With quick commerce platforms such as Zomato’s Blinkit, Zepto and Swiggy’s Instamart expanding their categories beyond grocery and daily needs, the long-term investment thesis in the sector now extends to having a broader assortment of categories that can be delivered within the hour, said Paul Hudson, founder and CIO of US-based investment firm Glade Brook Capital.
“The moonshot of delivering a wide assortment of SKUs (stock keeping units) rapidly – say in one hour – opens up the much broader e-commerce market to a superior customer value proposition,” Hudson wrote in a LinkedIn article, noting that e-commerce majors Amazon and Flipkart are already moving in this direction with same-day delivery in many cities.
Hudson also noted that the companies that can crack the supply chain, logistics, tech and execution code will create enormous value in the e-commerce market.
Glade Brook Capital is a Series B lead investor and board member of Zepto and also an investor in Zomato’s Series I financing round.
Both Blinkit and Zepto are competing head-to-head in India’s quick commerce market that is estimated to grow at a compounded annual growth rate of 15% over the next five years, according to data from Mordor Intelligence. A recent report by Bain & Company also noted that orders on q-commerce platforms have doubled over the last year and now account for 40%–50% of India’s e-grocery spend.
It added that leading players in this space have improved unit economics through a combination of scale, average order value growth, higher order density, and value-added fees. However, many in the industry are still doubtful of the long-term economics of this quick-commerce model.
“Blinkit and Zepto contend with relatively low average order values, modest product margins and incremental costs for rapid supply chain, logistics, fulfillment, and delivery – in addition to the cost of acquiring customers and covering overhead. As a result, the business model is operationally challenging – as many peers in India and around the world can attest,” Hudson noted.
However, despite the concerns, both Blinkit and Zepto have managed to make significant growth in their businesses over the past year, he added. Zepto is growing at triple-digit rates and has scaled its annualised revenue to more than $1 billion over the past 30 months — among the fastest companies globally to do so.
“The Blinkit team achieved positive contribution profit (a metric denoting cash flow from operations before corporate overhead) in the September 2023 quarter and expects to generate positive adjusted Ebitda by March or June 2024 – which would demonstrate Indian quick commerce companies are able to hit this important profitability milestone, an outlier in the global market,” he wrote.
He added that Zepto and Blinkit’s exceptional founders, true product market fit, and operational execution is the reason they are witnessing strong growth and nearing profitability, while many competitors in India, from start-ups to industry stalwarts, have exited the market.