The Consumer Delight
As consumers, we all seem to be getting used to being spoilt when it comes to online shopping through multiple new services, heavy discounts, and quick & quicker deliveries. With the onset of Covid lockdowns, as more and more consumers jumped through the stages of adoption into the deeper end of the online shopping world, brands and platforms were quick to respond to make the experience easier, faster and stickier. Previously, while a lot of innovation had been seen in product & service portfolios, sourcing models, user interfaces, pricing strategies, aggregator-based services, etc., it was only a matter of time that ‘delivery time’ would be the next big differentiator. And thus, came in Q-Commerce.
Q-Commerce companies have literally brought to life the phrase ‘a mile a minute’ and changed the dynamics of the online shopping experience for Indian consumers. By offering door deliveries of essential groceries within 10 to 30 minutes, companies like Zepto, BlinkIt, Dunzo, Swiggy Instamart & Big Basket Now have changed the way we shop for groceries. Our frantic calls to our neighbourhood grocer and vegetable vendor have now converted to a few simple clicks on our phones and receiving our stuff within minutes. It just can’t get any easier, isn’t it?
We are also seeing the extension of the Q-Commerce model into other categories like pharma where platforms like Tata 1MG, Pharmeasy, and Apollo are offering reduced delivery time. It is only a matter of time before products from other categories shall be available for rapid delivery as well.
The Business Angle
While it has been a great value add to the lives of the consumers, the business has also been promising for the players involved. However, the challenges faced have constantly pressured businesses to seek more investments, think of better business models, and constantly evolve their strategy while expanding their presence across additional cities. Many small players like Doodhwala, Ninjacart, and SuprDaily had to eventually downscale operations or explore M&As with bigger players. But the opportunity sure makes it worth the struggle. As per a report by Reedseer, the Q-Commerce market in India is expected to show a 15x growth by 2025 to reach a market size of approximately USD 5.5 Billion. It also stated that most of the demand is generated by millennials and Gen-Z consumers from mid to high-income households.
In the last 2 years, the sector has seen a lot of infusion of investments and consolidations. While some players like Flipkart (Flipkart Quick) and Ola (Ola Dash) have reduced or withdrawn their Q-Commerce business, other players have continued to ride the wave of increasing valuations and continuous investments and marching ahead on full steam. In June last year, BlinkIt was acquired by Zomato at $569 Million. And in Jan last year, Reliance Retail invested $200 Mn in Dunzo whereas Swiggy raised $700 Mn in its Q-Commerce business Swiggy Instamart and Zepto raised $200 Mn in May.
Of course, even though the sector is showing a fast-rising number of users and demand, the major players have witnessed several challenges to tackle issues related to profitability and inventory. Most of them use the dark-store business model. In the dark store model, each player has created a network of hyper-local micro-warehouses called dark stores which serve as the hyper-local hub for storing inventories. Companies have also partnered with local merchants who run and manage the stores for them. There are other upcoming business models like Kiko Live – which connects consumers directly to retailers through a live video shopping app.
While Q-Commerce companies are sitting at high valuations today, they are burning cash speedily due to large advertising budgets and heavy discounts being offered in order to ramp up their user base. Profitability is still under high pressure with margins being very thin. In FY22, Dunzo’s loss more than doubled to ₹464 crore from ₹229 crore in the previous fiscal. For FY22, Swiggy also reported more than two times the loss at ₹3528.9 crore as compared to FY21. BlinkIt reported a loss of ₹1019 crore against ₹381.7 crore in FY21. With high operations cost and low margins, these businesses are constantly treading a thin line between expansion and profitability.
Way forward
In the immediate future, the best business models based on developing the most effective supply chain solutions will emerge as the clear winners. Creating a combination of dark stores and local stores might be a way to strike that key balance. It will be the most robust and commercially viable supply chain models that will help these businesses make the next big leap into Tier II cities and further enable profitable expansion. Other aspects to accentuate growth include the expansion in the category of products offered, such as stationery, gifts, electronics, clothes, etc., which will also enable higher profit margins. As clearly evident, the market is growing and consumer demand is accelerating at a fast pace. And the players that will be able to come up with strategies to successfully expand into more markets and are able to go the last mile, quite literally, shall be the ones left standing tall.
