls as in compared to supermarkets, only more than 25% customers prefer to shop from
supermarkets.

Thus, from the above reasons and explanation it can be concluded that the entry of big supermarkets
in India would not lead to decrease in the significance of Kiranas.