Is Quick Commerce In India Dying?

On February 15th, 2023, the Economic Times published a news article stating that Reliance Retail’s quick commerce app JioMart Express had been removed from Google Play Store and that the company’s website was inactive. The company’s quick commerce grocery delivery service was launched in 2021 and initially had plans to expand to 200 cities. Similarly, Ola Dash, Ola’s quick commerce platform, was discontinued in June 2022.

And other players like Zomato-backed Blinkit, Swiggy’s Instamart, and Tata-backed BigBasket are returning to longer delivery times. So, are quick commerce platforms in India struggling or transitioning to a more sustainable business model?

Overview of Quick Commerce in India

Quick commerce is an offshoot of e-commerce with a distinct business model in which goods with a short shelf life (food items) are delivered within 10-30 minutes of ordering. Unlike traditional e-commerce marketplaces, which ship goods from a central warehouse, quick commerce ships goods from multiple small warehouses- called dark stores, located throughout the city for faster delivery times.

It’s hard to trace the evolution of quick commerce because it has always existed in some form or other in the market. For instance, Domino’s under 30 min delivery model has existed for a very long time in the market, which helped it to penetrate the market deeper.

During the pandemic, the quick commerce segment witnessed increased adoption, and companies began competing with the speed of deliveries of grocery items or any household products. From an hour or 30 min, companies started promising deliveries within 10 minutes of ordering. 

Zepto pioneered quick commerce in India when they launched their services in April 2021 in Mumbai and quickly became a hit. Within five months of its launch, Zepto raised $60 million in November, followed by $100 million at a valuation of $570 million. In the following round in May 2022, it raised $200 million at a valuation of $900 million.

The move by Zepto prompted other players, such as Zomato and Swiggy, to enter the segment, leveraging their extensive food delivery network. Zomato acquired Blinkit (formerly Grofers), and Swiggy started with Instamart, making considerable investments to crack the model right.

In a few months, quick commerce became the fastest-growing e-commerce model, with market consulting firm RedSeer in its report published in March 2022, estimating the quick commerce market in India to reach a $5.5 billion market size by 2025, a total addressable market estimated of $45 billion.

But, cut to March 2023, most of the companies operating in the segment have changed track and are going slow on deliveries and expansion. Companies are clubbing orders and dispatching them in 60-minute intervals, incentivizing users to choose longer delivery times.

The Challenge of Positive Unit Economics

At this point, quick commerce is a cash-burning business for most companies, meaning companies are paying out of their pocket to fulfil the orders.

For instance, Zomato burns ₹41 on each order they process. In FY22, the company posted ₹347 crores net loss in Q3FY23, of which, Blinkit’s share in the loss is ₹288.5 crores. Similarly, Swiggy is burning $50 million monthly in the food delivery business and Instamart.

Zepto incurred a total loss of ₹390.4 crores, and Dunzo’s consolidated loss jumped to ₹464 crores on revenue of ₹67.4 crores in FY22. For quick commerce to scale, businesses cannot keep losing money on each order amidst the funding winter. They must innovate, be frugal with their approach, and improve per-unit economics.

According to a report published by brokerage firm Bernstein, the average order value of quick commerce in India is ₹490, and that’s not financially feasible for quick commerce platforms in the long term. Hence, the platforms are nudging users to increase order value above ₹1,000 by offering discounts. Also, on the store level, each dark store needs to fulfil 800 orders per day to break even.

By going for a longer delivery time, delivery executives can club orders and reduce the cost of shipping. Furthermore, quick commerce platforms are closing dark stores in low-volume areas. On the other hand, quick commerce platforms nudging users to go for higher order value completely defeats the purpose.

According to Hari Menon, CEO of Big Basket, while large orders have the flexibility to be delivered later, quick commerce is about delivering small orders almost instantly, which is its USP.

Demographic Challenges

Unlike in Western countries, where quick commerce platforms can maintain consistent product availability across all dark stores, companies in India must hyper-localize their dark stores based on consumer preferences. This raises logistical and restocking costs.

Peak & Non-Peak Hours

Unlike traditional e-commerce platforms, where festive and month-start and month-end cycles determine peak and non-peak cycles, quick commerce is different. The peak periods are usually two hours in the morning and evening when people plan their meals. And, in order to meet peak demand and deliver instantly, quick commerce platforms must keep a sufficient number of riders on standby. But, during non-peak hours, they often sit idle, which adds to the cost.

And, all dark stores are open from early morning until late at night, extending the normal working hours to 18 hours. Quick commerce platforms must maintain two shifts in order for all workers to fulfil orders.

Funding Winter

2021 was a good year for India’s startup ecosystem, with a record $42 billion investment, including $1.5 billion from quick commerce platforms. However, the overall slowdown in venture funding in 2022 has impacted many startups’ growth plans. In 2022, quick commerce platforms raised $1.1 billion.

And, with funding winter expected to continue in 2023, quick commerce platforms are aligning their goals with evolving developments and staying well-capitalized by reducing burn rate.

Will It Be A Quick Death of Quick Commerce Platforms in India?

Quick commerce is very difficult to crack, and one needs many things in the right place to profit from it. The potential for growth of quick commerce is immense in Tier-one and metro cities. Still, they face severe competition in Tier-two and other urban cities from kirana stores, where they present in every nook and cranny.

And, as quick commerce platforms withdraw promotional offers on orders amidst the funding winter, we may see a more hybrid model, where users need to pay extra or subscribe to a premium plan for quick deliveries.

Hari Menon feels 2023 will be a challenging year for quick commerce platforms as they focus on turning profitable and cutting back on places where they have over-invested or order density is low.

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