Since mid-2022, instant delivery startups have faced financial constraints, prompting them to make swift decisions. This includes downsizing, exiting markets, pausing expansion plans and closing dark stores. Before we delve further into this topic, let's have a brief recap of what quick commerce entails.

Quick Recap

Q-Commerce offers rapid delivery of goods within 10-30 minutes of ordering, in contrast to the longer wait times of traditional e-commerce. Unlike e-commerce, which relies on large warehouses for nationwide deliveries, quick commerce utilizes dark stores for local requirements. Dark stores, resembling mini warehouses, are located near residential areas. They are not open to the public or even the delivery patrons (what happens in dark store stays in dark store!). They allow companies to reach deep corners of cities, offer a wider variety of products through real-time inventory monitoring and support speedy deliveries. Key players in this field include Dunzo, Swiggy Instamart, Blinkit, bbnow and Zepto.

It has gained buzz due to its ability to fulfil orders within minutes, attracting a massive user base ranging from busy professionals to selective buyers seeking convenience. Customers benefit from factors such as affordable day-to-day products, real-time tracking of fast deliveries and round-the-clock availability, which serve as key drivers for its expansion.

Brace for Impact

These platforms have become an essential need and a catalyst for the growth of quick retail consumption in India, a consumption-based economy. However, many of these platforms are still experiencing financial losses and have been forced to scale down their operations. JioMart shut down its rapid grocery delivery service –JioMart Express, Reliance-backed Dunzo closed dark stores in multiple cities, Ola pulled down the shutters on Ola Dash and Zomato’s Blinkit had to suspend operations in few cities due to protests by dissatisfied delivery workers facing pay cuts. So, what went wrong?

During the happy funding days, companies could afford to burn money until they generated enough demand from particular dark stores. However, the funding winter hit them hard. With diminishing cash balances to burn, the pressure built up to attain profitability by either increasing revenue or reducing costs.

Selling more units at the same cost to earn a high margin became necessary since the cost does not vary whether you supply an order of value INR 150 or INR 1,500. The average order value (AOV) from e-grocers who do not indulge in ultra-quick deliveries is greater than the AOV of Q-commerce companies. In response, these companies have been nudging customers to place orders for a bigger minimum amount, say INR 1,000, by giving extra discounts. However, it is important to consider that larger orders mean more time to pick and pack, and more time to deliver, which challenges the very concept of quick delivery.

Expanding the categories and diversifying from groceries also contributes to increasing the AOV. Another angle to category expansion is increasing the SKUs per dark store, which means more cost! Alternatively, a secondary (far located) dark store having higher-value, slow-moving products helps in meeting the demand, but at the cost of increased delivery time.

Increase in revenue can also be achieved by increasing the number of daily orders, which is largely dependent on the density of users around a dark store. Although increasing the users in a area cannot be impacted by these companies, changing customer preference towards their brand is achievable.

Now comes the cost. The simplest way to save costs is by bunching orders so that time and cost can be saved by delivering them together. Major cost-cutting measures include closing non-performing dark stores and scaling back on staff (names like Swiggy, Blinkit, and Dunzo echo to us when we say layoffs). Although these measures reduces the cost, but it affects the promise of consistently delivering within 10-30 minutes too.

Standing Strong in the Storm - Zepto

Soonicorn - Zepto, one of the youngest players in this market, has managed to maintain its operations without any layoffs, store closures or diversification into new verticals. It has focused on optimizing various aspects of its business, from sourcing to restocking its dark stores and managing worker shifts. The pickers responsible for packing and restocking items work efficiently, selecting from a wide range of SKUs and following a carefully mapped-out store layout. This allows for quick and accurate fulfilment of orders. It also prioritizes efficient delivery by minimizing the distance travelled by riders, resulting in shorter delivery times and higher productivity. Additionally, the company has established direct relationships with farmers and brands, bypassing wholesalers, to improve product quality and profit margins, particularly for fruits and vegetables. It has further invested in cold storage and supply chains to reduce the occurrence of refunds. These strategies have contributed to Zepto's resilience and success in the quick commerce market.

Looming uncertainty in long term

Businesses are making significant investments in smart automation to facilitate rapid deliveries while maintaining cost-effectiveness. Ensuring timely delivery is crucial, along with optimizing asset utilization, inventory management, and delivery operations. The success of a quick commerce business model hinges on achieving these optimizations. However, the long term viability of quick commerce remains in gray area. As companies implement cost-cutting measures to improve profitability, there is a trade-off with delivery time. This can potentially blur the distinction between quick commerce and traditional service providers. In such a scenario, the continued preference for quick commerce remains uncertain.