Locating a speedy solution to quick commerce’s woes

However, if the number crunching is anything to go by, the profitability of these platforms seems to be anything but instant. The word on the street is that many of them are either scaling down or have halted the breakneck pace of expansion to revisit their growth-profit equations.

Market overview
“Quick commerce is leading to increased stocking up at home. We are seeing a significantly higher turnaround in impulse buying and stocking,” says Anshul Khanna, senior director and category head, foods, at PepsiCo India, which makes Lay’s chips and Kurkure salty snacks.

A report by consulting firm Red Seer estimates that India’s quick commerce sector will escalate to as much as 15 times over the next five years, touching $5 billion by 2025. That’s up from $0. 3 billion since 2021. The report also flags an overall addressable market of $45 billion, with delivery timelines starting from an ultra-quick 10 minutes to an outer limit of 30 minutes.

ETtech Long Read:
Quick commerce may find it tough to bag new users, investors in 2023

And in its September quarter earnings, Maggi instant noodles and KitKat’s chocolate maker Nestlé said that e-commerce channels are being fuelled by “emerging formats” such as quick commerce. Overall, they now account for 7. 2% of the packaged foods company’s quarterly sales.

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“Instamart witnessed a 16-fold increase in orders between June 2021-June 2022 and continues to see strong growth month-on-month. We believe we have only scratched the surface of quick commerce grocery and there is plenty of headroom for us to grow,” a spokesperson for Swiggy Instamart says.
While decacorn Swiggy’s Instamart began quick commerce grocery delivery in mid-2020, Zomato-owned Blinkit (previously Grofers), Mukesh Ambani’sReliance-backed Dunzo, and Y Combinator-funded Zepto also expanded their instant delivery models rapidly, a trend that spiralled amid the pandemic-induced lockdown.

Stress signals

Yet, the quick commerce category, barely two years old, is showing stress signals. Industry watchers caution that burning cash for customer acquisition may not be sustainable for too long.

“Fast grocery delivery can’t make fast money. The economics are brutal; the short to mid-term solution would entail covering the entire delivery cost from the consumer, a tight leash on the advertising and discount spends and longer delivery times,” says Jaspal Sabharwal, co-founder of TagTaste, one of India’s largest food sensory evaluation platforms.

Across these platforms put together, dozens of dark (or delivery-only) stores have shut down in the past one year. This is because things haven’t gone according to plan, amid steep costs of operations and hyper-local competition.

Dunzo Daily, Dunzo’s quick commerce business, lost 230 on each order daily, with losses surging to 464 crore during the first half of 2022, as per a report by Entrackr that cited numbers sourced from Registrar of Companies (RoC) filings. The amount included one-time expenses such as costs to set up stores as well as marketing spends. At the same time, though, Dunzo’s scale grew two-fold in the same period.

And Flipkart has scaled down Flipkart Quick, its instant delivery service, which it launched in 2020. “Flipkart Quick has scaled down from a few cities and continues in a couple as we build a sustainable business model in quick commerce that is centred around freshgrocery,” a Flipkart spokesperson said.

Ola Dash, another 10-minute delivery platform, too has wound down its businesses significantly. Sabharwal, also a shareholder in Zomato, adds, “Platforms like Zomato-Blinkit and BigBasket have the potential of building a giant business with efficiencies from scale and common infrastructure. In the longer run, sustainable profits for some of these platforms could hinge upon opting for their own private labels. ”

Experimentation
The platforms are pushing different ways for customer acquisition. Swiggy Instamart, Dunzo and Zepto are among the ones dabbling with latenight deliveries, till 2 am or 3 am. While orders are few at odd hours, companies are doing so to collect data. “Data collection is crucial [to understand] what works for which catchment area, so platforms can plan stocks and inventories accordingly,” says Harminder Sahni, managing director at retail and e-commerce consultancy firm Wazir Advisors. All the platforms now charge some amount of delivery fees or ‘handling charges’, depending on location and ticket sizes, even at the risk of letting go of some number of orders.

“Consumers have gotten used to instant delivery at their doorsteps. We experimented with revising the business model with extended timelines but that’s not an option,” says an executive at one of the e-commerce platforms, requesting not to be named.

In the first six months of 2022, for example, Swiggy’s total quick commerce and gross merchandise value (GMV) grew 20 times and 15 times, respectively, according to one of its biggest investors, the Netherlands-based Prosus. The report cited the GMV of quick commerce at $257 million.

“Quick commerce is not only gaining market share in the online grocery business but also helping increase penetration. We believe it is leading the next wave of e-commerce in the country,” says a spokesperson for Blinkit. She says up to 50% of growth in the online market penetration of grocery this year is being led by quick commerce.

Yet, profits are a long way off. And while cracking the 10-minute delivery code may have been easy, sustaining the model will take a lot more financial muscle, another few years, much more execution efficiency, and possible consolidation.

Zomato’s 10-minute food delivery plan, for example, remains in the “extended pilot phase”, according to the company, despite it making a bigbang announcement in April 2022. How this business model grows and sustainably scales over the next few years remains to be seen.