Quick commerce takes the fast lane
9 min read . Updated: 15 Feb 2023, 12:38 AM IST
Premium- Instant delivery platforms are a hit with consumers. But profitability remains a distant dream
- A significant shift in consumer habits in Indian urban households is underway. People, young and old, are embracing 10-30 minute grocery deliveries, also called quick commerce.
Addicted to laziness. That’s how Vidhi Maheshwari describes herself. It’s easy to see why. Recently, the digital media professional from New Delhi hosted a party at home and used Blinkit (Blink Commerce Pvt Ltd) thrice that evening merely to stock up on snacks and beverages. Even for string lights, which she would earlier buy from the local market or via Amazon, the 37-year-old turned to the Zomato-owned quick delivery platform.
For consumers like Maheshwari, quick commerce, sometimes called q-commerce, is nothing short of a boon. “I can get what I want, well within time and the product quality is good too," she says.
A look at Maheshwari’s shopping history reveals a lot about her household of two, apart from two cats. She often needs pet food, indulges in midnight snacks and isn’t particularly distressed when she runs out of shower gel, tomatoes or onions in the morning. She knows she will get them all in a jiffy and the delivery fee isn’t a bummer either. What started as an experiment after a friend’s recommendation back in 2021, has now become a weekly, if not almost daily, shopping ritual.
Turns out, quick deliveries have a fan club beyond the young.
Diya Kar, a Delhi-based analyst, recalls how she couldn’t persuade her father, who lives alone in Kolkata, to buy his monthly groceries from Swiggy Instamart (Bundl Technologies Pvt Ltd), another quick delivery platform. He preferred his daily walk to the local kirana store, because it was easier and cheaper. Then one afternoon, when he ran out of kashundi, a fiery mustard sauce used as a condiment in Bengali homes, he gave in. “Since then, he has been ordering some things on Instamart, which I had installed on his phone on my last visit. The other day, the local shop didn’t have Darjeeling tea in stock, and he found it on Instamart," says Kar.
The ordering pattern reflects a significant shift in consumer habits in urban households, which are embracing this model. Two years since the pandemic, consumers are still happily outsourcing last-minute purchases, albeit at a small fee, and are drawn to 10-30-minute delivery timelines. Consulting firm RedSeer estimates India’s quick commerce market to touch $5.5 billion by 2025, up from $0.3 billion in 2021. Quick commerce platforms such as Blinkit, Swiggy Instamart, Zepto (KiranaKart Technologies Pvt Ltd) and Dunzo Daily (the quick commerce arm of Dunzo Digital Pvt Ltd) are now upbeat about moving up the ladder, from being mere top-up, low-order grocery apps to high-value, basket-heavy ones, which is where the money is.
The mood wasn’t so buoyant when these platforms were launched post-pandemic. Millions of kirana stores were already serving the daily grocery needs of households. Many thought that quick commerce, with its unrealistic 10-20-minute delivery promise, was unnecessary, destined to fail and unsafe for delivery executives.
A lot has changed since. While the pandemic hugely altered consumer behaviour, driving buyers and companies alike to e-commerce apps, quick commerce took shopping convenience many notches up. Industry experts and consumers Mint spoke to believe it is slowly becoming part of a broader shopping repertoire, at least for upmarket urban consumers.
But there are challenges. For one, can a cash-guzzling model like this sustain? High costs of operating dark stores, zero-to-minimal delivery fees and an inflationary climate are major worries. Additionally, in an environment plagued by a funding winter, companies that raised large rounds of funding are now rethinking their costs. Quick commerce players have slashed marketing budgets and limited their expansion plans.
Bread & board games
Aadit Palicha, co-founder and CEO of Zepto, says the product-market fit and consumer acceptance of quick commerce has been well-established. Zepto was born with much fanfare promising 10-minute delivery. The firm raised $100 million five months into its launch in 2021 and has 95% of its orders from repeat buyers. Consumers come back to buy high-frequency categories like fresh fruits and vegetables, says Palicha.
Quick commerce firms typically work with a leaner inventory model focusing on items that fit the basket for last-minute purchases. So, dark stores are lined with fresh produce, dairy, snacks, soft drinks, kitchen essentials and so on. More recently, pet care, stationery, board games, appliances and gourmet products have been added.
Karthik Gurumurthy, senior vice-president, Swiggy Instamart, believes young urban consumers are driving the shift, due to the speed and ease factors. At the turn of the century, the hypermarket culture ruled the roost. Every fortnight or once a month, families went to the mall to buy grocery from a Big Bazaar or DMart, watch a movie and eat at the food court. With the emergence of online commerce such as BigBasket, the shopping timeline shrunk to 15 days, and quick commerce squeezed it even further.
In mid-2020, when Swiggy launched Instamart, the focus was on top-up grocery and meeting three main needs— the ‘need anything today’ concept, which is essentials like bread, eggs, milk, fruits and vegetables; indulgence or impulse needs like chips, beverages, chocolates or ice-creams; and then distress needs, when one runs out of milk, curd or eggs. Instamart, which is present in 29 cities with over 400 dark stores, delivers all orders within 20 minutes.
“Earlier, people would make a list. Now it’s about buying as and when things get over. First, they mainly buy via e-grocery, and then top-up through quick commerce. Initially, they buy only from two-three categories at lower order value. In six-eight weeks, they start ordering from more categories and the average order value also rises. They would think why not order an Aashirvaad atta packet along with bread. That’s when the shift happens," explains Gurumurthy.
And that’s the change companies like Instamart are trying to bring. With consumers doing top-up purchases with large-value items, the mix of assortment in dark stores is changing too.
Saw a cockroach?
Quick commerce is a win-win for fast moving consumer goods companies (FMCGs). At a recent meeting with a large quick commerce app, Krishnarao Buddha, senior category head at Parle Products, says he was stumped to hear that their large packets of Hide & Seek and Parle Gold biscuits were in high demand.
The biscuit company behind the popular Parle-G brand has seen “terrific" response to its products on quick commerce apps. Parle was among the early adopters of this model and now draws 15-20% of its e-commerce sales from the likes of Zepto, Blinkit and Instamart.
“Consumer habits have changed drastically and people have gotten used to quicker services. Earlier, they would order items that are essential and required immediately. But now, consumers have started buying 10kg flour packets. Ticket size is going up," says Buddha.
Food and beverage major PepsiCo sees quick commerce as a platform for new launches and consumer trials, with its limited-time offers and multi-packs for bulk buying during celebratory occasions.
“Quick commerce is a channel of hyper growth and increasing consumer adoption. PepsiCo will continue to unlock the opportunities it offers," says a company spokesperson.
Sudhir Sitapati, managing director and CEO, Godrej Consumer Products Ltd, is gung-ho. The company makes products like Hit mosquito and cockroach repellent, and Cinthol soap. “Our category has an edge in quick commerce. Because you see a cockroach and you want to order a Hit. Air care is another category that is doing well because when guests come home, people want to order air fresheners," Sitapati says.
Yet, in terms of sales, the online model brings only 5-10% of sales for FMCG companies. Quick commerce takes up an even smaller pie.
Broken promises
Let’s circle back to the question around sustainability of the quick delivery model.
Dunzo Daily co-founder and CEO Kabeer Biswas says, like every business, quick commerce has gone through an adoption curve. Initially, companies assess whether such a model is feasible or not and then scale up. After that, the overall business model needs to work well to get mass adoption, which is a function of unit economics.
“Initially, one isn’t concerned about the return on investment (ROI) of mass adoption. Now, everyone is trying to figure out the user proposition to create higher ROI and increase mass adoption. Everybody has gone back on the 10-minute delivery promise. This is essentially quick commerce’s food delivery moment of 2017-18," says Biswas.
Dunzo Daily has seen 45% adoption for slower delivery, where people wait for up to 75 minutes, and instant delivery, where they pay for the service or build a really large basket. The blended average delivery time, including faster deliveries, is 24 minutes.
“We need to give customers the option that quick delivery doesn’t come cheap. In the long run, our customers will prefer cheaper and slower deliveries over faster and more expensive ones," he says.
Angshuman Bhattacharya, national leader, consumer products and retail, EY India, too believes that the definition of ‘quick’ in quick commerce may change—the delivery window may expand to a few hours. “There will also be monetization at some point based on ticket sizes, order value, etc.," he says.
Show the money!
BigBasket, the company that changed India’s grocery buying habit over a decade ago, was a few months late in the quick commerce game. BB Now, the e-grocer’s quick commerce service, was launched in late 2021.
Like Instamart, BB Now is also trying to lure customers to higher ticket sizes so that the company makes money per delivery. If speed or scale was the focus in the last two years, it is now about fine-tuning assortments and forecasting demand in a particular locality or large gated complex.
While quick commerce firms are working towards customers buying a larger basket of items, there’s a catch—wider assortments mean larger dark stores, which, in turn, means greater investments. “The challenge here is not to carry a large number of stock-keeping units (SKU). More SKUs mean a larger dark store, making costs prohibitive," says Vipul Parekh, co-founder and chief financial officer, BigBasket.
For BB Now, it’s about increasing the order volume per dark store to ensure profitability. Currently operational in top 10 cities, the company hopes to cover 18-20 cities by March.
Zepto, too, is expanding the size of its dark stores. This includes building infrastructure for Zepto cafe (tea/coffee delivery), says Palicha. More categories also shore up the average order value.
However, the company’s pace of expansion is seeing a restraint, given the current macro environment. “We’re also seeing our cost structures come down to the best-in-class levels. We’re going to keep reducing our delivery times," he adds.
Keeping a tab on costs will be important for profitability—for all quick commerce companies, the growth is coming on the back of significant losses.
Zepto-owner KiranaKart Technologies reported a loss of ₹390.37 crore in 2021-22 on a stand-alone basis; total expenses amounted to ₹532.7 crore in the financial year—its first year of operation. The company generated revenue of ₹140.7 crore, according to data sourced from Tofler.
Blinkit reported an 18% jump in gross order value (quarter-on-quarter) in the December quarter, driven by a 21% growth in order volumes. However, the business remains loss making. Email queries sent to Zomato remained unanswered.
Kotak Institutional Equities, in a 2022 report, says the next two-three years may see large investments by multiple players to acquire consumers, a change in ordering habits and more dark stores. It expects the quick commerce industry to incur $750 million of cash burn over the next three years, before showing the money.
So, while everyone loves quick commerce, its journey to profitability is likely to be a slow trudge.
