Death of quick commerce?
In 2021, the hottest trend was quick commerce. Want a banana? Get it delivered in 10 minutes. Want a pack of biscuits? Just 10 minutes.
10-minute delivery was the new holy grail for grocery delivery companies. And it began all thanks to Zepto. A couple of 19-year-olds convinced investors that they could perfect ultra-quick delivery. They raised massive amounts of money for a blitzkrieg. And once Zepto announced its grand plans, the rivals had to jump in too.
Grofers, which had spent years building its brand even decided that the millions of dollars it had splurged on branding didn’t matter. So it changed its name to Blinkit. To convey speed.
Swiggy raised money. And instead of spending on its core food delivery business, it set aside the entire $700 million (a staggering ₹5,500 crores) just for quick commerce. For Instamart.
Ola launched its own 10-minute delivery promise with Ola Dash. Even Reliance jumped into the fray with JioMart Express which delivered in 90 minutes. Yeah, not quite 10 minutes, but still.
The reason why we’re pointing all this out is that this happened in just 12–18 months. And it’s easy to see why companies were excited about quick grocery delivery.
- User base. This is massive because everyone buys groceries. Whether they’re young or old. Rich or not-so-rich. It’s something that everyone needs.
- Frequency. Is there anything that’s ordered more frequently than grocery products? Doubt it. It’s almost an everyday affair.
There aren’t too many products that tick those two boxes so well. So the only thing needed was to get people to shift their behavior a bit. Stop them from hopping downstairs to their kirana store or supermarket.
And the way to do that was to find the sweet spot for delivery times. Something that would entice more people to make the switch. This was probably 10–15 minutes.
So companies went on a massive spree to set up dark stores — you know, the small warehouse-type ones that are meant only for delivery. A customer can’t walk in.
They even solved the selection problem — they realized that they could get away with only around 2,000 stock-keeping units (SKUs). Or put another way, this was how many types of products they had to stock so that customers didn’t feel, “shucks, I never find the product I’m looking for.” More SKUs would mean larger stores and more cost.
The opportunity was so massive that Swiggy even felt that quick grocery delivery could beat its core food delivery business. After all, in 2021, India ordered $5.5 billion worth of groceries online. And about 13% could be attributed to these hyper-quick delivery programs. Everyone felt that the pie would grow bigger and bigger. RedSeer, the consulting firm, estimated that this quick commerce market would boom from $300 million to $5.5 billion by 2025.
All of this excited Venture Capitals. They poured boatloads of money into these ultra-quick grocery delivery companies.
2022 happened and everything flipped on its head.
Ola downed the shutters on Ola Dash. Zepto quietly added an asterisk on its website next to the promise of 10-minute deliveries. Basically saying T&C apply. Dunzo was quietly shifting from quick delivery and trying to incentivize group deliveries. Where a bunch of orders would be clubbed together in 60 minutes. And the average order time on Swiggy Instamart (which I use frequently) inched up higher and higher. Even Reliance, a company that swims in pools of cash, decided to shutter JioMart Express last week.
So you have to ask — Where did it all go so wrong for quick commerce?
For starters, there’s the overall funding winter.
See, the economic environment is a little lukewarm. And VCs are taking a breather. All this while, the mantra was simple — profits don’t matter. That if you’re patient enough, you can outspend your rivals and you’ll become a virtual monopoly. And once that happens, you can dictate the terms. Customers are addicted to the convenience of sitting on the couch and placing an order. They won’t care anymore if it’s 10 minutes or 45 minutes.
But at the end of the day, when times are tough, the question is inevitable — when are the profits going to come?
So the only way out for these companies is to improve their unit economics. Think about it this way. Assume that Swiggy Instamart can deliver an order by spending ₹10 rupees. And it manages to earn ₹12 through delivery fees and the margins on products it sells, that’s positive unit economics.
Now one way to improve this is to keep the cost the same. But sell more products to earn a high margin. Because the cost doesn’t vary whether you carry a ₹100 order or a ₹1000 order.
At the moment, the average order value (AOV) for Blinkit is ₹553. And according to the Economic Times, it’s ₹400 for Swiggy Instamart and ₹460 for BigBasket. The companies desperately need this to inch higher. Especially since the AOV from e-grocers who don’t indulge in ultra-quick deliveries is almost double this value.
So, what do companies do? Well, they’ve been nudging people to place orders for at least ₹1000. And they’re giving extra discounts for this.
But if the AOV is not heading north, they need to cut costs quickly.
Well, one way to do it is to scale back on staff.
See, most people fire up their apps before breakfast or after work hours. That’s peak time. And to meet the demand, platforms need people. To pack and deliver. But, during non-peak hours, the delivery staff often end up idle. It’s a cost to the company. And if they reduce the headcount, it affects the promise of consistently delivering within 10 minutes too.
The other bit is the massive expansion of dark stores. For margins to work, these stores need at least 800 orders daily. And if those orders don’t come in, eventually the stores have to shut. They can’t keep burning money in the hope that it’ll all work out. The end result is that fewer neighborhoods will now be serviceable in the 10 minutes timeline.
Finally, cutting costs might even mean bunching orders together. So if I place an order, they’ll wait for a while. Just to see if someone else living near me also places one. Just so that they can save costs by sending out the orders together. And 10-minute deliveries disappear slowly.
Or maybe. Just maybe. These companies always knew that 10-minute deliveries wouldn’t work in the long run. Maybe it was just a marketing gimmick to scare the rivals and get you hooked on the convenience of quick delivery. Because once you’re addicted, it won’t matter much if it’s 10 minutes or 30 or 60. You’re a customer for life.
If that’s the case, quick commerce isn’t dead. It’s only the 10-minute drama that’s disappearing. And you and I were simply test subjects for their marketing experiment.
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