Will Quick Commerce Quell The Kirana Store Culture In India? According to RedSeer, quick commerce is estimated to be a $30 million market in 2021

The online grocery race is getting more cut-throat by the day. A popular concept in Europe, quick commerce as a business model is finding more takers in India, thanks to the increasing 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, Grofers (now rebranded as Blinkit) has pivoted to instant delivery of groceries within 10 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. We also have Amazon Fresh that has expanded to many cities this year and promises to deliver in 2 hours and Flipkart in 90 minutes under its Flipkart Quick service.

Two quick commerce players recently raised funding. One was Gurugram-based Satvacart, founded in 2014, which closed its Pre Series A round of funding and another was Zepto which raised $30 Mn in an early-stage funding round led by Glade Brook Capital, Nexus, and Y Combinator.

Like social commerce, quick or instant commerce is also a business model that has gained popularity after the pandemic. In Europe, approximately 5 out of 10 startups in the space were established in 2020.

The Key Drivers

According to RedSeer management consulting, quick commerce is estimated to be a $30 million market in 2021 and is expected to grow up to 15x to reach $5 billion in 2025. Besides internet penetration, the emerging online payments ecosystem, and the growth of e-commerce in the last few years, what is leading to the quick commerce rush?

"Key enablers for this market is rising adoption of convenience seeking shopping among consumers and a rising trend in unplanned shopping is driving this market," said Ankur Bansal, co-founder and director, BlackSoil.

"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 Padmaja Ruparel, co-founder, Indian Angel Network and founding partner, IAN Fund.

One of the key enablers of this business model is the dark store model it is built on. For the uninitiated, dark stores are small stores, just like ghost kitchens, that cater exclusively to online deliveries, near populated neighborhoods. These are traditional retail stores that have been converted to local fulfillment centers. Leveraging these stores, the companies claim to manage a concentrated offering of around 500-2000 key SKUs.

Will This Put An End To Kirana Stores?

Experts believe that Kirana stores are feeling the heat from e-commerce and the emergence of q-commerce, which may eat into their market share, but they are also fast getting digitized. "Tech-based solutions are fast evolving, enabling Kirana stores to offer a digital experience of ordering and delivering to their customers, with a large and wide assortment of inventory in-store. The advantage is that Kirana stores do not need as high an order density in every location as needed by the quick-commerce model," she added.

"Traditional Kirana stores have the advantage of having existing relationships with customers in the neighborhood and larger product categories and SKU mix. While the operational overheads of Kirana stores remain extremely low, giving the cushion of sustainability and a very long runway as an arsenal to compete," said Ruparel.

Additionally, Kirana Stores have built an extensive network in India and are the complete opposite of a modern supply chain. "E-commerce adoption in grocery deliveries can leverage this extensive network built by Kiranas by integrating technology with the Kirana store model so the stores can fulfill immediate needs for the people," added Bansal.

What Gives Kirana Stores An Edge?

Multiple challenges in the Q-commerce space give Kirana stores an edge. "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 Ruparel.

She further added that grocery is typically a low-margin segment with an added problem of small average order value, making it challenging to break even on the unit economics level. "The model might be difficult to sustain if no delivery fee is charged. The offering must be so appealing that customers are ultimately willing to pay a premium for getting stuff within 10 minutes. Given the growing investor interest in the space, it is highly likely the space will see more startups coming in," she added.

Additionally, the platforms also have to ensure that dark stores are stocked up enough to cater to any rush. Moreover, unplanned purchases of grocery is a key factor behind its popularity. But it is more common in metros and Tier 1 cities. Further, these players have also been facing criticism on social media from consumers about endangering the lives of delivery partners, who have already been protesting against unfair treatments.

Lastly, Kirana stores have been part of India's shopping culture since time immemorial and they are not going away anytime soon, for there will always be a large set of people choosing them over online deliveries.