The Rise of Quick Commerce in India

We all know what is e-commerce, but are you aware of the recent trend in the market which is quick commerce? Let's try to uncover this new and unique business model through this blog.

What is Quick Commerce?

Quick commerce is a new and faster form of e-commerce, which promises instant and rapid delivery of groceries and other items for daily use. This new business model works on the concept of last-mile delivery which is nothing but the transportation of merchandise from the nearest distribution hub to the final destination. 

Indian quick commerce companies like Zepto, Dunzo, Swiggy Instamart, etc. witnessed a major push, especially after the supply chain disruption caused by the Covid-19 pandemic. These quick commerce companies base their value proposition on the factor of Convenience which the consumers enjoy while ordering from these brands in the form of a 10-30 min delivery promise. 

The target market for these quick commerce companies is basically high-income households living in metro and tier-1 cities as well as college students who are living away from their families and other segments of the population who value convenience more than the price. 

 

What is the Dark Store Model?

 

The way these quick commerce companies are able to achieve super-fast delivery is through something known as the dark store model. These stores are micro warehouses or cloud grocery stores, just like our Kirana stores with the only difference being that they don’t sell to walk-in customers. These stores are very strategically located, as close as 1.5 – 4 km away from the customer base. 

The gross profit margin of these dark stores in India is around 15-20% but the net profit margin is even lower as it also takes into consideration the indirect fixed costs, like the office expenses, rent, administration costs, and delivery costs out of which the last mile delivery is the most expensive cost variable in the entire chain. 

 

Challenges faced by Quick Commerce

 

1. One major challenge faced by quick commerce companies in India is to achieve an extraordinary number of orders per day. This concept of super-fast delivery comes from the US where the average distance between an American house from the closest local grocer is 3-4 km and from stores like Walmart and Target is around 7-8 km whereas in India our local grocery store is at a walking distance or less than 1 km. So, technically these companies are not only competing with each other but also with our local grocers and Kirana stores. 

2. Another challenge is that these companies need to achieve an AOV (Average Order Value) of Rs. 500 and more. But the problem is that people use these apps to place orders for unplanned or last-minute grocery shopping for example if you want to try out a new recipe but don’t have the required ingredients at home or if you just want to invite your friends over for a house party so you want to order chips and coke. Because of this reason, it is less likely that the order value will cross Rs. 500. 

3. Achieving peak efficiency with the delivery staff is another challenge. The monthly attrition rate in the food delivery industry in India is around 18-20%. The delivery boys keep on leaving and joining so these companies have to recruit extra delivery staff which leads to higher costs. 

 

Future of Quick Commerce in India

 

The Q-Commerce market in India is predicted to grow by 10–15x to reach almost $5.5 billion by 2025, according to a recent Redseer report. This business model will also extend to more categories like pharma, fashion, cosmetics, and electronics in the near future. Recently Reliance also invested $ 200 million in Dunzo and picked up a stake of 25.8%. With facts like this, we can surely say that the future of the quick commerce industry in India appears to be bright and promising but for it to be sustainable and profitable, there is still a long way to go.