Covid-19 has come and gone and continues to raise its ugly head now and then. But many of the disruptive business models it has effected have not run out of steam, yet. One seismic shift in the retail space is the ubiquity of ecommerce, ensuring safety and convenience in the wake of the pandemic.
Soon enough, India experimented with the ‘rapid’ version of traditional ecommerce and got used to the 10-to-30-minute quick commerce/hyperlocal deliveries. Companies in the q-commerce space typically keep 1,500-2,500 SKUs in strategically located dark stores to ensure swift deployment within a radius of 2 km.
It was not a fad. Between 2021 and 2023, the quick commerce sector in India rode its sudden popularity surge and raised $4.2 Bn, according to Inc42 data. Be it grocery, food or on-demand hyperlocal delivery of non-food items (electronics, jewellery, personal care products and more, plus package pickups), the format seemed so lucrative that food delivery giants Zomato and Swiggy, hyperlocal delivery specialist Dunzo and grocery delivery startup Zepto topped up their capabilities to compete.
Even Rebel Foods, the parent company of famous cloud kitchen brands Faasos and Behrouz Biryani and the master franchisee of American fast-food chain Wendy’s, decided to take the plunge.
But here is an element of surprise. All the ventures we mentioned assumed that quick commerce in grocery delivery would be the way to go. Imagine the emergence of a convenience economy where consumers can never run out of daily essentials. The wait times are negligible, delivery charges are affordable, and an entire battalion of low-paid riders is ready to vroom through the city traffic to deliver in a few minutes. It became a norm in many countries during the pandemic, and Indian businesses foraying into grocery quick commerce anticipated a similar tailwind for years.
While Zomato started its full-fledged quick commerce operations via Blinkit (formerly Grofers, which was founded in 2013 and acquired by the foodtech behemoth in 2022 for $569 Mn in an all-stock deal), Swiggy set up Instamart in August 2020 to offer instant grocery delivery. A year later, industry veteran Dunzo launched Dunzo Daily to run its quick commerce business. Finally, there came Zepto, a poster boy creating waves. It was incorporated in September 2020, started operations in April next year and became the first and only unicorn of 2023 after raising $200 Mn in August at a valuation of $1.4 Bn.
The 10-Minute Delivery Game: Did Indian Players Master It?
The Covid-induced gold rush subsided when shops reopened and the allure of 10-minute home deliveries started to wear off. The lack of solid business fundamentals was another key reason why many ultra-fast grocery delivery firms failed to corner success in the post-Covid era.
Essentially, quick commerce companies need to create long-term value for consumers beyond the novelty of speed delivery. For instance, those catering to specific areas or customer groups can accurately estimate the local demand through data analytics, up the personalisation bar and supply products not readily available in local kirana stores.
Also, the economies of scale work differently for quick commerce players. Unlike regular ecommerce, high order density and good AOV (average order value) may not produce the best results here for two reasons. First, the order flow is continuous and delivery needs to happen immediately. Therefore, each dark store’s productivity and profitability are crucial for business success. Additionally, order margins typically depend on product categories rather than average order value. Hence, a rigorous focus on top-selling categories and unit economics of every dark store is required for sustainable growth.
Given these complex parameters, it is not surprising that profit-making is still a distant dream for many of these quick commerce businesses. A quick look at Dunzo’s numbers also reveals these difficulties.
Set up in 2014, the on-demand delivery startup has been backed by Reliance Retail (RRL) and a clutch of marquee investors such as Alteria Capital, Google and Lightrock India, among others, amassing $500 Mn in funding. Its backstory also showed resilience and potential. Dunzo was one of the lone flag-bearers in the graveyard of hyperlocal startups that mushroomed during 2015 and 2016 but promptly scaled back and shut shop after facing huge losses.
However, the platform has failed to make good on the quick commerce wave in the wake of the pandemic and seems to stand on the brink with scant survival prospects.
Even after raising $240 Mn from RRL in January 2022 and undergoing two changes in its business model – an expansion into quick commerce using dark stores in 2020 and subsequently providing logistics services to retail stores on a revenue-sharing basis – Dunzo spent INR 9 to earn INR 1 in FY23. This resulted in a colossal loss of INR 1,801 Cr, nearly 4x the loss of INR 464 Cr recorded in the previous financial year.
Other major players also cut a sorry figure, while a few shut down their quick commerce initiatives shortly after the launch. Among these were JioMart Express from Reliance, Ola Dash (from the house of Ola), Swiggy’s premium grocery delivery pilot Handpicked and ZopNow. Then there was Flipkart Quick, which gradually scaled down its operations and consolidated the business with its next-day grocery delivery platform, Flipkart Supermart. Amazon, too, went for consolidation play and clubbed Amazon Fresh and Amazon Pantry, as pure-play q-commerce did not pay dividends.
Nevertheless, listed food delivery unicorn Zomato’s recent success in grocery delivery and quick commerce segments has kept hope alive. After initial struggles, Zomato’s quick commerce arm Blinkit turned contribution positive for the first time during the quarter ended September 30, 2023 (Q2FY24). Blinkit’s contribution margin as a percentage of gross order value (GOV) in the overall business improved from -7.3% in Q2FY23 to +1.3% during the quarter ended September 30, 2023 (Q2FY24).
Interestingly, Tata group-backed grocery delivery platform BigBasket is the latest to join the bandwagon with BBNow. It comes alongside the existing BBExpress that offers deliveries in an hour, within a six km radius, offering more than 8K products.
This shows market expectations are now firmly established despite a few below-par performances. For instance, a RedSeer report projects India’s quick commerce growth to surge 10-15x by 2025 to reach $5.5 Bn. Although it indicates huge headroom for growth, consumer loyalty will ultimately determine the final winner in the 2023 quick commerce race.
Of course, people loved the convenience and comfort of quick commerce in the hours of need. But will they be equally willing to pay for these speedy deliveries? More importantly, will they ditch local kirana stores and supermarkets for good to nurture the 10-minute wonder, often promoted as the future of ecommerce and retail delivery?
How Blinkit Led The Quick Commerce Race In 2023
Before entering the whistle-stop quick commerce track, Blinkit (then Grofers) weathered two damaging storms in the grocery delivery space. The first occurred during 2015 and 2016 when numerous startups, including Shadowfax, Peppertap (B2C business), Local Banya, TownRush, Paytm Zip, Ola Store and Flipkart’s Nearby, entered the space but met with failure. (As we have already mentioned, Dunzo was a survivor, too, at the time.)
Next came the Covid-19 crisis, but Grofers managed to enter the coveted unicorn club with a $120 Mn infusion from Zomato in June 2021. It was rebranded as Blinkit in December of that year, marking a strategic shift towards quick commerce.
In its third innings post the Zomato takeover, Blinkit has looked past the typical challenges of quick commerce and secured a leading position in several crucial areas, thus improving its brand image. Here is a deep dive into what the platform has done right in CY23.
Blinkit Emerged As The Top Customer Service Provider
According to a consumer sentiment analysis by Inc42 and Clootrack, customer service is among the topmost criteria for choosing any grocery delivery service. Surprisingly, none of the top quick commerce players could score well on that account.
On a scale of 1 to 10, where 1 is the lowest and 10 means the best customer experience, Blinkit topped the ranking with 2.4 and Swiggy Instamart was bottom with 0.5. Other major deciding factors include app functionality, simple return and refund policies, delivery partners’ behaviour and ease of order cancellation.
Blinkit Records Maximum App Downloads
The quick commerce platform saw maximum app downloads between January 1 and November 22, 2023. An analysis by Inc42-AppTweak puts Blinkit downloads at 14 Mn+, followed by Zepto (11 Mn+) and Dunzo (3.4 Mn+). Swiggy Instamart data has not been considered here as there is no separate app for Swiggy’s grocery delivery service.
Blinkit saw a maximum spike in app downloads in October, probably due to the festive frenzy. Compared to the previous month (September), it recorded a 62% increase, while Zepto downloads flatlined and Dunzo plunged.
There’s A New Face In Town, But Can It Compete With Blinkit?
Rebranded from Kirana Kart in late 2021, Zepto is a Mumbai-based quick commerce unicorn that rose to prominence within three years of its inception. To date, the startup has raised $592 Mn from Goodwater Capital, Nexus Venture Partners, Glade Brook Capital and Y Combinator, among others. Its founders, Kaivalya Vohra and Aadit Palicha (Stanford dropouts), also led Hurun India’s top 100 under-30 list of 2023, sorted by age.
A better business environment will go a long way. Interestingly, Zepto’s delivery partners have turned out to be its key strength, according to the Inc42-Clootrack consumer sentiment analysis. The quick commerce startup got the highest rating of 5.7 on a scale of 1 to 10 when it comes to interactions with delivery partners (10 denotes the best customer experience and 1 represents the worst). Next came Dunzo (1.9) and Blinkit (1.2), while Swiggy Instamart bottomed the list with 0.7.
Although Zepto could not bring in a high score closer to 10, the overall positive sentiment it generated should be lauded compared to other storied players. Gig workers at Swiggy Instamart and Blinkit faced financial challenges in 2023, leading to strikes that lasted for several days. Sometimes, things came to such a head that delivery partners left en masse to join other players. Dunzo, too, delayed salaries and eventually laid off more than 20% of its workforce.
Zepto, on the other hand, has a proactive approach and focusses on empowering its workforce. For example, the startup has partnered with Yulu and other EV majors to set up an all-electric fleet, enabling cost-effective mobility solutions for its delivery partners. Going forward, such an approach will result in a win-win scenario as 6.7% of the non-agricultural Indian workforce is estimated to join the gig economy by 2030. Their overall welfare will help build a thriving economy.
Balancing growth and profit will be challenging. Zepto may have the right approach, but to emerge as the industry leader, it must bring home the bacon and grow sustainably, the survival mantra of the ongoing funding winter. Of course, a startup rarely breaches INR 2K Cr revenue in the first two years like this unicorn did. Its revenue from operations ballooned 14.3x to INR 2,024.3 Cr in FY23 from a meagre INR 140.7 Cr in FY22. But it also suffered a net loss of INR 1,272.4 Cr in FY23, a massive 226% jump from the previous financial year. However, its PAT margin improved to -63% from -277%, which means the narrative is not as bleak as it seems.
Unfortunately, this has more to do with the newbie’s low operating leverage. In simple terms, operating leverage is the degree to which a company can increase its operating income through revenue growth while keeping its gross margins high and variable costs low. In the case of quick commerce, the gross margin is typically low, and a newcomer like Zepto will have to burn cash for years for business expansion to push its revenue.
According to some experts, the startup may have to raise funds every 12-15 months to retain its growth drive and keep its revenue flowing. Locking horns with competitors like Binkit and Instamart won’t be easy either, as their deep-pocketed parent companies enjoy a revenue mix advantage and will adequately fund these quick commerce platforms.
What Lies Ahead Of India’s Quick Commerce Startups In 2024 & Beyond
Now that the frenzy for safe and ultra-fast grocery delivery has declined to a large extent, will the quick commerce bubble burst and vanish in 2024? Not necessarily. Convenience is a habit, and the demand for instant home delivery will continue to drive the quick commerce market, say retail experts. In addition, India’s demographic shift and the subsequent rise in income may help remove the cost constraints hindering the sector’s growth.
For context, 65% of India’s population will be within the crucial consuming cohort of 15-59 years until 2030. The surge in income is expected to lift 110 Mn households to middle-class consumption of goods these quick commerce platforms are rushing to deliver. Given this scenario, players in this space may find it easy to levy packaging and delivery charges and cut down on discounts and freebies to balance costs with earnings.
There are other ways of making quick commerce more viable and attractive. Platforms are now looking at extensive ad monetisation, promoting thousands of brands to their captive audiences for the best possible outcomes. Blinkit’s CEO, Albinder Dhindsa, is also pushing business growth through service diversification. The platform is now venturing into Urban Company-like at-home handyman services, starting with electricians, plumbers and specialists in AC repair.
Nevertheless, the exponential rise in online shopping and digital payments has triggered quick commerce growth, so much so that research firms predict robust growth. A 2023 Deloitte report on the future of retail estimates a $40 Bn market by 2030, from $2 Bn in 2022. Another report by MarkNtel expects Indian quick commerce to grow at a CAGR of around 67% during 2023-28.
The model has its merits if it is valued as a premium service but stays within the realms of possibility. Sticking to a 10-minute deadline (or a maximum of 30 minutes) gets difficult in crowded metros, the critical markets for quick commerce. Moreover, given the low gross margins and high delivery costs of q-commerce, unit economics would remain elusive for many players.
Success will depend on processing more orders, pushing the right assortment of products (SKUs with good margins to increase AOV), ensuring efficient deliveries and offering unique value propositions that will encourage customers to top up their carts even after purchasing the required products. Industry players will do well to heed the lessons from Dunzo’s decline or Instamart’s perpetual issues with scaling as it continues to operate in the shadow of its parent app, Swiggy.
Finally, quick commerce players in the grocery delivery space will soon have a formidable contender in ONDC (Open Network for Digital Commerce), as kirana stores and retailers of all sizes can join the network to provide direct delivery services to their respective customers.
Can quick commerce/q-commerce race past so many hurdles – from getting access to a steady funding flow to optimising execution to building a best-in-class delivery partner network as customer experience (and loyalty) will hinge on it? To say nothing about the criticality of exploring multiple revenue channels to survive and grow? Or will 2024 witness a spate of consolidations as it happened earlier with food delivery? Companies remain bullish about success, but the ground realities may craft a different narrative soon.
[Edited by Sanghamitra Mandal]
The post India’s Quick Commerce Race: Blinkit On Top After 2023; Can Rivals Catch Up? appeared first on Inc42 Media.
