Is Quick Commerce Slowing Down?
What was once the darling of the venture capital industry, is today facing quizzical looks as burning cash isn't really adding value
When the Covid-19 pandemic arrived on Indian shores, the one requirement that everyone locked up at home felt was that of quick buying and even quicker delivery. And out of this trend came the new buzzword Quick Commerce which attracted big bucks. Over the past 12 months, these same investors who applauded cash-burning are pouring cold water on their plans.
A report published in the ET quotes Aadit Palicha of Zepto to suggest that funding has all but evaporated in 2022 and things go further downhill in 2023, given the tough private equity conditions as well as the precarious conditions that some of these VC-backed companies face. He believes that far greater unit economics and better execution would be the key to revival.
Zepto itself hasn’t raised any money in spite of appointing investment banking firm Avendus Capital to argue their case. Of course, the company raised a whopping $200 million in May to go up the valuation chain at around $900 million. In fact, Palicha’s mantra seems to be in vogue as Dunzo, Blinkit and Instamart have followed suit on enhancing unit economics.
Is there light at the end of the cash burn?
Of course, they do perceive a silver lining in terms of how the local departmental stores have responded to these Quick Commerce players. In the absence of a delivery mechanism, several have closed down, especially in and around Bengaluru, which provides the likes of BigBasket and Blinkit with more options to enhance unit economics.
That said, the arrival of government-backed ONDC into the local commerce arena could be causing a few butterflies in their stomachs, given that the open network experiment works on the very principle of delinking the functions of a seller from that of payment and delivery. What this means is VCs could get even more concerned about burning more cash in 2023, preferring instead to wait and watch what ONDC and its network participants can come up with.
And how does the ONDC story pan out here?
That the VCs aren’t really clued in with the ONDC way was brought out by us in an earlier story, but things seem to be changing since. Vani Kola, managing partner at Kalaari Capital described ONDC as a game-changing initiative to digitally empower small businesses in the retail sector and said it was bound to have a far-reaching impact.
In a LinkedIn post, Vani Kola said, “the Indian eCommerce market is rapidly growing and is projected to triple in size from $38 billion to $120 billion by 2026. A few large players dominate the eCommerce sector. ONDC aims to level the playing field and democratize digital trade in the country, providing new opportunities for local eCommerce businesses. This is good news for tech startups to rethink products to support these businesses.”
Getting new users isn’t easy in small cities
A big challenge that most of the existing players in Quick Commerce are grappling with relates to the slowing down of new user acquisition. The ET report says Swiggy’s Instamart ran away to 300,000 users but thereafter slowed down. BigBasket believes that a key metric to chase could be having higher user density around dark stores that need at least 800 orders a day to break even.
And in both these scenarios, the challenge lies in the fact that such population density cannot be expected outside the top metro cities and possibly a couple of others such as Kochi or Lucknow. This means, the delivery agents travel more distances resulting in higher costs. Companies like Blinkit have already reduced dark stores in Bangalore from 60 to 50, with most closures coming from the city outskirts that lack apartment complexes, a crucial factor in quick commerce demand.
There’s a Catch 22 situation out there
In fact, market researchers believe that the quick commerce user base faces a Catch 22 situation as they need to replace the current population making unplanned purchases with a new lot. Those that are doing so today, will move to a better planned approach as they settle down in a career and life, which means multiple models around next-day delivery and subscriptions will mark its presence.
Already some of the quick commerce companies were seeking better gross merchandise value growth by nudging customers to place higher value orders with some even planning mini-trucks to deliver them and adding larger delivery bags at their dark stores. This appears to be a quick fix to the quick commerce conundrum in 2023.
Though how many of the existing customers would take the bait of bigger orders, when these companies claimed market share by promising exactly the opposite is anybody’s guess. Meanwhile, some of the companies are also toying with increasing the number of SKUs, which could potentially mean shutting down dark stores and opening new ones and enhancing delivery times.
By the looks of it, quick commerce companies would require a substantial revamp to even aspire towards profitability. And coming at a time when venture capital firms aren’t feeling kosher about the amount of cash they’re burning, things could just get quirky.