From cabbage to caps: Inside Blinkit’s game plan to deliver anything

Isn’t Blinkit, formerly known as Grofers, an online grocery company that delivers stuff like milk, bread and eggs?

One day, in 2020, in the middle of the pandemic, Albinder Dhindsa, co-founder and chief executive officer (CEO) of Blinkit, must have woken up thinking about the pipe he built—a distribution pipe—bit by bit. After nearly six years, that pipe was big and broad enough to deliver a lot more than milk, bread and eggs. And thus began the journey of delivering anything. Today, Blinkit delivers lip cosmetics, induction cooktops, earbuds, smart watches, bulbs, fat burner tablets, toy cars, earrings, beanies, books.

Talukdar found a kurta, a yellow one, from Manyavar, an ethnic fashion wear brand. It was delivered at his company’s office, in Delhi’s Kailash Colony, in about 10 minutes.

A month before Diwali, executives from Manyavar had reached out to Blinkit to explore the possibility of listing men’s kurtas. They didn’t have PowerPoint presentations. “They came to us with five colours and maybe seven sizes," Dhindsa recollects.

While Dhindsa wants to deliver more products through the distribution pipe or infrastructure that he has built—warehouses, dark stores and collection centres—brands, across product categories, are experimenting with newer avenues to reach shoppers such as Talukdar. Quick commerce companies such as Blinkit, which have gotten Indians used to super fast deliveries, is one of those avenues.

For Blinkit, morphing into a distribution platform for any product has a strong business rationale. Grocery could be a low-value business. Think of the times you just order a bread ( ₹28-55) or a packet of milk ( ₹27-106). Products beyond grocery can help increase the average order value on the platform. A Manyavar kurta set, for instance, sells at ₹2,999. This, in turn, has implications for the company’s profitability. Blink Commerce Pvt. Ltd, as the company is legally known, continues to bleed, with losses widening 17% to ₹1191.5 crore in 2022-23 compared to the year ago. Well, how the company executes with its strategy of delivering anything also has implications for Zomato Ltd. The food delivery company, hungry for growth, acquired Blinkit in August 2022. How will the acquisition pan out? More on this later. First, let’s rewind a bit to understand Blinkit’s past. It’s a story of pivots.

A short history

In 2013, IIT Bombay graduate Saurabh Kumar founded Onenumber, a company providing on-demand delivery service that fulfilled orders from pharmacies, grocery stores and restaurants. Dhindsa, a former IIT Delhi alumnus, joined Kumar in 2014. In 2014, Onenumber rebranded to Grofers, positioning itself as a hyperlocal delivery marketplace with a 90 minute delivery promise. In its early days, Grofers was backed by marquee investors such as Tiger Global, SoftBank and Sequoia Capital.

While the company grew rapidly between 2014 and 2015, scaling its presence across multiple cities, it soon hit a roadblock. The grocery bubble burst around 2016 and most companies in the sector realized that express deliveries weren’t easy. The unit economics simply didn’t add up. Grofers realized that its loyal customers didn’t really care about speed. Back then, its customers used the platform for monthly stock up.

The company pivoted from just catering to the elite. It rolled back operations in nine cities, downsized its team, scrapped the 90-minute delivery promise and moved to an inventory model from the marketplace model.

In 2017, Grofers started facilitating deliveries via large warehouses outside cities. Between 2018 and 2021, it continued to raise funds, expanded operations again and pushed its private label business (the company worked with manufacturing partners to produce items like tea and pasta), which contributed significantly to its revenue.

In 2019, it also partnered local kirana stores to brand them into Grofers stores. It had plans to manage their backend sourcing, inventory and technology. These stores were shut in 2020, with the pandemic disrupting physical commerce. Nonetheless, online commerce was on steroids. Express deliveries were back in vogue.

Swiggy rolled out quick grocery delivery service Instamart in 2020 with a promise to deliver groceries within 45 minutes. In 2021, Zepto started, promising 10-minute deliveries. The firm raised $100 million five months into its launch! Grofers smelled an opportunity in 10-minute deliveries, too. In December 2021, it rebranded to Blinkit (deliveries within the ‘blink of an eye’).

“We learnt a lot as Grofers, and all our learnings, our team, and our infrastructure is being repurposed to pivot to something with staggering product-market fit — quick commerce," the company had mentioned in a blog post back then.

Blinkit has continued with its quick commerce proposition till date, but there is one difference. Now, it is a wholly owned subsidiary of Zomato. Like we mentioned earlier, Zomato acquired Blinkit in August 2022.

Infra for scale

The pivot from being a vertical player (just grocery) to being a horizontal e-tailer (products across categories) isn’t just a Blinkit phenomenon. The older e-commerce startups have all raided each other’s territories. Myntra started as a fashion e-tailer but now sells everything from beauty products to cutlery. Nykaa started as a beauty e-tailer but now sells womenswear, menswear, kidswear and even kitchen appliances.

Some of Blinkit’s high-volume stores today stock up to 10,000 stock keeping units (SKUs).

Over the last six months, the company, particularly, has invested heavily in beauty, Dhindsa says. While dry grocery continues to dominate shopping carts on the platform, electronic items such as chargers and other small appliances are a growing category, he adds.

Blinkit, meanwhile, continues to build its infrastructure to arrive at efficiencies of scale and faster delivery.

More SKUs imply more dark stores. These stores also need space to handle bigger products. As of 30 September 2023, Blinkit operated 411 dark stores in over 20 cities. The company expects to have 480 such stores by March this year.

Infrastructure around fresh produce is still undeveloped in India and the company is trying to sort this by opening more collection centres. It is leveraging Hyperpure, Zomato’s supplies platform for restaurants, to build its own back-end procurement for fresh produce. Hyperpure sources ingredients directly from farmers, mills and food processing companies.

“Earlier, Hyperpure was primarily focused on restaurants. Now, it is focused a lot more on building out this forward linkage," Dhindsa says.

“The number of collection centres for fruits and vegetables that we operated in rural areas used to be under 50. By the end of 2023, the centres had grown nearly fourfold. Can we get fresh vegetables from the farms to consumers faster and can we do it at a large scale? That’s what we are looking to solve," the CEO adds.

Yet another investment area of the future is outsourced facilities to cohorts such as bakers. There is rising demand in cities for breads like sourdough. But the supply-chain for such breads is still a work in progress.

Value boost

Let’s circle back to the business rationale of doing everything. Wider assortment of products, in short, is good news for margins.

“Quick commerce will expand beyond grocery because that won’t make money," says Praveen Govindu, a partner with Deloitte India, a consulting firm. “There will be a need to increase average order value, which means new assortments—specifically categories that occupy low space but have higher gross margins," he adds. “Electronics, we feel, could become mainstream here, apart from beauty and personal care where margins are higher and requirement for space is low."

Indeed, Blinkit has reported higher order values more recently.

In the three months ended 30 September 2023, the average order value for the company increased for the second quarter in a row, the company said in an update. The average order value increased to ₹607 from ₹568 in the year-ago period. This was driven by improving assortment and gross order value, or GOV, mix in favour of high average selling price categories—electronics, toys, books, beauty products, home decor and festive needs, among others.

GOV is defined as the total monetary value of orders at maximum retail price, along with customer delivery charges, handling fee, convenience fee, packaging fee and taxes. Average order value is GOV divided by number of orders.

In the September quarter, Blinkit reported 45.5 million orders, up from 26.1 million in the year-ago period. The number includes cancelled orders.

While the assortment has increased, the choices within the new product categories remain slim. If you search for caps, for instance, the results are rather modest. Like infrastructure, this is also work in progress.

What’s for Zomato

Some analysts believe that Blinkit continues to be a drag on Zomato’s finances. However, on a consolidated basis, Zomato turned in a profit of ₹36 crore in the September quarter of 2023-24, from a loss of ₹251 crore in the year-ago quarter even when expenses shot up 45%. Revenue is therefore growing far faster than expenses.

In a shareholder letter released last year, Zomato founder Deepinder Goyal had outlined that Blinkit will drive more value for shareholders than Zomato over the next decade. “Blinkit is seeing good product market fit and is growing well in each of the cities that it is present in currently," he said, announcing the company’s September quarter earnings.

Goyal added that over 60% of Blinkit’s dark stores were contribution positive. The company defines ‘contribution’ as the difference between revenue and various costs including dark store operations costs, delivery costs and customer acquisition incentives.

“We are now seeing profitable economics not just at a store level but also at a city level—where some of our cities are now operating at similar contribution per order as the food delivery business in those cities. So, even from a potential profit pool perspective, we think quick commerce is a larger opportunity than food delivery," Goyal had mentioned.

Part of the optimism around Blinkit is because of the large market quick commerce is expected to corner.

Karan Taurani, a senior vice president at Elara Securities, a brokerage, feels that quick commerce can become a significant business within e-commerce because the addressable market is “very huge". This could potentially dent the market share of marketplaces like Nykaa, Amazon and Flipkart. Nonetheless, quick commerce is still at an early stage of evolution, similar to where food delivery was about a decade ago, he adds.

Deloitte had earlier estimated the quick commerce market to total $40 billion by 2023, up from $2 billion in 2022.

“It’s very early to say that they (Blinkit) should become profitable. But I don’t think it’s going to take too much time. They have to increase orders per store, increase efficiency, change product mix and also charge customers for delivery of small orders," Taurani says.

Apart from the numbers the company reported, we have anecdotal evidence of the product mix working for now. Debarun Talukdar was back on the app earlier this month. As Delhi’s temperatures dropped sharply, he ordered thermals to keep himself warm. Compared to pure-play fashion e-tailers or large horizontal marketplaces, the choice is limited, again. But Talukdar must have been happy to receive them in 10 minutes.