Can high-speed commerce surpass e-commerce in India?

Even as high-speed commerce startups retreat, consolidate or close in many parts of the world, the model is showing encouraging signs in India. Consumers in urban cities are embracing the convenience of groceries delivered to their homes in just 10 minutes. The companies making these deliveries – Blinkit, Zepto and Swiggy's Instamart – are already charting a path to profitability.

Analysts are intrigued by the potential of 10-minute deliveries to disrupt e-commerce. Goldman Sachs recently estimated that Blinkit, which Zomato acquired for less than $600 million in 2022, is already more valuable than its food delivery parent Decacorn.

Early this year, Blinkit had a 40% share of the quick commerce market, with Swiggy's Instamart and Zepto close behind, HSBC said. Walmart-owned Flipkart plans to enter the quick commerce market next month, further validating the sector's potential.

Investors are also showing great interest in the sector. Despite minimal profitability, Zomato has a valuation of $19.7 billion and processes around 3 million orders per day. By comparison, Chinese giant Meituan, which processes more than 25 times as many orders every day, has a market capitalization of $93 billion. Zepto, which achieved unicorn status less than a year ago, is closing new financing at a valuation of more than $3 billion, according to people familiar with the matter.

Consumers also buy the fast ease of trading. According to a recent Bernstein survey, adoption was highest among millennials aged 18 to 35, with 60% of those in the 18 to 25 age range preferring high-speed trading platforms over other channels. Even the 36+ age group is using digital channels, with more than 30% preferring quick trading.

UBS' estimate for the Indian market.

While India's rapid urbanization makes it a prime target for high-speed trade, the sector's unique operating model and infrastructure needs may limit long-term growth and profitability. As competition intensifies, the impact of high-speed trading is likely to be felt more acutely by India's e-commerce giants. But what makes the Indian retail market so attractive to high-speed players, and what challenges lie ahead?

The opportunity for fast trading in India

According to industry estimates, Indian e-commerce sales last year were $60-65 billion. That's less than half of the sales e-commerce companies generated on the last Singles Day in China and represents less than 7% of India's total $1 trillion-plus retail market.

Reliance Retail, India's largest retail chain, posted sales of about $36.7 billion in the fiscal year ended March, at a valuation of $100 billion. The unorganized retail sector – the convenience stores (popularly known as kirana) that dot thousands of Indian cities and towns – continues to dominate the market.

“The market is huge and on paper ripe for disruption. Nothing done so far has made a material dent in the industry. This is why every time a new model shows signs of functioning, all stakeholders shower them with love,” says a seasoned entrepreneur who has helped build the supply chain for one of the leading retail companies.

In other words, there is no shortage of room for growth.

india modern retail hsbc
The share of modern retail in total grocery spending in India remains much lower than in most other major countries, and HSBC believes this is likely to remain the case as customers migrate directly from unorganized to high-speed retail (HSBC).
Image credits: HSBC

Fast trading companies borrow many features from kirana stores to make themselves relevant to Indian consumers. They have devised a new supply chain system, setting up hundreds of modest warehouses, or “dark stores,” strategically located within miles of residential and business areas from which large volumes of orders are placed. This allows the companies to deliver within minutes of purchasing the order.

This approach differs from that of e-commerce players like Amazon and Flipkart, which have fewer but much larger warehouses in a city, usually located in places where rent is cheaper and further from residential areas.

The unique characteristics of Indian households further add to the appeal of high-speed trading. Indian kitchens tend to stock a greater number of SKUs than their Western counterparts, requiring frequent additional purchases that are better served by local stores and quick trade rather than modern retail. Furthermore, limited storage space in most Indian homes makes shopping for groceries in bulk every month less practical, and customers prefer to purchase fresh food, which the fast-paced trade can easily accommodate.

According to Bernstein, fast trading platforms can price products 10% to 15% cheaper than brick-and-mortar stores while maintaining a gross margin of about 15% due to the elimination of middlemen. Quick trade dark stores have quickly expanded their SKU count from 2,000 to 6,000, with plans to increase this further to 10,000 to 12,000. According to store managers, these stores replenish their inventories two to three times a day.

The fight against e-commerce

Zepto, Blinkit and Swiggy's Instamart are continuing to expand beyond the grocery category, selling a variety of items including clothing, toys, jewelry, skincare products and electronics. A JS analysis shows that the majority of items listed by Amazon India bestseller list are available on fast trading platforms.

Quick commerce has also become an important distribution channel for major food brands in India. Consumer goods giant Dabur India expects high-speed trading to generate 25% to 30% of the company's revenue. Hindustan Unilever, the Indian arm of British Unilever, has identified fast trading as an “opportunity we will not miss.” And for Nestle India, “Blinkit will become as important as Amazon.”

While high-speed commerce may not expand beyond the grocery category, which in India itself comprises a market worth more than half a trillion dollars, its expansion into electronics and fashion is likely to be limited. According to analyst estimates, electronics account for 40% to 50% of all sales on Amazon and Flipkart. If fast trading can crack this market, it will pose a significant and immediate challenge to e-commerce giants. Goldman Sachs estimates that the total addressable market in grocery and non-grocery for quick-change businesses in the top 40-50 cities is approximately $150 billion.

However, selling smartphones and other expensive items is more of a gimmick and not something that can be done on a large scale, according to an e-commerce entrepreneur.

blinkit ceo
Blinkit sells high-end smartphones and the PlayStation 5, as shared by its founder and CEO on social media.

“It doesn't make any sense. What fast trading is good for is forward trading. But smartphones and other expensive items usually have a not-so-insignificant return. They don't have the infrastructure to enable reverse logistics,” he said, requesting anonymity because he is an early investor in a leading company. fast trading company.

Quick Commerce's current infrastructure also does not allow for the sale of large devices. This means you can't buy a refrigerator, air conditioner or TV through fast trade. “But that's what some of these companies are suggesting, and analysts are picking up on it,” the investor said.

Falguni Nayar, founder of skincare platform Nykaa, highlighted at a recent conference that high-speed commerce is mainly taking market share from kirana stores and would not be able to maintain as much inventory and range as dedicated platforms that educate customers.

India's fast-trading story remains an urban phenomenon concentrated in the top 25-30 cities. Goldman Sachs wrote in a recent analysis that demand in smaller cities likely makes it difficult to make the fresh food economics work.

E-commerce giant Flipkart will launch its fast commerce service in a limited number of cities next month, seeing an opportunity to woo customers from Amazon India. The majority of Flipkart's customers are in smaller Indian cities and towns.

Amazon – which continues to scale back its investments in e-commerce in India – has so far shown no interest in fast-track commerce in the country. The company, which offers same-day delivery to Prime members on some items, has questioned the quality of products from companies that make “fast” deliveries in some of its marketing campaigns.

bofa india quick commerce survey
A recent consumer survey in India by Bank of America (BofA)

As brands increasingly focus on express commerce as the fastest-growing channel and more consumers embrace the convenience and value proposition of 10-minute deliveries, the stage is set for a fierce battle between express commerce and e-commerce giants in India.

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