Quick Commerce: E-tail’s Great Disruptor

Thirty-year-old Urvashi Sharma, a New Delhi based public relations professional, is a regular customer of Swiggy Instamart. She signed up for the platform to fulfil her daily grocery requirements. “Amidst a chaotic work life, one hardly gets time to plan or go outside for groceries. Quick commerce services such as Instamart are a boon for us,” says Sharma. Bengaluru-based Atree Kundu echoes a similar view. Thirty one-year-old Kundu, who works with a well-known multinational corporation, subscribes to Dunzo Daily to stock up on kitchen essentials. “Often while cooking, I run out of certain supplies. I immediately place an order on Dunzo Daily, they deliver in 17 minutes,” she says.

Quick commerce (also Q-commerce) or the delivery of everyday essentials (typically groceries) in 10-30 minutes is already prevalent in major global markets. US-based Gopuff, set up in 2013, delivers groceries in 30 minutes and is valued at $15 billion. A clutch of new entrants such as Berlin-based Gorillas and U.K.’s Zapp are already quite popular in their areas of operations, and are now looking to corner a bigger slice of the Q-commerce market. The trend is fast catching up in India as well; the local quick commerce segment is a veritable mix of new players such as Zepto, which is building its business to specifically service instant deliveries, and established ones like Blinkit (formerly Grofers) that have completely rejigged their branding and positioning and are taking aggressive bets on the category.

Why Q-commerce?

In India, there has been no better time to run digital consumer businesses. Consulting firm RedSeer estimates the Indian Q-commerce market will grow 10-15 times to $5 billion by 2025, from $0.3 billion currently. The pandemic has nudged users across age groups and regions to take to online shopping for a whole range of items, including everyday essentials, like never before. Consumers who have traditionally been subscribers of neighbourhood kirana stores turned to online firms for buying groceries and other convenience items. As of 2020, the potential addressable market for local e-grocery players stood at an estimated 130 million online transacting households (who have either used e-grocery platforms or are willing to try), according to an earlier study by RedSeer Consulting. In India, products across home cleaning and personal care segments are usually categorised as grocery purchases.

The time, therefore, is ripe for Q-commerce players to grab more market share. Penetration of online grocery in the country is in low single-digits, which throws up a tremendous opportunity for multi-fold growth. “A lot of grocery consumption in India is unplanned and the share of top-up purchases is heavy. If companies want to meet these kinds of needs, they will have to look at shorter-duration deliveries,” says Ankur Pahwa, e-commerce and consumer Internet leader, and transactions and diligence partner, EY India.

Arpit Mathur, partner at Kearney, estimates the share of Q-commerce in the total online grocery pie to go up to 40-50% in the coming years from under 10% currently.

Playing It Out

Most of the players in the fray—Blinkit, Zepto, Swiggy Instamart and Dunzo — are building an expansive network of dark stores to make swift deliveries. Dark stores are retail spaces that companies use to store their inventory. They do not have storefronts and serve as warehouses or fulfilment hubs. Dark stores are small sized and are located close to serviceable consumer centres across a city, thereby enabling 10-30 minute deliveries. Companies are partnering with local merchants who run and manage these stores for them. The merchants are usually equipped with buying patterns and product needs of consumers residing in particular localities, and can help bring in insights to the Q-commerce business strategies being crafted by start-ups. Tech capabilities and deliveries are mostly powered by companies themselves.

Blinkit claims to have a network of 300 dark stores, and is said to be launching a new store every four hours. Swiggy Instamart, one of the early entrants in the space, has partnered with over 150 seller (merchants)-run dark stores for instant deliveries. The firm is ramping up its dark store play and has been on-boarding more than one seller-run dark store every day in the past few months. Its rival Zepto runs 100 dark stores, each of which is equipped to deliver more than 2,500 orders a day. “We are planning to launch at an even faster rate going forward,” the company said in a December release.

Funding, Expansion Boost

Backed by a spate of deep-pocketed investors who are more than willing to infuse a sizeable chunk of capital into sure-footed digital companies, firms are outlining ambitious expansion plans. Swiggy, which has bagged a fresh $700 million in funding led by Invesco at a valuation of $10.7 billion, has set aside a $700-million war chest for its Instamart business. Instamart delivers more than one million orders per week across 18 cities and claims to have two million transacting users. Swiggy is already delivering under 20 mins in most locations, and CEO Sriharsha Majety is confident that Instamart will touch an annualised GMV run rate of $1 billion in the next three quarters.

Zomato, which holds over 8% stake in Blinkit, is reportedly considering an investment of $500 million in the company to power its Q-commerce growth. Blinkit, which services over a million weekly instant orders across 12 cities, is keen on expanding its product basket beyond groceries and regular essentials to include items such as cellphones. Already, it has started instant deliveries of select products like thermals. The company is also adding more markets — it has commenced deliveries in Punjab, Chandigarh tri-city and is lining up launches in smaller cities, including Saharanpur, Dehradun, Muzaffarnagar and Sonipat. “We sincerely believe Q-commerce is the future. Imagine as a user, you have a magical cupboard in the house and you can open it and retrieve what you need, when you need it,” founder Albinder Dhindsa says in a company blog.

Dunzo which initially restricted its operations to Bengaluru and six other big cities now plans to ‘scale’ Dunzo Daily to up to 25 more locations in the next one year. It recently received a $200-million investment boost from Reliance Retail. CEO Kabeer Biswas claims the platform’s users are ordering anywhere between 3-5 times a week with order sizes ranging from low double-digits for a single bottle of water to more than ₹1,000 for a whole multi-category essentials basket. “We are already at around $200 million annualised GMV and intend to fulfil more than 75 million orders in 2022 across Chennai, Mumbai, Bengaluru, Pune and Delhi-NCR,” says Biswas. In fact, Dunzo expects the Q-commerce business to contribute nearly 70% to its total revenues going forward. Dunzo Daily’s strategy will be to have a razor-sharp focus, particularly on fresh items (fruits, vegetables and meat). “Once we are able to win the daily top-up basket of the consumer, there will be no looking back,” says Biswas.

Mumbai-based Zepto, run by two 19-year-old Stanford dropouts, is also growing at a scorching pace, having already bagged $160 million from investors collectively since its launch in June 2021. The start-up, which is currently valued at $570 million, is focused on building a Q-commerce play, and expanded to six more cities recently. The company is seeing 100,000 new app installations every week. CEO and founder Aadit Palicha says the firm is growing 220% month-on-month. “The biggest advantage we have is our tech teams — the infrastructure has been built specifically to only perfect this model,” says Palicha. Analysts believe going ahead, Q-commerce will extend beyond the realm of groceries and other regular convenience items to include delivery of products such as medicines.

Ola, too, has officially announced its foray into the instant delivery space with the launch of Ola Dash. It will offer consumers a wide array of products, including selection of fresh produce, home care products and cooking essentials. Ola Dash plans to expand its dark store network to 500 from 200 within the next six months.

Is The Model Viable?

The biggest problem with Q-commerce is that margins for a lot of products are low, but delivery costs are high. “To make margins work, one will have to ensure that the average order value increases,” says EY’s Pahwa. For companies to start making money per order, the cost of delivery should be efficient, adds Amit Nawka, partner, deals and India start-up leader, PwC. Besides, having the right assortment of products that caters to local taste is imperative. “Choosing the right SKUs (stock-keeping units) and making them available will be important,” adds Kearney’s Mathur.

Perhaps, poor economics is the reason behind big players such as Amazon or Reliance’s lack of enthusiasm to venture into the space. Indians typically spend about $850 billion on merchandise every year, of which $550 billion is spent on food and grocery alone, says Arvind Singhal, CMD, Technopak Advisors. The bulk of the food and grocery pie is led by purchase of staples and edible oil packs which are largely planned purchases. As far as non-food products are concerned, they form less than 10% of consumer spending. “People will subscribe to Q-commerce only to buy items that they have run out of. Besides, most Indians have access to kirana stores. Nobody can beat a kirana when it comes to merchandising,” says Singhal. The size of the total e-commerce market today stands at $40-45 billion, which is less than 5% of the total retail market. Online grocery GMV is only around $2 billion, led by BigBasket. “The average transaction value is very low for instant grocery deliveries,” adds Singhal.

In a recent interaction, Manish Tiwary, vice president at Amazon India, said the company was in a good place with its current two-hour grocery delivery service. “Speed is just one part of customer experience. If you over-accelerate on speed and do not offer the right value or the right selection, customer engagement towards your offering might not be as good as you want,” he had said.

Ultimately, it all boils down to the consumer acquisition funnel that a company has, say analysts. Swiggy, for instance, already has the benefit of a huge customer base due to its food delivery business and it will be easier for the company to push them to buy groceries from Instamart. Also, convenience-led shopping will at best work for the top 15-20 crore households and many of them are already on food delivery platforms like Swiggy. Whoever has more customers will be able to win the battle. “Q-commerce is largely going to be a metro, Tier-I play as it will only work in places where demand is high and consumers are ready to pay,” says Kearney’s Mathur.

Companies remain bullish. “The digitisation of daily purchase behaviour is here to stay and will only magnify in the future,” says Dunzo’s Biswas.