The 1998 movie in which Tom Hanks starred as the CEO of a large bookstore that moved into Meg Ryan's neighborhood and threatened to run her small bookstore out of business. Fast forward 15 years and we find that the Internet ran the big bookstore out of business and the small bookstore survived by specializing.

Amazon was built in a country where 80% of retail was organized and supply chains were set in place. Price is the number one driver for customers to try a new channel, so when Amazon decided to woo customers to the Internet with a price based proposition, they made a conscious decision to undercut physical retailers and build a customer relationship based on a phenomenal experience. This worked well for them, but they had to raise over $3 billion to make this work.

Replicating this approach in a market like India where the dominant retailers are kirana shops (mom-and-pop) shops that have none of the typical fixed costs that an organized channel has is a huge and very different challenge. Of course Amazon knows this and have entered as a marketplace and have taken a position to differentiate based on selection. As an aside, I wonder if their position will drive users online.

No organized operation can beat the cost structure of the kirana shop: they pay very little rent, have few overheads and no real marketing costs. What does this mean for the ecommerce opportunity in India?

One of three things:

  1. Source differently like Greendust
  2. Focus on product categories that kirana shops don't cover like HopScotch
  3. Enable the kirana shops via a marketplace model and take advantage of the pricing that they can offer - this seems to be where the broad ecommerce players are headed: FlipKart, ShopClues, SnapDeal, Amazon.

If you can't beat them, join them.

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