Flipkart wants a bite of India’s Q-commerce growth

Christina Moniz, Financial Express

March 18, 2024

It is not difficult to understand why e-commerce firm Flipkart wants a bite of the Q-commerce pie.

India’s quick commerce market has been growing year-on-year at 77% to reach $2.8 billion in GMV (gross merchandise value) in 2023, according to a Redseer report. In comparison, e-commerce has been growing at 14-15% year-on-year. No one would dispute that with instant deliveries of products and groceries in 10-20 minutes, quick commerce firms like the Zomato-owned Blinkit, Zepto and Swiggy Instamart have changed the face of e-commerce and retail over the past few years.

While quick commerce thrives, none of the players in this ring are profitable yet. According to Devangshu Dutta, CEO at Third Eyesight, most quick commerce firms are in an expensive market acquisition phase and are at least a year away from profitability — perhaps longer. He expects that the unit economics for these companies will improve. “Some of the quick commerce players have created a substantial consumer base, which is growing in the frequency of transactions, moving to higher order values and transacting more products with potentially better margins,” says Dutta.

Both Zepto and Blinkit expect to turn profitable in FY25, as per their public statements.

So what are the primary challenges? “Traditional large e-commerce players face obstacles in facilitating last-mile deliveries, establishing dark stores, managing supply chains effectively, and navigating fierce market competition,” says Anshul Garg, managing partner & head, Publicis Commerce India.

The other key challenge for the late entrants is that customers seldom switch platforms. This is different from the way customers shop for products like electronics on e-commerce, where they compare prices/ deals across multiple e-commerce marketplaces. Brands like Flipkart need to define their playbook by maybe exploring categories other than grocery if they are to make a dent in this market.

As things stand, quick commerce has a mere 7% of the potential market. The total addressable market is estimated at $45 billion, higher than food delivery, as per JM Financial. Blinkit leads the market with a 46% share, followed by Swiggy Instamart at 27%, and Zepto at 21%.

Growing-up pangs

Kushal Bhatnagar, associate partner at Redseer Strategy Consultants, explains that there are broadly three ways that Q-commerce firms are working towards profitability. The first is by pushing higher priced items on their platforms and bumping up higher average order values. They’re also foraying into non-grocery segments such as cosmetics and headphones.

The other lever is ensuring dark store efficiencies. “While dark stores are an added cost, most platforms have a solid understanding of the demand across micro markets and are able to extract better profitability from each dark store. So the trend is positive, even if profitability is still to be achieved,” explains Bhatnagar.

For a dark store to deliver ROI and become profitable, it needs to cross 1,200-1,300 daily orders.

Some players like Zepto are also experimenting with a nominal platform fee of Rs. 2 per order, which they sometimes increase during peak times — by up to Rs. 10 — to gain from a surge in demand. Some are also implementing 12-15% fees for orders under Rs. 500, nudging customers to spend more.

Ad revenue is another important lever driving growth for these platforms, especially as D2C brands hop on board and advertise on them to reach GenZ and millennial consumers in metros and tier-I markets. Advertising revenue is around 3% of a platform’s GMV, and it is expected to keep growing.

FMCG and F&B are the top advertising categories on quick commerce currently but that can change as platforms move into higher value categories. “Quick commerce is also venturing into unconventional categories such as electronics, mobile and large appliances. If all goes according to plan, we can anticipate a significant shift in advertising contribution, given that these categories boast higher average selling prices, prompting advertisers to adopt a slightly more aggressive stance,” says Shashank Rathore, vice-president, e-commerce at Interactive Avenues (IPG Mediabrands India).

(Published in Financial Express)