Will grocery delivery start-ups have a smooth ride on quick commerce?

In less than a year, the e-commerce ecosystem in India saw a new improvisation to the tried and tested same-day grocery delivery model, when 10-minute delivery was introduced.

A 5-month-old Zepto got the industry talking after raising two rounds of a total $160 million and doubling its valuation to $570 million within two months from investors like Y Combinator and Nexus Venture Partners. Existing biggies such as Grofers and Swiggy followed suit.

Swiggy, in December, announced its plans to invest $700 million to perfect its express delivery vertical Instamart, which was started in August 2020. By January 2022, the food aggregator is looking to bring down average delivery time of Instamart from 15-20 minutes to under 15 minutes.

Grofers, backed by Swiggy’s rival Zomato, recently rebranded itself to Blinkit in line with their pivot to offer express grocery deliveries in less than 10 minutes. This year the eight-year-old online grocery retailer entered the unicorn club after raising $120 million from Zomato.

“India is the third largest grocery market in the world but has the lowest penetration of online groceries (less than 1 per cent) vis-a-vis most other major markets. Q-commerce we believe will disrupt the under-penetration in groceries but creating a strong habit amongst customers on the back of the convenience it offers. Moreover, quick commerce has the ability to go much beyond groceries and there are various use cases that enable us to expand to multiple other categories,” a Blinkit spokesperson told BusinessLine.

Quick commerce is likely to be the next battleground for e-commerce sector in 2022.

Cracking the model

Trying to compete peers like BigBasket in the online grocery retailing, until last year Blinkit (then Grofers) was experimenting with 2-hour delivery format in Gurgaon. The experiment worked out and soon conversion rates for the express service was 1.5x higher than pan India regular deliveries, which meant that the delivery ETA has a high impact on customer decision making, the spokesperson explained.

“Our customer ordering frequency also went up by 30 per cent with much better customer retention levels. These greenshoots gave us the confidence that this is the right model to build customer habits. The best way to do it is to provide an unmatchable 10-minute delivery experience to all our customers across India,” the spokesperson said.

The company is currently at a run rate of over 4 million orders every month, and has been opening stores every 4 hours.

“These stores are hitting peak capacity in no time at all. More than a million users transact with us every month. We have more than 300 stores opened across 14 cities in the country. We are also rapidly expanding into Tier 2 cities with multiple cities being launched in the next 30 days.”

A few weeks ago, Blinkit co-founder and CEO Albinder Dhindsa announced that the company was discontinuing delivery services temporarily at locations where they were not able to deliver in under 10 minutes.

Meanwhile, Swiggy Instamart is doing over one million orders per week and have had over two million transacting users on the platform, seeing more than 10 per cent growth week-on-week.

To deliver in a few minutes, technology played an important role, all the three start-ups said unanimously. Dhindsa’s firm has reworked its backend technology infrastructure to only fit 10-minutes or below deliveries.

“In the case of Instamart, there are primarily two key parts to this process – pick/pack time and delivery. Technology plays a key role in making the pick/pack process efficient – ranging from the placement of items within the store to optimal routes for store personnel. On the delivery side, we leverage location intelligence to set the network of dark stores closer to the customer based on the demand density. Swiggy’s delivery fleet also has over 2.5 lakh delivery partners,” a Swiggy spokesperson told BusinessLine.

“The dark store network needs to be robust. Then the entire process of bagging, packaging and dispatching after the user has placed the order happens in less than 60 seconds. We do that through a combination of software and technical excellence. Our median delivery time is around 8 minutes,” Aadit Palicha, Co-founder and CEO, Zepto told BusinessLine.

Zepto’s Quick rise

While Grofers and Swiggy have been around for nearly a decade, testing and perfecting the grocery delivery model by building a strong network of dark stores and supply chain, less than a year old Zepto’s sudden hype creates a lot of interest.

Zepto’s Co-founder and CEO Aadit Palicha doesn’t disclose the number of deliveries done in the media. But speaking of managing logistic costs incurred, he told BusinessLine, “In a nutshell, the faster you do the deliveries, the cheaper it gets. This is because, by doing it faster, the amount deliveries per rider goes up 2-3x as compared to food delivery. Last mile delivery costs for us also gets reduced due to this. The fuel costs too are comparatively low as the deliveries are happening within localities.”

“The very reason why investors are consistently choosing Zepto is because we had the best operation, discipline and execution on ground in numbers. In terms of competition, crazy PR is happening out there and the investors too are speaking to everyone. There are a lot people giving very big talks but very few people are walking the talk. There’s lots of gas and no substance,” Palicha said.

He added, “Grofers has been around for over seven years, it seems like a big company. But the reality is that after all these years they have raised only around $100 million from Zomato right now and in less than five months we have already raised $160 million, and that’s because we are executing very well.”

Zepto claimed to have been “inching towards operating profitability at mature store level in just five months of launch.”

The start-up, at present, operates 100 dark stores across key markets and is seeing 65 per cent month-on-month customer retention rate.

Clustered presence

While most don’t have a minimum order value, they are charging delivery fees. Zepto is currently charging around ₹15-20 per order, which they need roughly to break-even on operating levels. Their dark stores have a maximum capacity of 2,500 orders per day.

Ankur Bisen, Senior Partner and Head of Consumer & Retail, Technopak Advisors believes that the consumers are still unlikely to pay a premium to get their groceries delivered under 10 minutes as it wouldn’t really matter if they don’t get their tomatoes delivered in a few minutes. “Paying a premium during these inflationary times when the consumers are adjusting budgets is difficult; and groceries are a planned purchased. I don’t see how the consumer off take will play out in Indian market,” he told BusinessLine.

Whether it is scalable or not, is to be seen, he said. According to Bisen, in terms of investor view, food and groceries is a big element in e-commerce. This is a good way for e-commerce companies to connect and ensure repeat purchase. And investors are observing these as improvisations to experiment and create various entry points. But consumers are yet to get habitual.

“There might be niche clustered adoption among consumers in certain geographies. On the face of it, there’s no explicit demand and the entrepreneurs know that. They are trying to change consumer behaviour at the moment. Whether they can change the behaviour of a significant size of the market will decide their growth,” he said.

A Swiggy spokesperson said, “The total addressable market size for convenience groceries in the metros is expected to be around $80-100 billion by 2025. The final market that can be captured by Q-commerce/E-commerce will depend on the execution capabilities of the players.”

COMMENT NOW