While quick-commerce startups around the world have been forced to exit, consolidate, or shut down, India is seeing bright spots in the business model. Urban consumers are embracing the convenience of having groceries delivered to their doorstep in as little as 10 minutes. Delivery companies like Blinkit, Zepto, and Swiggy's Instamart have already started charting their path to profitability.
Analysts are intrigued by the potential for 10-minute delivery to disrupt e-commerce: Goldman Sachs recently estimated that Blinkit, which Zomato acquired for less than $600 million in 2022, is already worth more than its decacorn food-delivery parent.
As of earlier this year, Blinkit held a 40% share of the quick commerce market, followed by Swiggy's Instamart and Zepto, according to HSBC. Walmart-owned Flipkart is set to enter the quick commerce space as soon as next month, further proving the industry's potential.
Investors are also keen to get into the space. Zomato processes about 3 million orders a day and has a market capitalization of $19.7 billion, despite thin profit margins. That compares with Chinese giant Meituan, which processes 25 times as many orders a day and has a market capitalization of $93 billion. Zepto, which became a unicorn less than a year ago, just closed a new round at a market capitalization of more than $3 billion, according to people familiar with the matter.
Consumers also want the convenience of quick commerce: Millennials ages 18-35 have the highest adoption rates, with 60% of 18-25 year olds preferring quick commerce platforms over other channels, according to a recent Bernstein study. Those 36+ are also embracing digital channels, with over 30% preferring quick commerce.
UBS India Market Forecast. Image courtesy: UBS (screenshot)
Rapid urbanization in India makes it an ideal target for quick commerce, but the industry's unique operating model and infrastructure requirements may limit long-term growth and profitability. As competition intensifies, the impact of quick commerce will be felt more acutely by India's e-commerce giants. But what makes the Indian retail market so attractive for quick commerce companies, and what challenges lie ahead?
Opportunities for fast commerce in India
Industry estimates put e-commerce sales in India at $60 billion to $65 billion last year, less than half the amount e-commerce companies made on China's Singles' Day last year and less than 7% of India's total $1 trillion-plus retail market.
Reliance Retail, India's largest retail chain, posted revenue of about $36.7 billion in the fiscal year through March and was valued at $100 billion. The unorganized retail sector, such as neighborhood shops (commonly known as kiranas) dotted across thousands of Indian cities, towns and villages, continues to dominate the market.
“The market is huge and in theory there is a lot of potential for disruption. Nothing has been done so far to actually disrupt the industry, so when a new model shows signs of working it's very much welcomed by all parties,” said the veteran entrepreneur who helped build supply chains for major retail ventures.
In other words, there's plenty of room to grow.
Modern retail's share of total grocery spending in India remains fairly low compared to most other large economies, and HSBC believes this share is likely to remain lower as customers move from unorganized to direct, fast commerce (HSBC). Image credit: HSBC (screenshot)
To become relevant to Indian consumers, quick-commerce companies have borrowed many features from kirana stores. They have invented a new supply chain system, setting up hundreds of discreet warehouses, or “dark stores,” strategically placed within a few kilometers of residential and business areas where high volumes of orders come in. This allows the companies to deliver within minutes of an order being purchased.
This approach differs from that of e-commerce companies such as Amazon and Flipkart, which have fewer but much larger warehouses in cities, typically located in areas with lower rents and away from residential areas.
The unique characteristics of the Indian home also add to the appeal of quick commerce. Indian kitchens typically have a higher number of SKUs than their Western counterparts, resulting in frequent replenishment needs that are better accommodated by local stores and quick commerce than modern retailers. Additionally, most Indian homes have limited storage space, making monthly bulk grocery purchases impractical. Customers also tend to prefer buying fresh produce, which quick commerce can easily accommodate.
By cutting out the middleman, QuickCommerce platforms can sell goods at 10% to 15% cheaper than independent stores while maintaining gross profit margins of about 15%, according to Bernstein. QuickCommerce dark stores have rapidly expanded their SKU count from 2,000 to 6,000, with plans to increase to 10,000 to 12,000. Store managers say these stores restock two to three times a day.
The fight against e-commerce
Zepto, Blinkit and Swiggy's Instamart are expanding beyond grocery to sell a range of products including clothing, toys, jewellery, skincare products, electronics etc. A majority of the products on Amazon India's bestseller list are available on the quick commerce platform, according to a TechCrunch analysis.
Quick commerce has also become a key distribution channel for major food brands in India. Consumer goods giant Davar India expects it to account for 25-30% of its sales. Hindustan Unilever, the Indian arm of UK-based Unilever, has described quick commerce as an “opportunity that cannot be missed.” And for Nestle India, “Blinkit is becoming as important as Amazon.”
Quick Commerce does not need to expand beyond the $500 billion+ grocery segment in India, but it may make limited inroads into electronics and fashion. Analysts estimate that 40% to 50% of Amazon and Flipkart's total sales come from electronics. If Quick Commerce could enter this market, it would pose a significant and direct threat to the e-commerce giants. Goldman Sachs estimates that the grocery and non-food market size addressed by Quick Commerce companies in the top 40-50 cities is around $150 billion.
But selling smartphones and other big-ticket items is just a gimmick that can't be done at scale, according to one e-commerce entrepreneur.
Blinkit is selling premium smartphones and the PlayStation 5, the company's founder and CEO shared on social media.
“It doesn’t make sense. Quick commerce is good at forward commerce, but smartphones and other big-ticket items tend not to have as low a return rate. … They don’t have the infrastructure to handle reverse logistics,” said the early investor in a major quick commerce company, who spoke on condition of anonymity.
QuickCommerce's current infrastructure doesn't allow it to sell large appliances either, meaning you can't buy a refrigerator, air conditioner or TV from QuickCommerce. “But some companies are proposing that, and analysts are happy to accept that,” the investor said.
Falguni Nayar, founder of skin care platform Nykaa, highlighted at a recent conference that quick commerce is primarily taking market share from kirana stores, which will not be able to maintain as large an inventory and selection as the specialised platforms that educate customers.
Quick commerce in India remains largely an urban phenomenon concentrated in the top 25 to 30 cities, and Goldman Sachs said in a recent analysis that demand in smaller cities is likely to make fresh food uneconomical.
E-commerce giant Flipkart plans to launch a quick-commerce service in some cities as soon as next month, hoping to tap into Amazon India's customer base, most of whom live in smaller Indian cities and towns.
Amazon, which is scaling back its e-commerce investments in India, has so far not shown any interest in fast commerce in the country. The company, which offers same-day delivery of some items to Prime members, has questioned the quality of products from companies that offer “fast” delivery in several marketing campaigns.
A recent Bank of America (BofA) survey of Indian consumers. Image credit: BofA Global Research (screenshot)
As brands increasingly focus on quick commerce as a fast-growing channel and more consumers embrace the convenience and value proposition of sub-10-minute delivery, India is poised for an intense battle between quick commerce and e-commerce giants.