Food delivery majors across the world are converging with quick commerce (platforms that facilitate 10-45 minute deliveries of groceries, essentials) companies. Experts say, they are driven by the opportunity to capture a larger share of customer’s wallets and reduce costs.
In September 2021, UK’s food delivery company, Deliveroo, partnered with supermarket chain, Morrisons, to launch its quick commerce service, Deliveroo Hop. German food delivery major, Delivery Hero, entered quick commerce in 2019 with the launch of its first center in Turkey. In India, food delivery major, Zomato, acquired quick commerce, Blinkit, earlier this year and Zomato’s arch-rival, Swiggy, has built its own quick commerce vertical, Swiggy Instamart.
“By bringing both use cases on the same platform, companies would be able to make the customer purchase more from the platform. The effect is similar to how we enter a mall and end up buying more than intended. That’s one way of taking the average order value higher. That will give you a much better traction or revenue, which will end up bringing your cost down for the same transaction,” Deliveroo’s country head, India and VP Engineering, Sashi Somavarapu told BusinessLine.
Rohan Agarwal, from consulting firm, Redseer, also noted that as the wallet share of customers on the platform increases, the companies will see their LTV (lifetime value) to CAC (customer acquisition cost) ratio also improve. LTV:CAC ratio is a sign of profitability, it tells if the customer’s lifetime value is higher or lower as compared to the marketing and sales costs spent to acquire that customer.
“Peak hours cars for a grocery delivery business are complementary with food delivery. For instance, food delivery happens during the lunch and dinner hours whereas the grocery delivery happens in the morning and evening hours, which precedes the food delivery hours by a few hours. This allows companies doing both food delivery and quick commerce to better utilise their delivery fleet and reduce their cost per order,” Agarwal added.
In addition to better utilisation of delivery fleet, such convergence also helps companies to leverage the existing consumer base that they have, and increase the total addressable market (TAM). It can also be helpful in terms of consumer stickiness because if consumer is transacting more frequently, they will eventually become more sticky.
In a recent shareholder letter about Blinkit’s acquisition, Zomato’s CFO Akshant Goyal also noted that Quick commerce increases Zomato’s addressable market, the potential profit pool and also makes its business more defensible. “The peak demand times for food delivery are also complementary to the quick commerce demand peaks in non-meal times. This will help increase our hyperlocal delivery fleet utilisation and reduce the cost of delivery,” he added.
Earlier this year, Swiggy CEO, Sriharsha Majety, also pointed towards the platform benefits of offering both quick commerce and food delivery on the same app. “The GMV our food delivery business achieved in 40 months, took Instamart just 17 months, demonstrating the platform benefits of Swiggy. We will double down on this to build more categories,” he said.
Majety noted that the company is aiming to make Swiggy the platform which consumers’ use frequently (15 times a month). Swiggy has also been adding more on-demand delivery categories like Genie, meat delivery, speciality stores in an effort to achieve this vision. The company also has a loyalty program that runs across categories and is an attempt at increasing customer’s stickiness on the platform.
However, Zepto’s co-founder Aadit Palicha said that focused quick commerce players have a better chance at winning the quick commerce market as compared to businesses which try to operate in multiple categories.
“Gopuff is at a significantly larger scale than DoorDash’s quick commerce business in the United States. The same can be said in Europe, when it comes to Deliveroo trying to get into grocery. So you look at it globally, the focused upstarts in quick commerce tend to win the quick commerce market,” he added.
Palicha noted that the operating principles and DNA of quick commerce, it is very different from a marketplace food delivery business. Quick commerce requires excellence across different legs like sourcing, category, pricing, etc. Most of them are not as much of a concern in a marketplace business.
“Quick commerce is also very intense when it comes to network design, supply planning, sales and operations, and planning processes. Then last mile delivery in quick commerce also looks very different from the fundamental gig economy model. We have centralised last mile delivery teams like Dominos, which is not like Zomato or Swiggy,” he added.