Speed thrills, but will it kill profitability for quick commerce?

While aggressive marketing campaigns and lightning-fast delivery lure users, the underlying question remains: Is this model sustainable, or are we witnessing another cash-burn race to the bottom?

Setting the stage for instant gratification

In the fast-paced lives that we often find ourselves in, you might think quick commerce is a recent invention. Well, the term and the implementation of quick commerce was coined somewhere in 1998 when Kozmo, an online company, started delivering DVDs, books, and coffee to several parts of the US in under an hour. The delivery usually happens using public transportation. bicycle, car or truck. The company’s counter to all the criticism about its sustainability in the long run was that they do not have to make space for an inventory. However, the high costs of offering this speed of delivery led to the company’s closure in 2001. In today’s context, Q-commerce is no longer confined to groceries or convenience items. It’s now making inroads into traditionally slow-moving categories like fashion, cosmetics, and even pharmaceuticals. The shift is fundamentally altering consumer expectations, turning quick delivery from a luxury to a necessity. “While quick commerce is often perceived as a premium service due to its fast delivery and convenience, the goal is to standardise it and make it accessible to everyone. The focus is on driving affordability, quality, speed, and product variety, to move the narrative from quick commerce being a luxury to it becoming a norm for everyday shopping in India,” a Zepto spokesperson commented. In countries like India and Europe, nearly 46% of surveyed consumers expressed a willingness to switch more of their shopping to Q-commerce platforms, reveals Roland Berger. 

This isn’t the first time a transition like that of quick commerce has happened, the entry of e-commerce followed a similar trajectory in the beginning. In e-commerce’s nascent phase, platforms like Flipkart and Amazon burned through capital to attract users, offering deep discounts and free deliveries. The result? High customer acquisition costs (CAC) and wafer-thin margins. The parallels to e-commerce’s earlier years are stark: a surge in customer acquisition, high burn rates, and mounting questions about long-term sustainability. 

In both models, retaining customers amid cutthroat competition often demands steep discounts and promotional offers, eroding profit margins. This challenge becomes even more pronounced in categories like fashion and apparel. Here, frequent returns, sometimes as high as 30-40%, turn each transaction into a costly affair. Fast delivery also requires dark stores and robust infrastructure, adding to operational expenses. “Profitability remains a critical challenge for quick commerce, driven by high operational costs, intense competition, and significant customer acquisition expenses. Recent insights indicate that the average operational cost per order in Q-commerce is higher than in traditional e-commerce due to the emphasis on ultra-fast deliveries. However, strategies like leveraging dark stores, which reduce last-mile delivery costs, are proving pivotal. Also to make the business model sustainable, most of the platforms have started charging a convenience fee which helps in reducing some cash burn.  Parallely there is a lot of focus on increasing the basket size of the customer by adding multiple product categories which helps in improving margins. Q-commerce companies also try and negotiate a better deal with consumer companies directly since they practically eliminate the middle supply chain,” Naveen Malpani, Partner, Grant Thornton Bharat. 

This shift is powered by technology. Localised warehouses (dark stores) stocked with frequently purchased items allow companies to fulfil orders in minutes. “When one thinks of fashion and apparel which is squarely in the discretionary space, Q-commerce can only solve a sliver of demand. The very nature of this category rests on experience, variety and feel which today’s digital channels can’t solve. What Q-commerce is answering in this category is satisfying the repeated demand of certain SKUs. This behaviour will continue to stay fringe,” Ravi Kapoor, Partner and Leader, Retail & Consumer Sector, PwC India, said. The reason to offer Q-commerce is a preemptive stance by certain players to give the option to end consumers but not with an intent to make it a dominant channel of consumption which is slowly happening in non-discretionary categories of fresh and food for example, he added. Advanced inventory management systems, combined with real-time tracking, optimise the supply chain. These efficiencies, however, come at a price – high setup and operational costs. 

Speed comes at a cost

For Q-commerce players, scaling up is a delivery game. Dark stores, which are basically micro-fulfilment centres located close to urban hubs, are critical. These facilities must operate with minimal lag between order arrival and dispatch, which requires sophisticated automation and logistics. Yet, the financial pressure is immense. “Quick commerce faces significant infrastructure costs, particularly in setting up warehouses and specialised storage, like refrigerators. These expenses, however, are one-time capital expenditures. The ongoing cash burn, often reported in the industry, is largely due to rapid store expansion. Despite these high initial costs, the sustainability of the model is stronger compared to traditional e-commerce. Q-commerce focuses heavily on impulse purchases and immediate needs, which are typically more sustainable than non-essential goods. Approximately 80% of the model is designed around products that consumers need right now, positioning it as a more sustainable model in comparison to others,” Zepto spokesperson added while Swiggy Instamart and BlinkIt denied commenting. The cost of renting space for dark stores, the backbone of quick commerce operations, in high-demand urban hubs like Delhi and Mumbai, rental rates can soar to Rs 100-150 per square foot while cities like Chennai and Hyderabad offer comparatively lower rates, ranging between Rs 40-70 per square foot, reveals Savills India.

Unlike e-commerce, which has gradually reduced customer acquisition costs (CAC) through data-driven strategies and loyalty programs, Q-commerce faces an uphill battle to achieve similar efficiencies. Adding to the strain is the environmental impact. The demand for rapid deliveries increases packaging waste and vehicle emissions. Emissions from delivery traffic will increase by 32% and congestion will rise by over 21%, equalling an additional 11 minutes of commute time for each passenger every day, according to a report by the World Economic Forum. Frequent, small-basket purchases also promote overconsumption, further exacerbating ecological concerns. Platforms are experimenting with greener solutions, such as electric delivery fleets and reusable packaging. However, these measures are yet to offset the surge in consumption-driven waste. 

Winners, losers, and the road ahead

Experts opined that not all players in the Q-commerce space will survive. Consolidation is inevitable as funding dries up and venture capitalists demand returns. Many companies are already exploring alternative revenue streams, such as charging premium fees for ultra-fast delivery or expanding into higher-margin categories like beauty products. 

Smaller retailers, however, face an existential threat. Without the capital to build dark stores or invest in advanced logistics, they risk being edged out by Q-commerce giants. “The Q-commerce model has disrupted conventional retail by introducing a new immediacy benchmark. This has impacted the Kirana Stores and Large scale retail formats in the Metro cities. Traditional players, including small retailers, are increasingly partnering with Q-commerce platforms to access shared logistics networks, thereby remaining competitive. SKU categories are a bit different for Q-commerce and e-commerce. Q-commerce is focusing more on daily essentials, and e-commerce has wider SKUs covering consumer durables as well. While some Q-commerce has ventured into mobiles, there is still some time for a change in customer mindset to buy high-value products on Q-commerce.  A recent survey by Grant Thornton Bharat, revealed that an average customer is not willing to spend more than Rs 10,000 on Q-commerce,” Malpani added. This dynamic echoes the early days of e-commerce, where big players like Amazon set benchmarks smaller competitors struggled to meet.

The verdict

Q-commerce’s future depends on its ability to evolve. Sustainability, both financial and environmental, must become a priority. Companies need to explore hybrid models, balancing instant gratification with cost efficiency. “As consumer expectations for faster deliveries grow, Q-commerce companies are focusing on differentiating their offerings through reliability and affordability. This includes diversifying delivery models, such as premium rapid delivery tiers for urgent needs and slower, cost-free options for price-sensitive consumers. For traditionally slower categories like fashion, businesses are investing in localised warehousing and real-time tracking systems to balance speed with quality assurance,” Malpani commented. While the sector has immense potential to redefine retail, its survival hinges on smarter operations and genuine customer loyalty. Whether Q-commerce is a sprint toward disruption or a marathon to profitability remains to be seen.

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