Can quick commerce leapfrog e-commerce in India? | TechCrunch

While in many parts of the world quick commerce startups are retreating, consolidating or shutting down, in India the model is showing encouraging signs. Adoption of the feature Plans to deliver groceries to your doorstep in just 10 minutes. These delivery companies – Blinkit, Zepto and Swiggy’s Instamart – are already on their way to profitability.

Analysts wonder about the potential of 10-minute delivery to disrupt e-commerce. Goldman Sachs recently estimated that Blinkit, which is Zomato, Will be acquired in 2022 for less than $600 millionalready More valuable than its decacorn food delivery parent company,

According to HSBC, Blinkit had a 40% share of the quick commerce market earlier this year, while Swiggy’s Instamart and Zepto were just behind it. Walmart-owned Flipkart plans to sell its products online to attract more customers. Enter the Quick Commerce Zone This will be announced next month itself, which will further prove the potential of the industry.

Investors are also showing keen interest in the sector. Zomato is valued at $19.7 billion despite minimal profitability, processing about 3 million orders per day. In comparison, Chinese giant Meituan, which processes more than 25 times as many orders per day, has a market capitalisation of $93 billion. Zepto, which achieved unicorn status less than a year ago, is finalising fresh funding at a valuation of more than $3 billion, according to people familiar with the matter.

Consumers are also buying into the instant commerce feature. According to a recent Bernstein survey, millennials aged 18 to 35 had the highest adoption rate, with 60% of those aged 18 to 25 preferring instant commerce platforms over other channels. Even the 36+ age group is embracing digital channels, with over 30% preferring instant commerce.

While India’s rapidly growing urbanization makes it a prime target for instant commerce, the industry’s unique operating model and infrastructure needs could limit its long-term growth and profitability. As competition intensifies, the impact of instant commerce may be felt more acutely by India’s e-commerce giants. But why is India’s retail market so attractive to instant commerce players, and what challenges lie ahead?

Opportunity for accelerated commerce in India

According to industry estimates, India’s e-commerce sales were between $60 billion and $65 billion last year. This is less than half of the sales made by e-commerce companies on China’s last Singles Day and less than 7% of India’s total retail market of more than $1 trillion.

Reliance Retail, India’s largest retail chain, posted revenue of about $36.7 billion in the fiscal year ended March, with a valuation of $100 billion. Unorganized retail sector – neighborhood shops (known as kiranas) Spread across thousands of Indian cities, towns and villages — continues to dominate the market.

“The market is huge and on paper, there is scope for change. Nothing that has been done so far has brought about any significant change in the industry. This is why whenever a new model shows signs of working, all stakeholders shower love on it,” said a seasoned entrepreneur who helped build the supply chain for a major retail enterprise.

In other words, there is no dearth of scope for growth.

Quick commerce firms are borrowing many features from grocery stores to make themselves relevant to Indian consumers. They have designed a new supply chain system, setting up hundreds of simple warehouses or “dark stores”, strategically located within kilometres of residential and business areas from where a large number of orders are placed. This allows the firms to make deliveries within minutes of the order purchase.

This approach is different from e-commerce companies such as Amazon and Flipkart, which have fewer but much larger warehouses in the city, typically located in areas where rents are cheaper and away from residential areas.

The unique characteristics of Indian homes further contribute to the appeal of quick commerce. Indian kitchens typically stock a greater number of SKUs than their Western counterparts, necessitating frequent top-up purchases, which are better served by local stores and quick commerce rather than modern retailers. Additionally, the limited storage space in most Indian homes makes monthly bulk grocery shopping less practical, and customers prefer to buy fresh food, which quick commerce can easily accommodate.

According to Bernstein, quick commerce platforms can price products 10% to 15% cheaper than mom-and-pop stores while maintaining a gross margin of about 15% due to the removal of intermediaries. Quick commerce dark stores have quickly increased their number of SKUs from 2,000 to 6,000, and there are plans to further increase this to 10,000 to 12,000. According to store managers, these stores are replenishing their stock two to three times a day.

The struggle with e-commerce

Zepto, Blinkit and Swiggy’s Instamart are selling a wide range of items beyond the grocery category, including clothes, toys, jewellery, skincare products and electronics. A TechCrunch analysis found that most of the items listed on its stores are sold by Amazon India Bestseller List Available on instant commerce platforms.

Quick commerce has also become an important distribution channel for major food brands in India. Consumer goods giant Dabur India expects quick commerce to increase the company’s sales by 25% to 30%. Hindustan Unilever, the Indian arm of the U.K.’s Unilever, has identified quick commerce as an “opportunity we can’t let go of.” And for Nestle India, “Blinkit is becoming as important as Amazon.”

While Quick Commerce does not need to expand beyond the grocery category, which itself is a half trillion-dollar-plus market in India, their expansion into electronics and fashion is likely to be limited. According to analysts’ estimates, electronics contribute to 40% to 50% of all sales on Amazon and Flipkart. If Quick Commerce manages to break into this market, it will become a significant and direct challenger to the e-commerce giants. Goldman Sachs estimates that the total addressable market in grocery and non-grocery for Quick Commerce companies in the top 40-50 cities is about $150 billion.

However, according to an e-commerce entrepreneur, selling smartphones and other expensive items is just a gimmick and not something that can be done on a large scale.

“It doesn’t make sense. What quick commerce is good at is forward-commerce. But smartphones and other expensive items don’t have very low return rates. … They don’t have the infrastructure to accommodate reverse-logistics,” he said, requesting anonymity because he is one of the early investors in a leading quick commerce firm.

The current infrastructure of Quick Commerce also does not allow the sale of large appliances. This means you cannot buy refrigerators, air conditioners or TVs from Quick Commerce. “But that is what some of these firms are suggesting and analysts are loving it,” the investor said.

Falguni Nayar, founder of skincare platform Nykaa, highlighted at a recent conference that instant commerce is primarily taking share from grocery stores and will not be able to hold as much inventory and assortment as specialized platforms that educate customers.

The instant commerce story in India still remains an urban phenomenon, restricted to the top 25-30 cities. Goldman Sachs wrote in a recent analysis that it may be difficult for the fresh grocery economy to work due to demand in smaller cities.

E-commerce giant Flipkart is going to launch its Quick Commerce service in limited cities from next month itself, in order to get a chance to attract customers from Amazon India. Most of Flipkart’s customers are in small Indian cities and towns.

Amazon – fast to reduce on its investments in e-commerce in India – has so far shown no interest in instant commerce in the country. The company, which offers same-day delivery for some items to Prime members, has questioned the quality of products from firms offering “fast” delivery in some of its marketing campaigns.

As brands focus on instant commerce as a fast-growing channel and more consumers embrace the convenience and value proposition of 10-minute delivery, the stage is set for a fierce battle between instant commerce and e-commerce giants in India.