Quick Commerce in India: Boon or Bubble Waiting to Burst?

In the Indian retail industry, quick commerce (qcommerce) has emerged as a fast-growing segment.

With delivery in less than 20 minutes, it combines the convenience of e-commerce with fast delivery. Qcommerce gained prominence during the pandemic, changing how consumers shop online. However, it has become a part of the urban lifestyle, offering convenience at lower prices.

As the sector flourishes, attracting investors and changing the way Indians shop online, the question arises whether this business model is a boon or just another bubble waiting to burst.

Let's find out.

What is Quick Commerce?

Qcommerce involves delivering products, mainly groceries and essential items, within 10-20 minutes of placing an order.

This model merges the convenience of e-commerce with the speed of on-demand delivery. Qcommerce achieves this by relying heavily on advanced logistics, dark stores, and AI-powered systems. These help to optimise delivery times and inventory placement.

Qcommerce companies typically keep around 10,000 stock-keeping units (SKUs) featuring each category's most popular items. These SKUs are housed in their dark stores in densely populated areas to enable faster delivery. This strategy allows a large volume of orders to be concentrated in a small area.

The high demand density enables qcommerce companies to respond faster than their counterparts in the US and the UK. Additionally, lower delivery and labor costs than other markets have made this model highly lucrative in India.

Key Players and Total Addressable Market

This thriving model has attracted major players like Blinkit, Zepto, and Swiggy's Instamart, which now dominate the market.

However, this trend has also led to the emergence of smaller competitors, such as Big Basket and Flipkart Minutes, with more players ready to join.

Currently, the top three players dominate the market share. According to The Economic Times, Blinkit holds the leading position with a 46% market share, trailed by Zepto at 29%, and Swiggy's Instamart at 25%.

As companies compete to deliver goods more quickly, the number of dark stores has become crucial. These stores play a vital role in speeding up deliveries. The more stores in densely populated areas, the quicker the delivery.

This explains why Blinkit leads the segment with 639 dark stores. It is followed by Instamart (500), Zepto (400), and Big Basket.

Their strong market presence and the need for faster delivery have quickly enabled them to gain market share. The qcommerce market share in online retail rose from about 0.14% in 2018 to 4.8% in 2023.

Quick Commerce Market Overview

Furthermore, it is expected to grow annually by 60-80%, potentially reaching a market share of 17-30% by 2028, with a projected size of Rs 2.32-4.24 trillion (tn). This growth could be fuelled by increasing purchasing power and urbanisation. Moreover, consumers' need for speed, convenience, and discounts are also expected to play a part.

Indian Grocery Market Channel Split

With this strong growth scenario, qcommerce could disrupt the unorganised retail sector. Growing usage has already allowed qcommerce to gain 0.4% market share in 2023, up from zero in 2018. This is expected to grow to 2.2-3.6% by 2028, at the expense of the unorganised retail sector.

Qcommerce: A Boon for Today's Fast Paced Lifestyle

As quick commerce expands its market presence, it is transforming shopping behaviors. Initially driven by health concerns during the pandemic, home delivery has become a standard choice for many.

Today, it is an essential part of urban life. This change has reshaped shopping preferences across age groups and genders, all prioritizing speed and convenience in a fast-paced society.

Beyond its speed, qcommerce also attracts consumers with discounts. According to The Economic Times, qcommerce companies offer products at 10-15% lower prices than local stores.

They achieve this by buying goods in bulk directly from the manufacturer. This eliminates the cost associated with the traditional supply chain, allowing them to secure goods at lower prices. The savings are then passed on to consumers as discounts, making this an attractive avenue.

The increasing adoption persists despite the introduction of convenience fees. Initially introduced by Zomato after its stock market debacle, this practice has become standard across the industry. Urban individuals see time as money, so they are willing to pay extra for convenience.

Quick commerce started in big cities but has expanded to smaller places due to its benefits.

This highlights the need to expand into untapped tier-1 and tier-3 markets, where there is much more to gain. They have begun entering towns like Haridwar and Bathinda, with many more to follow.

This benefits not just consumers and companies but the entire economy. Moreover, expansion benefits every stakeholder involved. The sector has created millions of jobs for semi-skilled and unskilled workers, including gig workers. This has helped employ workers in India, which is already struggling with high unemployment.

Qcommerce companies also buy products from local suppliers, fostering growth for small and medium enterprises. Moreover, increased demand for last-mile delivery boosts earnings for logistics and transportation providers. This supports the local economy by creating high demand for their products.

It has even helped India increase its foreign direct investment (FDI) inflows. According to the Confederation of All India Traders (CAIT), about Rs 540 billion (bn) has been invested as FDI in the sector.

However, not everything is rosy for the sector. There are worries about disruptive pricing and violations of FDI regulations.

Moreover, a key question remains: Will this hypergrowth be sustainable, or is it merely another bubble destined to burst, similar to the edtech bubble that collapsed with Byju's downfall?

Is the qcommerce Boom a Bubble Waiting to Burst?

The qcommerce sector faces challenges and criticisms from diverse stakeholders, such as the government and consumers. Operational issues like rising competition and lack of profitability are also a concern.

The business model has high operational costs, including managing dark stores and maintaining SKUs.

The average order value is also low due to low-value products, ranging between Rs 300-700. These products give them very low margins, making it difficult for them to turn a profit. As a result, they continue to burn cash, which can expose them to a cash crunch.

Consequently, qcommerce companies are broadening their product lines to include higher-margin items such as medicines, merchandise, electronics, and more. This strategy will mitigate concentration risk and drive them toward profitability. But this is not as simple as it looks.

This expansion has put them in direct competition with the ecommerce giants. This rivalry stems not only from their broadened product offerings but also from their efforts to match prices with them across segments.

Initially, they opted to analyse rather than take action. Meanwhile, Amazon and Flipkart began losing customers to qcommerce competitors who offered quicker deliveries at comparable prices. Hence, they also decided to venture into it.

This August, Flipkart launched a service called Minutes. Amazon, on the other hand, plans to launch a 15-minute delivery service called Amazon Tez. Amazon is now the sixth company to enter the space.

Both will go live in parts of Bangalore and are expected to expand to other cities. They aim to leverage their extensive delivery fleet across the country's pin codes, which could help them scale quickly.

In addition, Tata New is entering the qcommerce segment with New Flash. Reliance Retail is also expanding in the 10-30-minute delivery market. Furthermore, beauty retailer Nykaa and clothing e-retailer Myntra have recently introduced quick delivery services.

The rising competition from well-funded players will likely spark intense price wars. This situation may result in predatory pricing, undermining profit margins and affecting revenues. This could derail the qcommerce players' efforts to achieve profitability in the next 1-2 years.

However, e-commerce players will not quickly gain market share. This is because existing companies enjoy a first-mover advantage. Customer loyalty and a better quality of service also remain with them. This is why there is a race to have more dark stores, through which they are trying to provide quality service and timely delivery.

Existing players have also anticipated this and increased their war chests. Zomato recently raised Rs 85 bn through a qualified institutional placement. Most funds will be used to expand Blinkit's dark stores and warehouses. This is despite boasting a cash balance of Rs 109 bn. Zomato currently has a war chest of Rs 193 bn.

On the other hand, Zepto has raised US$ 350 million (or Rs 29.8 bn), adding to its cash balance of US$1 bn (about Rs 85 bn). Moreover, Swiggy recently raised Rs 113.3 bn through its initial public offering. They are all investing in expanding dark stores to get ahead of the competition.

Subsequently, worries about the impact on Kirana stores are growing. These stores find it difficult to compete with qcommerce rapid delivery and lower prices, which puts them at a disadvantage. This situation has ignited a widespread debate involving the government, businesses, and trade unions.

Blinkit CEO Albinder Dhindsa, in July 2024, said, 'We know that we are not taking shares away from kiranas.'

However, according to Delhivery CEO Sahil Barua, qcommerce is indeed impacting Kirana stores. The data also supports his position.

According to The Economic Times, qcommerce has eaten away sales worth over US$ 1.28 bn (Rs 108.7 bn) from Kirana stores. This is roughly 21% of the combined gross sales of Zepto, Blinkit, Instamart's, and Big Basket. Moreover, reports suggest that many consumers have stopped buying groceries from Kirana.

Further, Elara Securities has noted that distributors struggle to recover their dues from kirana stores due to subdued sales. The main reasons behind shifting preferences are discounts and faster delivery.

In addition, the Confederation of All India Traders (CAIT) claims that qcommerce platforms violate the Competition Act by offering predatory pricing, deep discounts, and exclusive seller deals. This has negatively impacted kirana stores, which could attract government regulations in the future.

However, the government is not keen to regulate it. In August 2024, Piyush Goyal said, 'Online commerce has tremendous benefits in terms of convenience, speed and gives comfort at your homes, etc. All we desire is fair play & honesty. We want to encourage online to grow. No intention to stop online.'

In September, he reiterated, 'qcommerce must collaborate with kirana stores for last-mile delivery if they want to sustain themselves in the long run and avoid losses.'

The implications for kirana stores are troubling, as it may affect the livelihoods of millions. Should this occur, the government would likely need to implement regulations in the sector.

This would significantly hinder qcommerce players, who are already struggling to reach profitability, ultimately stalling their growth.

Conclusion

Qcommerce is currently at a pivotal point of innovation and uncertainty. It has experienced rapid growth and gained widespread customer acceptance.

However, challenges like increasing operational costs and fierce competition remain, and its impact on kirana stores , creates doubts about the future.

Given the uncertainty, the next few years will be crucial in ascertaining whether companies can rise to the challenges and improve their financial performance, or succumb to competition and regulatory scrutiny.

As this space evolves, one thing is clear: It will transform the future of retail in India.

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