The retail trade in Pakistan is estimated at $152 billion and accounts for 34 per cent of the services sector. Retail can be split into modern trade, like Agha’s, Imtiaz and Naheed supermarkets etc., while traditional trade comprises of kiryana stores (general stores and pan shops). The traditional trade dominates the market and neither the creation of high-end malls nor the exponential rise of e-commerce has made any serious dent in the market, neither is it expected to. E-commerce’s share even in the most digitally advanced countries has not crossed 25pc. In Pakistan, it is currently less than 1pc.

The kiryana (general stores and pan shops) eco-system remains rooted in its traditional solution set. However, recently tech-driven start-ups have started to un-bundle this eco-system and with the use of technology have created efficiency, cost savings and revenue enhancing opportunities. The kiryana stores face four major challenges. One: ordering (from both distributors and wholesale), two: working capital, three: digitisation of inventory, receivables and payables, four: entering the e-commerce market.

The key that will unlock the eco-system maze is “winning the trust” of the kiryana store owners. The owners of these outlets are typically not tech-savvy, conduct all transactions on paper, pay via cash and do not pay income tax. Changing their behaviour will require trust and evidence of clear benefit to the owner. Any service must either increase revenue or reduce cost. The owners may not have an MBA degree but using innate financial acumen and the trusty Casio calculator are well aware of their cash flow and profit.

E-commerce’s share even in the most digitally advanced countries has not crossed 25pc; in Pakistan, it is less than 1pc

The solution that start-ups are leading with is digital ordering. A typical kiryana store owner’s offering is between 100 to 500 products. The branded goods are purchased through the distributor’s order bookers while the non-branded goods are purchased through the wholesale market. This system runs quite efficiently in tier-1 cities for tier-1 stores. However, as we go down the tiers, the coverage and frequency of the order bookers becomes patchy. There are at least five start-ups which have entered this space to enhance ease of delivery, price and a simplified ordering process. The start-up models include companies which are building their own inventory and those which are just acting as a platform. Initial traction shows that there is a real demand for this service.

The second solution lies in providing financial services to the kiryana stores. Commercial banks shy away from this segment as there is no collateral on the table and non-availability of audited or unaudited financial statements. Alternative underwriting is the solution. Pilots have already started where some banks and fintechs have either placed point of sale machines (POS) or quick response codes (QR codes). Providers use the digital transactions as the basis of a working capital line of credit. Other than digital sales over the counter, fintechs are also using airtime sold and branchless banking cash-in-and-cash-out transactions as the basis of a credit line. Any element which can be captured digitally including digital ordering of goods can be used for determining a credit line. However, the principal challenge is that of tax. Digital transactions, sales or purchases, provide an audit trail for a potential tax liability. Kiryana stores like other service providers such as doctors prefer cash to avoid income tax.

The third service which can be provided to kiryana stores is to convert them from retailers to e-tailers. This is the route Ali Baba took when it started its digital journey. Acceptance of digital payments for physical goods was done in tandem. In the first step, Ali Baba just assisted kiryana stores to upload their most popular selling items on a simple e-commerce app. The delivery was done by the stores themselves and was typically limited to the immediate neighbourhood. In the second step, delivery was expanded to the city using a third-party last-mile delivery company. Once the kiryana store owners became comfortable with this channel, coverage was expanded to the entire country and in some cases internationally.

The fourth service required is digitalising the inventory, receivable and payables. Kiryana stores usually do not have devices that can read the bar codes on branded goods nor do they take the trouble to put a bar code on the unbranded products. The credit extended to their customers is recorded in a ledger (khata). Tech companies have been providing simple applications to record their sales. In some cases, POS machines have been provided with bar code readers so that branded goods can be recorded. The end state is all inventory being coded and a loyalty program for customers. This allows data for credit providers as well as for fast-moving consumer goods.

The digitalizing of this eco-system has started. The challenge is to gain the trust of the kiryana store owners.

The writer is a tech entrepreneur

Published in Dawn, The Business and Finance Weekly, November 9th, 2020