quick commerce 2023: 2023 Year In Review: Quick Commerce was lapped up by the urban public, but has a long way to go

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Quick commerce, where groceries and other items are delivered in a short span, mostly under 20 minutes, was able to win “public validation”, especially in metro cities, in 2023. However, the coming year will be a test of profitability, market depth and adaptability, senior executives, investors and analysts said.

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The sector seesawed in 2023. The beginning of the year brought widespread doubts about the unit economics of the system, alongside questions around whether customers even wanted a service like it. On top of that were concerns around road safety, as delivery workers tried to meet incredibly short timelines, as well as protests against low pay and working conditions, which rocked BlinkIt earlier this year.

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Eventually, Reliance JioMart shut down its quick commerce business called Express, while Bengaluru-based Dunzo had to massively scale down its operations in order to stay afloat.

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Though some of these challenges persist to various degrees, executives in the industry said that the public demand for quick commerce had been established, especially in urban and high-population-density areas. The key task in the year ahead would be to improve profitability and experiment with various categories as well as sale events, they added.

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Mumbai-based Zepto, which is the only player in the ecosystem that solely focuses on quick commerce, became the first unicorn in the country this year when it raised $200 million at a $1.4 billion valuation in August. In November, Zomato-owned BlinkIt reported a positive contribution margin for the first time ever. For Blinkit, contribution counts as revenue minus costs like store operation expenses, delivery costs, wastage and packaging costs, among other things.

Pursuit of profitability intensifies

Senior executives across the sector said profitability would be on top of their minds in 2024. “I don’t think just breaking even will be enough next year, we need to aim for a solid 5% to 6% contribution margin without impacting growth,” said Hari Menon, cofounder and chief executive of grocery delivery firm BigBasket, which runs its own quick commerce platform, called BB Now.

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“We are expecting to be comfortably profitable at an EBITDA (earnings before interest, taxes, depreciation, and amortisation) level next year,” said Aadit Palicha, cofounder and chief executive of Zepto. In November, BlinkIt retained its earlier guidance of breaking even in the quick commerce business by the first quarter of FY25.

Amid a scarcity of growth capital, profitability would likely be essential to continuing operations. Over the past few months, Reliance Retail-backed Dunzo had to shut down its dark stores in all locations outside Bengaluru as it ran out of funds after an all-out push for growth in the previous year. At the height of the crisis, the firm had to lay off hundreds of employees and hold back salaries for multiple months.

The firm’s fate is still undecided as its largest investor, Reliance Retail, has not yet committed to a proposed rights issue to infuse crucial funding, ET reported on December 11. Among other things, Dunzo’s existing investors are unable to finalise a valuation for the fresh fundraise, which will likely be at a significant discount to the valuation of about $800 million Reliance assigned to it in a $200 million funding round in January, 2022.

“I think the biggest mistake people make about this sector is thinking that capital is the biggest competitive vector. It is not. Winning this sector is 95% careful and concentrated execution,” Zepto’s Palicha opined.

However, the pursuit of profitability will also have certain restrictions. The high-frequency nature of quick commerce will likely lead to the average order value (AOV) settling at about Rs 550 in the long-tem, Menon said. BlinkIt reported an AOV of Rs 607 in the quarter ended September, 2023, its highest ever.

At the same time, the sector cannot afford to be a “discounted channel”, Menon said, and the user will have to be made comfortable with paying for convenience so as to defend and expand margins.

Of categories and festivity

The sector is also seeing a category expansion to small electronics, including hair dryers and trimmers, as well as topical apparel such as jerseys and kurtas, during festive events like Diwali or sporting events like the cricket world cup.

Swiggy took the idea a step further to sell everything from kitchenware to home appliances to products for babies in its new vertical, Swiggy Mall, which is currently only available in select locations.

BlinkIt, on the other hand, sold the latest iPhones through its platform this year after the release of the new model. Ventures like these are slowly blurring the line between quick commerce and ecommerce, industry executives said.

Next year, BB Now will also experiment with light electronics in partnership with electronics retailer Croma, a sister firm of BigBasket under Tata Sons, Menon told ET. “But there are many challenges that come with expanding to new categories, like thinner margins… for now, our focus will remain on grocery, which is what we do best,” he added.

Quick commerce will likely be essential to growing segments such as online grocery—about half the online grocery orders currently go to quick commerce, according to Manan Bhasin, Partner at Bain & Company.

Industry executives also said that similar to ecommerce, a lot of big sale days might be driven through events like festivals and sports finals. For instance, both Swiggy Instamart and Zepto had their best day of sales ever on November 19, during the cricket World Cup final between India and Australia.

“We saw high traction for festive and topical assortment on the platform with thousands of consumers using Swiggy instamart for idols during Ganesh Chaturthi, jerseys during the World Cup, and lights, and silver coins during Diwali,” said Phani Kishan, chief executive at Swiggy instamart.

Careful expansion

Even though quick commerce seems to have garnered wide acceptance in metros, firms will likely be careful about expanding into newer markets.

Zepto will likely stick to the 10 cities it currently serves in CY24 though its store count will likely go up by 30-40% to over 300 dark stores, Palicha told ET. BB Now, which currently has about 350 dark stores in about 35 cities, will likely only expand to 10 more cities at most, Menon told ET.

“We don’t necessarily think there is something wrong with expansion, but we would like to get deeper into existing markets, and we feel like our competitors are also skewed towards metro markets,” Palicha told ET.

Bhasin estimated that about 80% of quick commerce sales happen in metro and tier 1 cities.

“I have to agree with Aadit here… even in the tier 1 cities like Kochi, we only have one or two areas that have the density required to support quick commerce. The simple fact is that it (quick commerce) will not be accessible to everybody,” said Menon.

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