Even as fast-commerce startups are shrinking, consolidating or closing down in many parts of the world, the model is showing encouraging signs in India. Consumers in urban cities enjoy the convenience of having groceries delivered to their doorstep in as little as 10 minutes. The companies that make these deliveries – Blinkit, Zepto and Swiggy’s Instamart – have already charted a path to profitability.
Analysts are concerned about the potential for 10-minute deliveries to disrupt e-commerce. Goldman Sachs recently estimated that Blinkit, which Zomato acquired in 2022 for less than $600 million, is already more valuable than its decorator food delivery parent.
As of earlier this year, Blinkit had a 40% share of the quick commerce market, with Swiggy’s Instamart and Zepto close behind, according to HSBC. Walmart-owned Flipkart plans to enter the e-commerce space next month, further validating the industry’s potential.
Investors are also showing strong interest in the sector. Zomato boasts a valuation of $19.7 billion despite minimal profitability, processing around 3 million orders a day. By comparison, Chinese giant Meituan, which processes more than 25 times as many orders daily, has a market capitalization of $93 billion. Zepto, which achieved unicorn status less than a year ago, is closing in on new financing at a valuation of more than $3 billion, according to people familiar with the matter.
Consumers also buy the convenience of fast commerce. According to a recent Bernstein survey, adoption was highest among 18- to 35-year-old millennials, with 60% of 18- to 25-year-olds preferring e-commerce platforms over other channels. Even the 36+ age group is adopting digital channels, with over 30% preferring fast commerce.
While India’s rapid urbanization makes it a prime target for rapid trade, the industry’s unique operating model and infrastructure needs could limit its long-term growth and profitability. As competition intensifies, the impact of fast-paced commerce is likely to be felt more by India’s e-commerce giants. But what makes India’s retail market so attractive to fast-casual players and what are the challenges?
The opportunity for fast trade in India
India’s e-commerce sales totaled $60 billion to $65 billion last year, according to industry estimates. That’s less than half of the sales made by e-commerce companies on China’s last Singles Day and represents less than 7% of India’s total retail market of more than $1 trillion.
Reliance Retail, India’s largest retail chain, posted revenue of about $36.7 billion in the fiscal year ended March, at a valuation of $100 billion. The unorganized retail sector – the neighborhood shops (known as Kirana) scattered across thousands of cities, towns and villages in India – continues to dominate the market.
“The market is huge and, on paper, ripe for disruption. Nothing that has been done so far has created a problem in the industry. That is why whenever a new model shows signs of working, all stakeholders shower it with love,” said a seasoned entrepreneur who helped build the supply chain for one of the leading retailers.
In other words, there is no shortage of room for growth.
Quick Commerce companies borrow many features from kirana stores to make themselves relevant to Indian consumers. They have devised a new supply chain system, creating hundreds of unassuming warehouses or “dark stores”, strategically placed within miles of residential and business areas where large numbers of orders are placed. This allows companies to make deliveries within minutes of placing an order.
This approach differs from that of e-commerce players such as Amazon and Flipkart, which have fewer but much larger warehouses in a city, which are generally located in locations where rent is cheaper and further away from residential areas.
The unique characteristics of Indian households further contribute to the appeal of fast-paced commerce. Indian kitchens typically have a higher number of SKUs compared to their Western counterparts, requiring frequent replenishment purchases that are better served by local stores and quick trade than modern retail. Additionally, limited storage space in most Indian homes makes monthly bulk grocery purchases less practical, and customers tend to prefer fresh food purchases, which can be easily accommodated by quick trade.
According to Bernstein, e-commerce platforms can price products 10% to 15% cheaper than mom-and-pop stores, while maintaining roughly 15% gross margins by cutting out middlemen. Dark Quick Commerce stores have rapidly expanded their SKU count from 2,000 to 6,000, with plans to further increase it to 10,000 to 12,000. These stores replenish their inventory two to three times a day, according to store managers.
Battle with e-commerce
Zepto, Blinkit and Swiggy’s Instamart are increasingly expanding beyond the grocery category, selling a variety of items including clothing, toys, jewellery, skincare and electronics. A TechCrunch analysis finds that the majority of items listed by Amazon India on it bestseller list are available on fast trading platforms.
Fast trade has also become an important distribution channel for major food brands in India. Consumer goods giant Dabur India expects brisk trade to increase 25% to 30% of the company’s sales. Hindustan Unilever, the Indian arm of Unilever UK, has identified fast-paced trade as an “opportunity we won’t let go”. And for Nestle India, “Blinkit is becoming as important as Amazon.”
While fast commerce doesn’t need to expand beyond the grocery category, which alone is a half-trillion dollar market in India, their expansion into electronics and fashion is likely to be limited. Electronics drive 40% to 50% of all sales on Amazon and Flipkart, according to analyst estimates. If fast commerce succeeds in cracking this market, it will pose a significant and immediate challenge to the e-commerce giants. Goldman Sachs estimates that the total addressable grocery and non-grocery market for fast-casual companies in the top 40-50 cities is about $150 billion.
However, selling smartphones and other high-ticket items is more of a gimmick and not something that can be done on a large scale, according to an e-commerce entrepreneur.
“It does not make any sense. What fast trading is good at is futures trading. But smartphones and other expensive items tend to have a not-so-trivial rate of return.… They don’t have the infrastructure to support reverse logistics,” he said, requesting anonymity as he is one of the early investors in a leading e-commerce company. .
Quick Commerce’s current infrastructure also does not allow the sale of large devices. This means you cannot buy a fridge, air conditioner or TV from the fast trade. “But that’s what some of these companies are suggesting and analysts are rallying around,” the investor said.
Falguni Nayar, founder of skincare platform Nykaa, pointed out at a recent conference that fast-casual trade primarily takes share from kirana stores and would not be able to maintain as much inventory and variety as niche platforms that educate customers.
The story of fast-paced commerce in India remains an urban phenomenon concentrated in the top 25 to 30 cities. Goldman Sachs wrote in a recent analysis that demand in smaller cities likely makes it difficult for fresh economy grocers to operate.
E-commerce giant Flipkart will launch its express trade service in limited cities as soon as next month, seeing an opportunity to woo Amazon India customers. The majority of Flipkart’s customers are in smaller cities and towns in India.
Amazon – increasingly reducing its e-commerce investment in India – has so far shown no interest in fast-paced commerce in the country. The company, which offers same-day delivery on some items to Prime members, has questioned the quality of products from companies that make “quick” deliveries in some of its marketing campaigns.
As brands increasingly focus on express commerce as their fastest growing channel and more consumers embrace the convenience and value proposition of 10-minute deliveries, the stage is set for a fierce battle between express commerce and e-commerce giants in India .
