Is Quick Commerce a Scalable Business?
The super-fast delivery business is being looked at as cash-intensive
Recently, Zomato faced a backlash from social media for announcing to launch 10-minute delivery service, Zomato Instant. From experts to common men, many came out and spoke about how quick delivery puts the lives of delivery partners at risk. While this is one side of the story, experts also feel that these businesses may find it difficult to scale up as well.
Quick commerce or Q-commerce as a business model has been gaining popularity, thanks to the skyrocketing number of internet users and the popularity of online deliveries. Ola has kicked off 15-minute grocery delivery in Bengaluru, Swiggy's InstaMart service delivers in 15-30 minutes, Dunzo promises to deliver in 19 minutes in Bengaluru through Xpress Mart and BigBasket has the BB Express, which claims to deliver essentials within 60 minutes.
Zomato said that with $1.7 Bn cash in the bank, it would look to capitalize on the growth seen by Blinkit in the past year as quick commerce took center stage. We also have Amazon Fresh which has expanded to many cities this year and promises to deliver in 2 hours and Flipkart in 90 minutes under its Flipkart Quick service. Among the most popular players in the space are BlinkIt and Zepto.
Quick commerce is estimated to be a $30 Mn market in 2021 and is expected to grow up to 15x to reach $5 Bn in 2025, according to RedSeer management consulting. And, many of these players have been raising huge amounts of money, amid rising valuations.
Like social commerce, quick or instant commerce is also a business model that has gained a foothold after the pandemic, across the globe. For instance, in Europe, approximately 5 out of 10 startups in the space were established in 2020.
However, some investors are hesitant to fund the companies as the business model is yet to prove its worth.
The Question Of Scale
The ultra-fast delivery business is being looked at by many as a cash-intensive one. The
"Q-commerce is highly location-dependent. Breaking unit economics might be possible in some places and extremely challenging in others. It's about picking the right locations with high order density. However, that brings the model's scalability into question, especially when multiple companies compete for the same set of users concentrated in small geographies," said Padmaja Ruparel, co-founder, Indian Angel Network and founding partner, IAN Fund, told us in an earlier interview.
These players are under constant pressure to burn through the capital they raise to grab a market share. However, profitability is still a far cry as online grocery per se is a low-profit margin business so far.
"The demand for online grocery delivery has multiplied due to the global pandemic. Startups vying for a share of the quick commerce pie are well-funded or new players raising large cheques from investors. Building a parallel supply chain to existing solutions requires large amounts of capital. Apart from the working capital requirements, additional capital is required for aggressive advertising and offering deep discounts for customer acquisition," said Ruparel.
According to news reports, Blinkit has shut around 50 of its dark stores across the country. This has resulted in many, losing jobs. Also, reports suggest that the company has been delaying payments to vendors as well.
Additionally, unplanned purchases of grocery is a key factor behind its popularity. But it is more common in metros and Tier 1 cities. For other cities and towns, this seems to be still a far-fetched concept. The platforms also have to ensure that dark stores are stocked up enough to cater to any rush.
However, some are optimistic about the business model, even though they do feel that this puts the lives of delivery boys at risk. "Quick delivery segment is sustainable as it is one of the fastest-growing sub segments in e-commerce and offers an addressable market of ~20mn homes, this makes the market opportunity large enough for existing players & new entrants. The market is witnessing high growth and expected to be one of the major e-commerce models to cater to the growing needs of the consumer," said Ankur Bansal, co-founder and director, BlackSoil.
Having said that, almost everyone including investors and consumers feel that there are more challenges that tech startups should resolve instead of going for a 10-minute delivery model.