Quick Commerce: Not-so-quick Growth In 2022? Many fast delivery companies have scaled down their dark stores this year

Quick commerce or Q-commerce as a business model raised a lot of eyebrows in the year 2021. Ola has kicked off 15-minute grocery delivery in Bengaluru, Swiggy's InstaMart service delivers in 15-30 minutes, Dunzo promises to deliver in 19 minutes in Bengaluru through Xpress Mart and BigBasket has the BB Express, which claims to deliver essentials within 60 minutes. Among the most popular players in the space were BlinkIt and Zepto.

Zomato said that with $1.7 Bn cash in the bank, it would look to capitalize on the growth seen by Blinkit in the past year as quick commerce took center stage. We also had Amazon Fresh which expanded to many cities and promised to deliver in 2 hours and Flipkart in 90 minutes under its Flipkart Quick service. And, many of these players have been raising huge amounts of money, amid rising valuations.

A popular concept in Europe, quick commerce as a business model started finding more takers in India in 2022 as well. However, 2022 also saw questions being raised on the businesses' unit economics and many blamed them for solving a problem that never existed in the first place.

So far a success story?

While most quick commerce platforms are still burning money, there has seen an increase in penetration of this business model in many modern cities, both metro and Tier 1. "After the lockdown in 2020, e-commerce has experienced substantial growth. This has created a separate market segment of quick commerce, especially in large cities like Delhi, Mumbai, Bangalore & Hyderabad. The success of platforms like Swiggy and Zomato substantiates the need for more such platforms. With the market size being huge the likes of Swiggy and Amazon have also entered into quick grocery delivery," said Ankur Mittal, co-founder, Inflection Point Ventures.

Another fact that has worked in favor of businesses in this space is the Indian consumer mindset to get things done soon. As Shashank Randev, cofounder, 100X.VC, pointed out, "Indian customers are constantly in a hurry to get things done. Count the number of cars that speed by as the signal changes to green, or the number of people who try to get up and out of an aircraft as it lands. Whether they realize it or not it is ingrained in their DNAs and as a result, when a company attempts to meet this pressing need by delivering groceries quickly, it is almost certain to be successful."

With India being a consumption-based economy, quick commerce platforms seem to have become a need and enabler of growth for quick retail consumption. However, most of these platforms are still burning cash. Does that mean that success is still elusive? "Not at all, when you're contributing to a growth story of an economy," said Sujay Prakash, cofounder, Weave Capital.

"Capital burning is a state which drives a certain delta behavior. If your offering is meaningful, the consumer tends to be loyal for longer until they find a better alternative. Burning is happening because the market is in the discovery of what works best and in the interest of a large consumer base. What remains essential is your ability to balance between your 'burn' and 'earn' further helps to strategically navigate the company in an economically efficient way," he added.

However, Randev believes that in this new age of instant gratification, the question is whether 'quick commerce' will be able to sustain success over the long haul, or will it be 'quick' enough to fade away.

No large funding rounds

According to news reports, many fast delivery companies including Flipkart Quick, Reliance-backed Dunzo, Fraazo have scaled down their dark stores (warehouses) this year. Ola Dash has in fact already shut shop. One of the alleged reasons for this is the funding crunch that the model has seen this year. Besides the market slowdown, many investors were hesitant to fund the companies as the business model is yet to prove its worth. "When it comes to funding, this segment is a long-term bet and is a bet in the continuous growth of the Indian e-commerce story. It is important in the long run these models do turn profitable and hence we may see investments from VCs and growth PEs who are capable of making such investments," said Ankur Mittal, co-founder, Inflection Point Ventures.

In the last few years, plenty of startups and unicorns have gone public at exorbitant valuations in various parts of the globe. However, in recent revisions, many of those companies have seen significant corrections in their stock prices, as well as valuation corrections of 60-70 per cent. "In India, the same thing is occurring. These new-age startups will eventually face the same difficult questions. Many major players' funding is already running low, and they are opting to raise debt rather than equity. We've seen several unicorns that received substantial funding and launched with a bang, only to see the funding taps dry up and many startups fold," said Randev.

Any category creation and delta shifts that involve a change of consumer habit patterns usually take a long gestation to get its due attention and the right economics and thereby large funding rounds do not come by easily. "Larger funding happens for a reason, and not just to beef up valuation but to create value. If the business showcases larger growth potential and sustained economics, I don't believe that there is a challenge of larger capital infusion in this segment or in any specific enterprise given that the reasons are right and conducive for PE/VC players," said Prakash.

In the recent past, many like Zepto have tweaked some of the offerings such as increasing the charges for speedy deliveries, and the threshold for free orders, among others. Swiggy rolled out its subscription program to allow customers to order without being charged for delivery. "On Swiggy Instamart, members can save more with exclusive offers on 1,000+ popular products in categories ranging from daily essentials, fruits and vegetables, baby products, personal care, home utilities, cleaning essentials, and more," the company said in its blog post.

Overall, according to experts, it is critical for these players to return to the fundamentals of a fundamentally sound business, namely, attractive margins, attractive profitability, and excellent customer satisfaction and the type of moat these companies build will be critical for their long-term success.