Fast Trading, T20 of Retail, Threw a Yorker at E-Trade?

Let’s start with the numbers first: Quick Commerce (QC) symbol Zepto raised Rs 5,500 from venture capitalists last week, up from Rs 1,850 in 2023. Industry reports indicate that the Indian QC market will double revenue from Rs 23,000 in 2023 . to Rs 50,000 in 2025. The market will show a CAGR (2024-2029) of 24.33 percent, reaching Rs 60 million by 2029.

After initially denying the need for anything within 10 minutes, customers are now accepting QC, if the above numbers are any indication. Blinkit Zomato and Instamart Swiggy are other players in this category that are also raising and deploying capital to build their share of dark stores for deeper distribution in Metro and Tier 1 cities.

Cricket Parallel: When T20 cricket gained momentum, pundits predicted the death of Test cricket. They assumed that given the growing impatience and interest in shorter games, Test cricket would not find many takers. They were proven wrong, as a certain group of viewers – the purists – watched it for the technique, stamina and temperament of the players. Instead, T20 largely crippled the One-Day format, taking away its viewership. Meanwhile, T20 gained a new group of viewers: women and families.

So, in cricket terminology, the current retail situation in India can be divided into the following categories:

1. Test cricket: Physical stores as test cricket (Players: Kirana + supermarkets like Dmart, Spencers etc.)

2. One Day E-Commerce Players (Players: Big Basket, Jio Mart, Amazon, Flipkart)

3. Quick trading as T20 (Players: Zepto, Instamart, Blinkit)

Physical stores have remained largely immune to the influence of QC. They lost some customers to e-commerce players a few years ago. They now serve a group of customers for whom a physical visit plays as much of an emotional, social and financial need as an actual purchase!

On the other hand, e-commerce companies felt a greater impact as customers found the same purchasing process with the promise of faster delivery an attractive incentive.

New pitch

It’s no surprise that so many people use QC because it’s so similar to Kirana stores. We grew up ordering our products from stores in our area that we could order over the phone and have delivered quickly. Basically, the QC model of having multiple stores across a city, taking online orders and delivering quickly is similar and familiar.

The e-commerce model is completely different. They have several large warehouses outside the city where rent is cheaper, which makes them farther from customers.

Housewives use QC because, despite having smaller kitchens, they have more product SKUs. This justifies the frequent, small size and quick refilling and refilling. This is a phenomenon unique to India compared to our Western counterparts. Millennials choose QC because ordering and receiving products is quick, easy and convenient.

What it looks like from here:

For QC companies:

1. They will expand their SKUs in the dark warehouse. From a stock of 2,000 SKUs, they will steadily increase them by 30-50 percent over the next few years.

2. They will offer more product categories. Zepto has already announced that they will offer toys, electronics, and appliances, and Blinkit even delivers prints to your home!

3. Direct collaboration with FMCG companies as they expand their market share.

4. Introducing products to the market and exclusive distribution of new products by smaller players and entrepreneurs.

5. Better profit margins because they eliminate middlemen, operate with smaller inventories, and offer fewer discounts (customers choose faster delivery over higher prices).

For e-commerce players:

1. E-commerce players like Flipkart and Reliance will be forced to enter this space, while Tata Big Basket and Amazon will spend more on faster distribution.

2. Big players will either acquire quality control companies or logistics companies to come in and double investment in tier 2 and 3 cities.

3. E-commerce players such as Nykaa and Croma, operating in the high-margin beauty and electronics space respectively, will lose their margins as quality control companies expand.

4. They will lose advertising revenue to quality control firms because customers spend more time there.

For physical stores:

1. Customers will continue to enjoy the touch and feel they provide, with a larger set of SKUs to choose from.

2. Spend more time and money continuing to build relationships and extend credit to ensure they continue to have a piece of the family grocery wallet.

Poor playing field for QC

In the future, QC companies may face hostile ground conditions. First, entering newer product categories is not as profitable as it might seem. In categories like electronics and apparel, there is a high rate of return that the QC biz model cannot support.

Second, food and FMCG products operate on the Pareto principle (80 percent of business from 20 percent of products), which fits the QC model. Customers don’t mind placing orders for a single SKU of a product as long as they get it quickly. However, in categories like electronics, apparel and toys, they look for variety and multiple options. This leads to huge inventory build-up and delivery costs for QC companies.

(Nimesh Shah is an entrepreneur – founder of Windchimes, a digital experience agency, and Xebra, a fintech SaaS product)