Let's start with the numbers. Zepto, a leading quick commerce (QC) company, plans to raise Rs 1850 crore in 2023, and raised Rs 5500 crore from venture capitalists last week. As per industry reports, revenues from the Indian QC market will double from Rs 23,000 crore in 2023 to Rs 50,000 crore in 2025. The market is expected to register a CAGR of 24.33% from 2024 to 2029, reaching 60 million Indians by 2029.
Customers who initially did not think they would need something within 10 minutes have now embraced QC as the above figures show. Zomato's Blinkit and Swiggy's Instamart are also players in this category, raising funds and investing to build out their share of dark stores for deeper distribution in metros and tier 1 cities.
Parallels with Cricket: When the T20 format of cricket became all the rage, pundits predicted the demise of Test cricket. They assumed that Test cricket would not be well attended, given the growing impatience and interest in the shorter formats of the game. However, their predictions were proven wrong as a certain audience of purists watched Test cricket for the technique, tenacity and temperament of the players. However, T20 severely weakened the “One-Day” format, taking away its viewership. Meanwhile, T20 has attracted new audiences – women and families.
Therefore, in cricket format, the current Indian retail scenario can be categorised as follows:
1. Test Cricket: Brick and Mortar Stores as Test Cricket (Players: Kirana + supermarkets like Dmart, Spencers etc.)
2. E-commerce Players in One Day (Players: Big Basket, Jio Mart, Amazon, Flipkart)
3. Quick Commerce participates as T20 (Players: Zepto, Instamart, Blinkit)
Physical stores have largely escaped the effects of quality control: they lost some customers to e-commerce players years ago, and now they cater to a customer segment for whom visiting a physical store is as much an emotional, social, and financial need as it is an actual purchasing need.
Meanwhile, e-commerce businesses face a bigger impact, with the promise of faster delivery with the same purchasing process becoming an attractive lure for customers.
New pitch
It is not surprising that the QC business is so prevalent, as QCs are very similar to kirana stores. We grew up ordering our essentials from local stores where we could place an order over the phone and get it delivered right away. The QC model of essentially operating multiple dark stores across a city and taking orders online for immediate delivery is similar and familiar.
The model for e-commerce is very different: there are a few big warehouses outside the city with low rental fees, so they are far away from customers.
Housewives are adopting QC because they stock more product SKUs despite having smaller kitchens, which allows for frequent, smaller size and quicker refills and refills. This is a unique phenomenon in India compared to Western countries. Millennials are opting for QC as it is quick, easy and convenient to order and get products.
Here's how it looks from here:
For QC companies:
1. Expand Dark Store SKUs. From an inventory of 2,000 SKUs, we will continue to grow this by 30-50% over the next few years.
2. Offer more product categories: Zepto has already announced that it will offer toys, electronics and home appliances, while Blinkit will deliver printouts to your home.
3. Increase your market share through direct partnerships with FMCG companies.
4. New product launches and exclusive distribution partnerships with small businesses and entrepreneurs.
5. Higher profit margins through cutting out the middleman, reducing inventory, and reducing discounts (customers choose fast delivery over higher prices).
For e-commerce businesses:
1. E-commerce companies like Flipkart and Reliance will be forced to enter the space, while Tata Big Basket and Amazon will have to spend a lot of money on faster delivery.
2. Larger companies will acquire QC or logistics companies to gain a foothold and double down on investments in tier 2 and 3 cities.
3. E-commerce companies such as Nykaa and Croma, which operate in the high-margin beauty and cosmetics and electronics sectors respectively, stand to lose profit margins as QC companies expand.
4. Customers will spend more time in the store, resulting in lost advertising revenue to QC companies.
For physical stores:
1. Customers will continue to enjoy the touch and feel experience offered along with an expanding range of SKUs to choose from.
2. Spend more time and money building relationships further, extending credit, and encouraging them to keep a share of the family’s grocery wallet.
QC's outfield is poor
QC companies may face tough times ahead. First, entering new product categories is not as profitable as it may seem. Categories such as electronics and apparel have high return rates that the QC business model cannot accommodate.
Secondly, grocery and FMCG products are based on the Pareto principle (80% sales from 20% of products), which suits the QC model. Customers are fine with ordering one product SKU as long as the product is readily available. However, in categories like electronics, apparel, toys, etc., customers want variety and multiple options. This creates huge inventory and delivery costs for QC companies.
(Nimesh Shah is an entrepreneur and founder of digital experience agency Windchimes and fintech SaaS product Xebra)
