By Meenakshi Nagarajan
The irrational exuberance surrounding the lightening-speed order fulfilment business model of quick commerce (Q-com) has received much attention. The brouhaha surrounding the Q-com business is being fuelled by sweeping assumptions about dramatic shifts in consumption patterns and questionable business models. Moreover, governance failures and fallouts on the society and its structures have been relegated to the sidelines. It is time to rethink and rationalise the Q-com model.
The meteoric rise of the Q-com model does usher in a sense of euphoria (June 20, Storyboard) (see ‘Quick stats about quick commerce’). Numbers indicate that leading FMCG giants earned approximately 35% of their ecommerce business from Q-com in 2024, doubling from the previous year (May 15, ET). To put things in perspective, online retail is 8% of the overall retail market in India, and quick commerce comprised 15-18% of the online retail market in 2024. The Indian market is dominated by traditional retail which contributes to 81.5% of the total retail market (2022, Wazir advisors). There is room for skepticism about three issues pertaining to Q-com – customers, business model and governance, and effect on society.
Customers –The premise of the Q-com growth is that a significant number of Indian consumers are shifting to unplanned purchases in perpetuity. While time scarcity, laziness, and click-happy habituation borrowed from the e-commerce business may be working in combination especially in the metros and tier-1 cities and among Gen Z consumers, it is foolhardy to assume that even in these geographies, everyone wants a ten-minute delivery for all products. Global data indicates that this very rationale led to the Q-com bust as customers never really moved to such consumption in perpetuity. Q-com brands such as Gopuff, Jiffy and Gorillas have exited several country markets, done massive layoffs and scaled backed their ambitions as they realised that customers never wanted genie-like deliveries.
Business model and governance – Scalability raises three areas of concern – dark store format, delivery partners, and governance – all of which are under strain.
The key for scalability is future orders – frequency, minimum order value (MOV), repeat orders – all of which need to improve. Blinkit estimates that it needs 1500-2000 orders per day per dark store to breakeven1. Blinkit and Instamart plan to increase the number of dark stores and increase product assortment (already 6000 + and growing). There are plans to add product lines ranging from cosmetics, sports goods and even electronics and home appliances in a bid to improve MOV. There is lack of realism in these decisions – some customers at some point in time would buy a pair of earphones on Blinkit. But all consumers? Regularly? Eventually, groceries and staples are most likely to remain in the basket. While the frequency of orders may increase, the MOV would remain small, adversely affecting the unit economics. With the planned entry of ‘Flipkart Minutes’ and already-announced limited entry of JioMart, the space will get more crowded. This will lead to lack of consumer loyalty, and competitive discounting, worsening unit economics.
Amidst the competition and ensuing chaos, will the ten-minute promise still hold? Have Q-com brands dug their own graves by creating unrealistic customer expectations? As the number of customers on the platform increase, and the number of orders from existing customers (including loyal customers) take off, it would be extremely difficult for brands to hold up on the promise of ten minutes unless unit economics is severely compromised. There is already a change from a ten-minute promise to a 20-minute promise, while new entrants are talking about longer delivery times (JioMart is market testing one hour).
Operations of dark stores are under the radar with recent incidents that highlight unhygienic, infested and expired products. Separation of food from non-food items; hygiene in storage, handling and transportation; and ensuring adequate product life at the time of sale – are important to ensure platform trust. The lack of platform governance is glaring, an issue that already plagues the food delivery businesses of Zomato and Swiggy.
Moreover, delivery partners experience excruciating physical and mental pressure because they constantly battle against time in severe and adverse weather conditions and geographies (including climbing several stairs with heavy orders). They often wait 10-15 minutes between orders and are not given adequate breaks while on the job. Are Q-com platforms even concerned?
In contrast, Flipkart’s and JioMart’s models of doubling up the traditional Kirana stores as dark stores seems more tenable. Partnering with the existing Kirana stores (equipped with technology enabled by Q-com partners) will lead to lower order fulfilment time and better unit economics.
Effect on society – The negative externalities of Q-com are yet to be documented though there are several anecdotal recitations. Q-com businesses are likely to cause chaotic local traffic conditions even as delivery partners negotiate these spaces. Increased number of orders will also result in increased packaging and storage waste, and pollution. The already constrained city infrastructure, which is bearing the brunt of the e-commerce and food deliveries, would further deteriorate. Moreover, real estate prices can escalate due to the proliferation of dark stores, particularly as Q-com is focused on metros and tier 1 cities. Global indicators suggest that zoning laws restricting the amount of business space in local areas helps in containing the real estate prices and over-commercialisation of neighbourhoods. However, no such restrictions exist in India.
Several changes are inevitable in the Q-com industry – (i) rationalisation of order fulfilment time; (ii) imminent shakeout and consolidation in the industry (mergers or acquisitions) or pivoting into hybrid models (Q-com plus e-commerce), or both. There already are reports of Q-com evolving into e-commerce as they eye growth, perhaps forming symbiotic associations; (iii) focus on alternate business model wherein Kirana stores or existing infrastructure can supplement as micro warehouses; and (iv) catering to specific customer segments and being amenable to some product categories though it will not be an all-pervasive model.
Quick will not remain that quick, and the whirlpool will not witness an entire generation of consumers disappearing into it. Nor will all products be needed in ten minutes. The model will get pivoted till prudence prevails.
The author is an associate professor at the Indian Institute of Management Tiruchirappalli, Tamil Nadu. (Views expressed are the author’s own and not necessarily those of financialexpress.com)