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Journalism of Courage
Amid supply chain disruptions triggered by the pandemic, the online grocery segment has forged a new sub-vertical — Quick Commerce, or q-commerce — where the promise of deliveries within 10-30 minutes of ordering is the unique selling proposition.
New players, including Mumbai-based Zepto, have waded into a space where industry heavyweights — Grofers, Swiggy and Dunzo, alongside Tata Group-owned Big Basket that will be extended to the Tata Neu superapp — have either launched or are contemplating full-scale operations. The focus of most of these ventures is on setting up micro-warehouses located closer to the point of delivery and restricting the stocks at these ‘dark stores’ to a focused set of under 2,000 high-demand items, as against the traditional formula of well-stocked large-format warehouses located on the outskirts of towns and cities.
The newest entrant in the space is Zepto, a startup founded by two 19-year-old entrepreneurs, which announced a $60 million fundraise on November 1, which it plans to invest in expanding the number of ‘dark stores’ it has to offer 10-minute grocery delivery to its customers.
In addition to Zepto, older players with delivery infrastructure like Grofers and Swiggy have also set up dark stores to decrease the turnaround times on delivery of goods. Dark stores are micro-warehouses that are located closer to the point of delivery, compared with larger warehouses that are typically located on the outskirts of a city and are fewer in number. Only 3-4 such large warehouses service an entire city, instead of hundreds of dark stores being set up in a large city like Delhi. Further, while the more conventional e-groceries manage close to 1 lakh stock keeping units (SKUs), dark stores manage a focussed set of 1,500-2,000 SKUs. This is akin to a comparison between traditional supermarkets and modern convenience store formats.
Zepto currently offers its grocery delivery services in Mumbai, Bengaluru, Chennai, Delhi and Gurugram, and plans to expand to Kolkata, Pune and Hyderabad. The $60 million fund infusion into Zepto by investors such as Nexus Venture Partners, Silicon Valley-based Y Combinator, Global Founders Capital, in addition to some angel investors is also reflective of the potentially addressable market in which the startup aims to operate.
According to RedSeer Consulting, the quick commerce segment is estimated to clock $5.3 billion in gross merchandise value (GMV) by 2025, compared to just around $300 million as of 2021. “Market growth will be driven by rising adoption of quick-commerce among convenience seeking customers with unplanned ordering behaviour,” the consulting firm noted in a report.
It is, therefore, not surprising why some of the larger players are also looking at tweaking their delivery business models to attract consumers. India’s largest online grocery BigBasket is said to be considering its own 10-minute delivery service under the BBNow banner — a feature that will be made available on its parent Tata Group’s super-app Tata Neu. Social commerce firm Meesho is also looking at offering free home deliveries on food and grocery orders above Rs 200 in non-Tier 1 towns.
RedSeer said that the traditional e-groceries like the ones being operated by Amazon, BigBasket, Flipkart, Grofers, etc saw their growth over the last 4-5 years being driven by internet penetration and standardised discounts approach. On the other hand, for q-commerce players, the shift in consumer preference for instant delivery of top-up purchases and the convenience-seeking behaviour has created an addressable market.
However, retail sector analysts believe that the business model of providing deliveries in 10 minutes does not solve an existing supply side problem and as a result might not end up shaping consumer behaviour enough for the customers to pay for these quicker deliveries down the road.
“If I don’t need a delivery in 10-20 minutes but you are delivering it in that much time, I’m not going to say no. But the cost of doing that is very high. You are not solving a real problem, where customers would be willing to pay a premium. If you analyse every Rs 100 one spends on e-groceries, the top-up items that you might need in a short period of time are worth less than Rs 10,” Arvind Singhal, Chairman and Managing Director of retail advisory firm Technopak told The Indian Express.
Globally, the q-commerce model has found traction in markets like Europe, especially in the background of the pandemic, where venture capital-backed startups are leading the way. Already, nearly a dozen companies are operating in the space across Europe including the UK-based startups Dija, Jiffy, and Zapp, and Germany-based Flink and Gorillas. Gorillas raised $290 million earlier this year and became the fastest European startup to become a unicorn. In China, too, companies such as Miss Fresh, Meituan Maicai and Dingdong Maicai have competed with established players like Alibaba, JD and Pinduoduo for their share in the $400 billion online grocery market.
Experiences from these markets have shed light on how these q-commerce business models not only operate on wafer-thin profit margins but also address a very small part of the addressable consumer demand. While currently, the focus of these companies may be on acquiring customers and altering behaviour, the need for financing at a later stage could elicit questions on their plans to become profitable. And the path to profitability is expected to depend to a great extent on whether the consumer becomes ready to pay a premium for the quick services.
