I vividly remember the joy of going to the corner shop as a kid. The shopkeeper used to know everyone in the neighbourhood by name and would fondly offer us chocolates even without getting money. (It was only later that I came to know he used to bill that for the next month to my father). As India became liberalised and opened to the world, slowly these corner shops changed from the dingy, stuffed space, to well-lit, neatly stacked super markets where one could touch, feel and buy the products. With FDI in retail, these became more bigger and better. But retail as a sector had not undergone much rapid change until the concept of quick commerce. It all started with ordering groceries online. It was a boon to several working professionals who could save time of visiting stores and standing in long billing queues. The delivery time ranged between few days and largely shrunk to next day.
But when Covid struck, of the many fields that had to grapple to rapid digitalisation, retail was one. Born out of this necessity was the concept of quick commerce. Until then groceries were planned monthly expenses, but thanks to this revolution, Aadhi puts his pan on the stove and then decides what to cook and then orders the missing ingridients. Just in a jiffy it is delivered. The convenience that the service offers is unmatchable. With rising urban population, increased internet penetration and the huge market place that India offers, quick commerce (q-commerce) is the new kid in the block.
Q-commerce as such has not been quite successful in the western world. This is due to the low user base, high man power cost and the unaffordable margins. But India’s q-commerce market has been growing year-on-year at 77 per cent to reach USD 2.8 billion in Gross Merchandise Value (GMV) in 2023, according to a Redseer report. In comparison, e-commerce has been growing at 14-15 per cent year-on-year. Major players like Zepto, Zomato’s Blinkit, Swiggy Instamart, Big Basket’s BBnow, Dunzo are changing the retail dynamics. On a closer look the unit economics of these instant deliveries do not tick but with better predicting software and user analytics, these players are confident of breaking even in the next few years.
How does Q-Commerce work?
As quick as the delivery, q-commerce offers simple, light and easy ordering experience for the user so that their carts lead out to checkouts. Unlike e-commerce which offers a wide range of complementary choices, right from the app design there is a differentiation.
In the servicing model, q-commerce has three main components:
- a mother hub that is similar to large warehouses of e-commerce which are at the outskirts of the city
- distribution centres are located at major points in cities
- the major differentiating link are the dark stores or the last mile delivery stores
The dark stores themselves are like kirana shops but with no customers. They can be spread over 2500-4000 sq. ft. and are usually in multiplicity based on the user activity in each area. A wide range of data points like population density, household incomes, local infrastructure, peak-time traffic and optimal expected order volumes determine the number of dark stores in a locality. Once the user places an order, the dark store fulfils those within a radius of 2-3km through a network of delivery partners. They are then replenished from the distribution centres which in turn reaches out to the mother hub. According to a report by JM Financial, a typical neighbourhood kirana shop generally carries only a limited assortment of 1000-1500 stock keeping units (SKU). This is mainly due to limited storage space or financing options. On the other hand, dark stores hold more than 6000 SKUs. As there are no customer walk-ins, their layouts are optimised for higher throughputs. Added to this, their capability to use high end technology enables dynamic assortment making them three times more efficient than supermarkets.
Not just burning cash
The market size of q-commerce in gross merchandise value (GMV) terms is around USD 3 billion as of CY23 and this is expected to boom to USD 40 billion over the next 7 years. This growth is expected to be fueled by offerings that expand beyond groceries. Special days like world cup, new year and valentine day saw a surge in orders. Understanding the trend, major players are expanding their categories and now 30 per cent of items are non-grocery that include electronics, electricals, home décor, beauty, personal care, over-the-counter drugs, home and office essentials, festive needs, toys and gifts. These tend to have higher cart value and offer greater margin to the players while pegging them directly against the e-commerce giants. Witnessing this growing convenience and user preference, like food delivery apps, ecommerce players Amazon and Flipkart are also trying to take a share of the pie.
Blinkit’s order volume shot up to 55.8 million and revenue surged to Rs 644 crore in Q3 FY24. Zepto’s revenue skyrocketed to Rs 2024 crore in FY23. According to JM Financial Institutions Securities, the two-leading food-techs in the country dominate the q-commerce space too. Zomato-owned Blinkit was the largest player in CY23, with more than two-fifth of the market share, basis GMV. It was followed by Swiggy-owned Instamart. The biggest gainer over the last 1 year was Zepto, which now controls one-fifth of the market. Catching pace is BB Now and is aggressively attempting to expand its presence, which is currently at a market share in high-single digits. Further, Blinkit as of Q4CY23, extended its lead to ~46 per cent and was followed by Instamart (27%), Zepto (21%) and BB Now (7%).
In aggregators and online places, burning cash in long term helped cultivate a behavioural change and in turn hooked on customers to a service. But that does not seem to work in q-commerce, as out of ten players only four remain in market today. Apart from funding, the knacks of supply chain and managing the last mile delivery play primal. Zepto, is fast emerging as the dark horse despite having no background of running an operationally intensive B2C business. From recent reports profitability seems to be quite close. Blinkit’s quarterly adjusted EBITDA losses have come down from Rs 3.26 billion in Q1 FY23 to Rs 0.89 billion in Q3 FY24. At the current rate, it is expected to break-even by Q1 FY25. Similarly, recently Zepto indicated 44 per cent YoY improvement in its EBITDA % in CY23. The company expects to become EBITDA positive in 2024, which would mark a break-even within 36 months of launch. Earlier, Swiggy had indicated that the peak of its investments in Instamart was over, and that it had started taking strong strides towards achieving profitability in the business. As such, the company had suggested that it would soon turn contribution-neutral in Instamart. The report by JM Financial suggests that the focus on the following would help improve in profitability. On the revenue side: Average Order Value, product margins and ad income. On the cost side: dark store costs, mid mile warehousing cost and delivery and other variable costs.
