Quick Commerce: Evolving Landscape of E-commerce Delivery
The e-commerce supply side is undergoing a massive transformation as we see the emergence of hyper-local delivery format. COVID-19 induced lockdowns affected the supply chain across industries causing people to experience problems purchasing day-to-day essentials. This led to a massive shift in buying behaviour as people switched to buying groceries and perishables online. To answer the rising demand for instant deliveries and satisfy the convenience factor, e-commerce and delivery platforms started building the quick-delivery framework promising delivery in 10-30 minutes.
In August 2020, Swiggy launched Instamart to provide quick delivery of groceries and essentials targeting 15-minute deliveries in early 2022 from the current turnaround time of 30-45 minutes; Dunzo, rolled out Dunzo Daily in Bengaluru for instant delivery of groceries within19 minutes earlier in 2021 based on the motto of groceries being delivered abhi ke abhi.
Grofers recently rebranded itself to Blinkit to shift the focus to quick fulfilment. The refreshed brand identity with a new mission statement — “instant commerce indistinguishable from magic” will be shutting down all locations that it cannot service within 10 minutes. Zepto (the latest entrant in the quick-commerce segment) plans to offer 10-minute grocery delivery to its customers by investing in developing a wide network of ‘dark stores’.
These tailwinds in the e-commerce industry due to evolving consumer behaviour and supply-side changes by the industry players along with investors' attention indicate that quick commerce can revolutionise the next generation of delivery.
But who needs groceries in 10 minutes?
Quick-commerce is based on an ‘on-demand delivery’ approach where the unique selling proposition is — delivery within 10-30 minutes of ordering.
The quick-commerce players focus on setting up micro-fulfilment centres/dark stores or partner with local grocery stores located closer to the point of delivery by maintaining the stock of 2,000-3,000 high-demand SKUs to service orders quickly as against the traditional well-stocked, large-format warehouses located on the periphery of cities and towns.
The traditional supply chain is based on the warehouse model having 1 or 2 warehouses usually located on the outskirts of a city because of the requirement of huge space. Delivery turnaround time varies from 48 hrs to 72 hrs leading to high customer attrition in the essential goods, FnV (fruits and vegetables) and cold items segment, thereby hampering the growth and scalability of online selling.
On the contrary, hyper-local dark stores or local grocery partner stores can deliver in a turnaround time of 30 mins to 1 hrs leading to deeper penetration at a serviceable pin code. Quick commerce usually caters to smaller quantities of limited goods paving the way for online purchase and fulfilment of groceries, bakery items, meat and poultry products, fresh juices, dairy items, personal hygiene products, stationery and over-the-counter medicines.
Factors leading to an increase in the addressable market of Q-commerce
Increased digital adoption
COVID-induced changes in behaviour have increased the number of both active online buyers and passive online buyers.
Rise in convenience seeking consumers
According to a Redseer study, mid to high-income households in metropolitan and tier 1 cities are a major growth driver. These consumers include convenience seeking Gen Z, ambitious millennials, Gen X - active buyers and Gen X - passive buyers.
A surge in unplanned and impulse purchasing
The same Redseer study highlights that Gen Z- impulse purchasers and ambitious millennials dominate in unplanned purchases as they are time-starved and their fulfilment methods are based on speed and convenience.
Customer demand is not evenly distributed and demand fluctuations are high. Hence regular discounts/vouchers will be needed for customer acquisition.
High investment in developing predictive tech/data-driven systems to ensure the right combination of the location of the warehouse, the assortment of goods, and demand density.
The Q-commerce model requires massive investment in setting up dark store infrastructure and maintaining adequate inventory levels.
Due to no/negligible switching cost across platforms and lack of product differentiation, establishing customer loyalty will be a challenge for the sustainability of the model.
Continuous upkeep of a large fleet of delivery capabilities and robust network of reliable delivery partners.
Not an attractive model from the ESG (Environment, Social, Governance) perspective, as:
In this model, delivery partners can deliver one order at a time leading to high carbon emission
Speed of deliveries will lead to increase chances of accidents and fatigue of delivery partners
Apart from these challenges, it remains to be seen whether the customers are ready to pay for quick delivery?
With quick-commerce estimated to be a $5 billion market by 2025, it would be interesting to see how brands come up with sustainable models. Although it is quite clear that not following a one-size-fits-all approach will be one of the key determinants in the success of quick-commerce platforms.