Quick commerce in India

Table of Contents

1. Defining quick commerce

2. Leading ecosystem players

3. Margin drivers

4. Future margin boosters

5. Industry headwinds

6. Industry tailwinds

7. Mini Q&A

8. Conclusion

1. What is quick commerce? 🤨


Ecommerce enables customers to order products and services online. Quick commerce (QC) enables the ecommerce experience with sub 30 minute delivery timelines. It pampers people with no questions asked, rapid delivery of essentials and excesses with low to moderate delivery fees.

The QC industry in India began in mid 2020 with Swiggy Instamart (30-45 minute delivery) and the likes of Zepto, Blinkit (erstwhile Grofers) and BBNow followed suit.

Modern day ecommerce is present in India with marketplaces (Flipkart, Amazon, Nykaa, Tira, Myntra et al) and standalone websites/ apps for traditional and new-age brands. However, quick commerce has built a behavior closer to food ordering than to conventional ecommerce. It promised delivery in 10 minutes and has scaled rapidly in public markets (Zomato’s valuation as a proxy), private markets (Zepto’s fundraise as a proxy), newspaper sheets (inches of newsprint in 2024) and in the streets (anecdotal spotting of delivery riders).

It’s grown sufficiently fast to venture responses from Flipkart (Flipkart Minutes), BigBasket (pivot to quick commerce) and Amazon (upcoming in calendar Q1 2025).

2. Which are the top QC ecosystem participants? 🤩

The QC platforms with market share as per March 2024 estimates:

a) Blinkit: 46%

b) Swiggy Instamart: 27%

c) Zepto: 21%

d) BigBasket Now: 7%

September 2024 launch: Flipkart Minutes

3. What are margin drivers for quick commerce? 📈

a) Product margins: As with grocery store owners, each product sold by a QC platform has an attached margin. With mammoth sales numbers, QC operators can negotiate and drive better bargains in procurement of goods for B2C sales. 

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b) Order fees: This is charged in various forms including delivery fees, order processing/ handling charges, late night fees and surge fees (high order times/ inclement weather conditions).

c) Loyalty programs: These programs can be margin accretive if the QC platform offers savings in exchange for higher order frequency and high average order values. Examples include the Swiggy One and Zepto Pass memberships.

d) Ad platform for grocery products: Innovative performance and brand marketing ad solutions work well with captive distribution i.e. high number of users visiting and transacting on QC platforms. Specifically,

i) DSA for financial products: Cross-sell high margin financial products including personal loans and credit cards.

ii) Sponsored product listings: Retailers can pay for shelf space in traditional high-footfall grocery outlets. The same format repeats on ecommerce platforms including Amazon where retailers can pay to be shown on top of the page as sponsored listings.

As with traditional retail and ecommerce, sponsored product listings extend well to QC mobile apps.

iii) Ad format experiments: Brands can leverage banner ads on track order screens and delivery rider animations with sponsored products. QC platforms are only limited by their ingenuity in carving out ad packages for incumbent and upcoming brands.


4. What can boost margin for QC? 💰

a) Family subscription plans: At present, users can leverage one subscription or user login across devices to place orders on QC.

With subscription plans for Swiggy One and Zepto Pass, the primary and secondary users jointly benefit from discounted or free delivery. Like with OTT, family subscription plans can be offered at a higher price for continued access across multiple devices.

b) Increased handling/ processing fees: The user base has accepted order handling/ processing fees. Blinkit’s growth has not been hindered even as it charges a delivery fee on almost every order.

Other QC platforms should learn from this and walk away from the lure of zero delivery fees to boost their unit economics.

c) White labeled goods: Platforms can offer white labeled goods in fast moving categories with the combination of higher platform margins and lower prices for customers. Zepto presently offers products from its meat & seafood brand Relish and fresh food/ beverages from Zepto Cafe, an F&B play.

d) User insights for brands: QC platforms have amassed order history and brand preferences for user cohorts. These anonymized data sets can be leveraged by brands in targeted product launches for a fee.

Further, these platforms can be easily leveraged for paid brand surveys.

e) Fees per payment instrument: In the race to be profitable, it would help QC platforms if they levy fees on credit card/ debit card payments.

This can nudge users to buy discounted gift cards which have a double benefit of retaining users and saving payment processing charges. Alternatively, users might opt for UPI as a payment mode which is supremely cost-effective.


5. Headwinds: what can hold back the QC industry? 🚨

As with any emerging business paradigm, there are considerable factors that can put the brakes on QC. A few include:

a) Dismal unit economics: The math doesn’t add up. In spite of multiple revenue streams and iPhones delivered in 10 minutes, the margin doesn’t justify the public/ private market valuation.

b) Tightening regulations: QC has been allowed to flourish. If the authorities take a stricter view of its role in throttling orderflow of local kirana store outlets, it could halt the expansion of existing players and prevent legacy ecommerce platforms from starting/ scaling QC initiatives

c) Low order frequency: As QC platforms expand their dark stores network, they will inevitably bump up against the order capacity of customers. The math may still work for customers in metro cities with high AOVs, order frequency and disposable incomes. The true test lies in expansion beyond the top cities.

d) Maxing out handling fees: The order handling/ processing fee started with food delivery platforms and made its way to QC platforms. It is presently INR 4 for Blinkit/ INR 10 for Zepto and INR 7.67 for Swiggy Instamart.

The platforms can only hike their respective fees up to a point. There will be a threshold beyond which users will switch to other apps.

e) Failure to scale AOV: Every QC platform is aiming to lift the AOV and drive profitability per order. The campaigns offering gaming consoles and iPhones in 10 minutes are not going to take them there.

However, these will aid them in brand building and will nudge users to be more comfortable while ordering upwards of INR 1,000. It may not work for all QCs.

f) Curse of category expansion: Every QC platform began with a desire to serve daily grocery needs including fruits, vegetables, bread, milk, butter, oils and eggs. This evolved into higher margin category expansion including sports goods/ toys/ electronics/ cosmetics/ apparel et al.

Not every category will work and every unsold SKU continually takes up space in a dark store. It will be imperative for QC platforms to continually roll back low-selling categories.


6. Tailwinds: what can propel the QC industry? 🎉

a) Easier availability of funds: Zepto raised $1 billion in 3 months (June to August 2024). The private market is rewarding Zomato with a valuation upwards of $30 billion, largely attributable to growth shown by Blinkit.

Swiggy is upsizing its IPO filing to $1.4 billion and will get board approval on October 3, 2024. It also filed its Draft Red Herring Prospectus with the regulator in end September.

b) Delegated UPI payments: The launch of full/ partially delegated payments on UPI circle can further aid adoption of QC platforms by house help, elderly parents and teenagers.

This extends usage of QC beyond the primary users to their close circles and boosts average revenue per user account. 

c) Participation in festive sale campaigns: Since the first Big Billion Day in October 2014, the ecommerce duopoly of Amazon and Flipkart has owned the festive sales period for the last decade. 

With a wider range of categories, QCs are primed to jump in and claw away market share from the incumbents in the upcoming festive period.

d) Flash sales w/ Flash delivery: The biggest drawback of festive ecommerce sales is the time taken to deliver the purchased products. QC platforms own the sub 30 minute fulfillment leg and have an opportunity to leverage this with flash festive sales.

The QC platform purchase point is the smartphone and with push notifications on, it lends extremely well to the flash sale format.

e) Automating grocery top-up orders: With 4/8/12/26 week product subscriptions, QC platforms can lock in user orders for staples including bread/ milk/ eggs/ diapers/ detergent et al.

This upfront user lockin strengthens the platforms’ negotiation ability with suppliers and simplifies order fulfillment.


7. Mini Q&A 🎙

a) Do loyalty programs lose money? Why has Blinkit not launched one?

It depends on how loyalty programs are run by brands. Ideally, loyalty programs reward users for higher frequency of orders and these rewards are a fraction of the cost required for acquiring new users and their associated orders.

Blinkit may be leveraging learnings from Zomato Gold/ Pro/ Pro Plus. Even now, the revamped version of Zomato Gold is not as widespread as the first version of Zomato Gold. Apparently, the loyalty program hits the bottom line as it makes deliveries free even accounting for increased order frequency. This has also resulted in withdrawal of a valuable Zomato Gold benefit: on-time guarantee or cashback.

Blinkit’s focus on charging a flat delivery fee (INR 16/ INR 30) with a processing fee of INR 4 set them apart from the QC industry. However, their continued success has given them maximum headroom in raising order processing fees (as compared to Zepto/ Swiggy Instamart) with paid delivery the standard for almost every Blinkit order.

b) Should all QC platforms charge delivery fees + order handling fees?

Every platform has to run its own game. Blinkit chose to play the delivery fee + order handling fee. They made this decision with unit economics in mind and have benefited accordingly.

Swiggy presently offers the best deal with zero fees for select Swiggy One users above INR 99/ INR 199. The underlying cost of delivery has to be borne by them. They will have to graduate to charging discounted delivery fees with their Swiggy One program.

Zepto pass is still the new kid on the block with its February 2024 launch. They are bearing the delivery cost right now and should move to a discounted delivery offering with their Pass offering.

c) Does Zepto stand a chance as a QC platform without parent-co backing?

Before Zepto raised $1 billion in June to August 2024, it would have been difficult. Even if their unit economics were improving, the fact that heavily funded competing platforms could grow faster would eventually relegate them to 4th/5th  position in the QC industry.

With reduced growth prospects, funding would have dried up and they would be in no man’s land. That was the alternative future of Zepto if they had not raised $1 billion in 3 months. With a sizeable warchest, they have every right to become a meaningful QC player.

As of May 2024, nearly 3/4th of Zepto dark stores were EBITDA profitable. With plans to double their store count to 700 stores by March 2025, they are taking the fight to market leaders Blinkit and Swiggy Instamart.

A few more factors,

i) Zepto is self-reliant for user acquisition. Blinkit can and has leveraged Zomato users. Swiggy Instamart is accessed through the parent Swiggy superapp and did not have to acquire users through standalone campaigns.

ii) Zepto has a singular identity. Blinkit operates within Zomato along with Hyperpure, Zomato food delivery and the upcoming events app District. Swiggy Instamart operates along with Swiggy food delivery, Dineout and Swiggy Genie, with the overall company preparing for an IPO.

iii) Zepto’s velocity for shipping beyond features has resulted in Zepto Cafe and Relish, their own meat and seafood label. These may be fledgling initiatives but the young company’s ability to execute rapidly is a differentiator. Swiggy and Blinkit have not ventured yet into such whitelabel offerings. 

d) Who do QC platforms compete with?

i) Ecommerce operators: Amazon, Flipkart, Myntra, Nykaa and so on. QC with their category expansion beyond grocery now competes on the margins with these operators. It has captured mindshare but it does not yet have the coverage or SKUs of legacy operators.

Does it make sense for the ecommerce platforms to opt for a similar model and reduce delivery timelines? It might, but it will also initially hurt their unit economics. These platforms scaled with a different operational ethos and reducing delivery timelines from 1/2/3/5 days to sub 30 minutes will be painful. 

No one thought of ordering and receiving cosmetics in 30 minutes. With QC, they now have an option, and each lost sale slowly weans users off legacy operators.

ii) Neighbourhood kirana stores (general trade): These stores may have given credit to users and specially sourced products for their loyal customers. That loyalty did not extend the other way from customers when QC platforms started delivering in 10 minutes.

The QC platforms do not run enough dark stores yet to cause a sizable dent in kirana stores nationwide. In time, that can change if the unit economics hold up beyond the top ten cities in Tier 2/3/4 cities.

iii) Department stores/ large store retail formats (modern trade): The stores focusing on grocery, cosmetics and apparel were already challenged by ecommerce operators. Now, QC has come up as another challenger and threatens their existence. 

People will still want to go out and shop in person. The math will get interesting if footfall lowers or wallet share per visit declines considering existing rental slabs. These stores will have to innovate to stay relevant and attract customers. Again, this is a problem for the top 10 cities, for now.

8. Conclusion 🤝

Quick commerce reminds me of Webvan and its failure in the dotcom bubble. It’s history repeating itself with changes in user behaviour and GTM that mean it won’t entirely repeat itself.

The high population density supports 1,000 orders+ per day per mature dark store in top cities. Low labour cost enables cost-effective grocery++ delivery in 10-30 minutes. Ten years of ordering food from Swiggy/ Zomato lets people welcome multiple parcels daily at all times. People valuing their time translates to lower friction in paying delivery fees and order handling fees. Emergence of sizeable advertising revenue lifts margins.

It works in a super app, as a separate app, with inbuilt distribution and without access to distribution.