Q-Commerce: India’s latest Goldrush
Will the 10-minute fast delivery help India shoot to the top in the upcoming 10 years?
When I first visited Bangalore to start my corporate career at Bosch, I used to stay at my residence located right above the famous Empire Restaurant in the Bellandur suburb. I got to know last month from a friend of mine, that the restaurant has been closed for past few months with a Zepto dark store established in its place. This is not a one-off incident and such visuals have become commonplace with dark stores mushrooming all across the city.
Royal Rumble of Q-commerce
Everyone is fighting for its piece in customer’s share of wallet: right from age-old Indian conglomerates to Food delivery platforms to E-commerce giants. Seeing so many big shot players locking their horns with each other reminds me of the Royal rumble wrestling match on television with all the stars in one place.
Irrespective of who wins, with so many high stake players involved, the game is going to be loaded with high doses of excitement. But this isn’t the first time, so many high stake players have flocked to the online grocery space. It has happened in the past. Let’s reflect back to mid 2010s, when many players tried and burnt their hands in an attempt to replicate something similar, although at a much smaller scale.
Rewind to the good old time
Indian online grocery industry has always been investor’s darling. Back then in mid 2010s it had numerous multi-million dollar startups, with Peppertap and TinyOwl being the most promised ones, backed by deep-pocket investors such as Sequoia. The industry consolidated as a result of the bloodbath- leaving BigBasket and Grofers as the last men standing.
The two players left after consolidation followed totally different models of growth. BigBasket followed an asset-heavy model where it owns all the inventory costing its aspirations of expansion. In order to outpace its rivals, the company had started a fast delivery service within 90 minutes under BB Express in the year 2016. Seeing the losses mounting, it had to stop BB Express services within 3 years of operations.
On the other hand, Grofers followed an asset-light model where the company itself does not own the inventory. It allowed Grofers to grow ambitiously and scale at a much faster rate than Big Basket could manage. Accelerated growth started affecting its reliability and resulted in a high cash burn. Eventually, it had to scale it down. When things started going out of hand, the company had to limit its portfolio to packaged foods stopping delivery of perishables. As it didn’t solve the problem. The company has taken a new avatar in the form of Blinkit betting on Quick-commerce as its next growth engine.
Products falling under unplanned impulse purchases have benefitted the most from Q-commerce.
And everything changed with Zepto’s arrival
Zepto made much uproar in the last quarter of 2021 coming up with its 10-minute delivery. Every social media platform was busy talking whether the 10-minute grocery delivery is the need of the hour-putting its riders and others at risk. Despite the debate going on, Zepto, pumped up by VC funding, kept on adding dark stores around all the city corners. Eventually, a majority of the established players ended up playing a game of catch-up. Grofers pivoted its entire business model to Quick-commerce by rebranding it as Blinkit. BigBasket decided to adopt a wait and watch policy for two reasons: Firstly, It was busy with the Tata acquisition. Secondly, It had already burnt its hand in BB Express services that had to be discontinued in 2019. It has recently launched BB Now starting with some PIN codes in Bangalore. The rest of the industry players were quick to react and expanded fast establishing multiple dark stores in this window.
How long is the gold rush going to last?
The Q-commerce industry is expected to grow from its current size of nearly $0.5 bn to a $5 bn by 2025. This would translate to a 10x growth in a span of less than half a decade. The major growth engine is expected to be metropolitan Tier-1 cities, with close to 50% of the sales coming from there. But one key question that still remains unanswered is: Will these companies ever be able to make money with the losses mounting Y-o-Y? The answer to this question lies in cracking the code of Average order value. Right now Zepto’s AOV stands closer to its minimum AOV which is Rs 250. On the other hand, for Big Basket AOV of its main app is INR 1500 while AOV of BB Daily is INR 110. The high AOV from its main app acts as a buffer to its Quick-commerce versions that have comparatively low AOVs.
The Major cause of concern for Q-commerce companies 10x future growth projections is the bleeding Bottomline.
There is a high probability that the industry will see further consolidation in coming years. But one thing is for sure, the topline is going to skyrocket as people flock back to the cities once the restrictions are lifted. So the next time you return to your office finding a dark store in place of your favorite outlets, don’t be surprised.
