Quick commerce players scale down dark stores network amid funding crunch

Multiple quick grocery delivery companies like Flipkart Quick, Dunzo, Fraazo have scaled down their dark stores (warehouses) in the past few months. Industry watchers attribute this trend to funding crunch and the slowdown in demand surge that the sector saw during pandemic years. 

Quick grocery delivery or quick commerce is generally defined as 10-30 minutes of home delivery of groceries. Earlier this week, Flipkart said the company has scaled down Flipkart Quick from a few cities, as it is building a sustainable business model in quick commerce. The e-commerce giant has now shifted focus on its next-day grocery delivery offering Flipkart Supermart. 

Similarly, Reliance-backed Dunzo has shutdown dark stores in a bid to optimise costs. While the company said that it has only shut down a very small number of stores, reports estimate that 20-30 per cent of Dunzo’s dark stores in Delhi-NCR and Hyderabad have been shutdown.

“We shut down a few stores in peripheral areas with very low demand to drive operational efficiencies and optimize costs. It’s part of a healthy business practice to focus on operational efficiencies and prune costs wherever needed,” said a Dunzo spokesperson.

“As the pandemic recedes, the artificial drivers which accelerated growth for many consumer delivery startups will also start to recede. Then we will find out which use cases actually make sense and which don’t. My sense is some use cases (like quick commerce) will be scaled back accordingly,” said an early stage investor requesting anonymity.

Mumbai-based quick fresh vegetables delivery start-up Fraazo has already shut down operations in most cities except Mumbai and laid off over 150 employees. According to two sources close to the development, the start-up is shutting down operations and has initiated acquisition talks with multiple players.

Messages to Fraazo founders did not elicit a response till the time of going to press.

However, Dunzo believes that based on its experience and customer-buying patterns, the reasons why consumers prefer their products delivered quickly will continue to remain. “For use cases where customers want to top up their orders, impulse purchases or even late-night cravings, quick commerce will remain the answer,” the company added. Dunzo is also reportedly in talks to raise a $150-200 million funding.

funding winter

Initially, quick commerce companies depended on speed, quality, design choices, and large funding rounds to break out in the category. However, with the change in market sentiment, large funding rounds have become hard to come by and more so for business like quick commerce, which have long path to profitability. 

Mark Kahn, Managing Partner of Omnivore, said, “In a market like 2022, funding crunch can for sure be a reason for the scaling down of dark stores. The era of unlimited cheap capital is very much over and we are all dealing with new realities. Good companies are still being funded, but for businesses that have such a long path to profitability, things are a bit more difficult now.” Kahn has invested in a same day fruits and vegetables delivery service Deep Rooted.

On the other hand, Aadit Palicha, co-founder of quick commerce company Zepto, said, “There will be some winners and losers in the space and that is the reality of the sector. However, we continue to grow and have recorded 100-150 per cent growth in the past six months. Couple of dozen of our dark stores have also turned cashflow positive and we have enough cash in the bank.”

Zepto, too, has closed dark stores in prime locations like Chinmaya Mission Hospital (CMH) Road in Indiranagar (Bengaluru). To this, Palecha said that CMH road dark store was shutdown because Indiranagar demand was extremely high and growth was higher, it is now moved to a bigger space, which is 1-2 km away from CMH road.  

COMMENT NOW