Quick Commerce Overview in 10 mins :)

Quick Commerce in India is a confluence of 3 factors

1. High-Density Population in Urban Areas:

Urban India, especially metro cities, exhibits extremely high population densities, which drive the growth of quick commerce (QCom):

• Bangalore: Approximately 11,000 people per square kilometer, particularly in areas like Indiranagar and HSR Layout. These neighborhoods are known for mixed-income groups, vibrant commercial hubs, and young professionals, creating a favorable environment for QCom adoption.
• Mumbai: Around 20,000 people per square kilometer, especially in zones like Worli, which host corporate offices and affluent housing. The city’s mixed socioeconomic demographic fosters both demand for luxury QCom services and availability of low-cost labor.

In contrast, rural areas average densities below 1,000 people per square kilometer, making delivery less efficient due to larger distances between customers.

2. High Income Parity in Urban Clusters:

Urban areas uniquely blend high-income groups and low-cost labor forces:

• Wealthy Consumers: These individuals demand convenience and are willing to pay a premium for faster delivery or high-end products.
• Low-Cost Resources: Proximity to economically disadvantaged populations enables access to affordable labor, local stores, and hyperlocal supply chains.
• Example: A delivery ecosystem in Mumbai can operate with minimal delivery charges of ₹30–₹40 ($0.50), as delivery riders often come from suburban or rural areas where employment opportunities are limited.

This duality allows quick commerce to function efficiently and profitably within cities, but these advantages are harder to replicate in less dense areas.

3. Low Cost of Labor in India vs. Western Markets:

In India, delivery costs are a fraction of those in Western countries:

• India: Orders under ₹499 may have a nominal delivery fee of ₹30–₹40. Delivery for larger orders is often free.
• Western Countries: Delivery fees range from $5 to $15, often surpassing the cost of smaller orders, making QCom models less sustainable for low-value goods.

Reasons for Low Costs in India:

• Large pool of delivery riders from rural or tier-2 and tier-3 cities, earning an average monthly income of ₹16,000–₹18,000 (without tips).
• Lower operational costs, such as fuel subsidies and increasing adoption of electric bikes for last-mile delivery.

Is Quick Commerce Killing Kirana Stores?

The notion that quick commerce (QCom) is eliminating traditional kirana (mom-and-pop) stores doesn’t entirely hold true. Here’s a deeper look:

Franchise-Owned Dark Stores

• Most dark stores (e.g., Blinkit’s 100+ stores across 27 Indian cities) are operated as franchises by local entrepreneurs.
• These franchisees are often former kirana store owners or aspiring businesspeople who understand local markets well.
• Rather than displacing the kirana ecosystem, many dark stores are a modern evolution of traditional kiranas, leveraging better supply chains, inventory management, and tech-enabled delivery systems.

Competition Among Local Businesses

• The real competition for kiranas often comes from larger independent businesses or supermarket chains, not QCom companies.
• Kiranas face challenges from changing consumer preferences and limited ability to digitize, scale, or match the pricing and convenience offered by supermarkets and QCom companies.

Why Kiranas Coexist With Quick Commerce

1. Adaptation: Many kirana stores are digitizing (e.g., through partnerships with Dunzo, Swiggy Instamart, or JioMart) to offer similar delivery services.
2. Customer Trust: Kiranas often have a loyal customer base due to personalized service, credit offerings, and local availability.
3. Hyperlocal Needs: QCom caters to urban high-density areas, but kiranas remain essential in tier-2 and tier-3 cities where delivery logistics are still inefficient.

Insightful Trends

• Market Shift: Over 31% of urban Indians now use QCom as their primary grocery shopping channel, but kiranas still serve 75–80% of India’s retail grocery market, showing their resilience.
• Collaboration: Some QCom platforms source products directly from kiranas, integrating them into the delivery network.
• Fragmentation Advantage: With over 12 million kirana stores in India, their reach, particularly in semi-urban and rural areas, ensures relevance despite urban disruption.

CapEx and Operations of a Dark Store Franchise

CapEx Breakdown

Setting up a dark store as a franchise requires an initial investment of ₹80–90 lakhs, allocated as follows:

CapEx on Store Setup: ₹60–70 lakhs

1. Core infrastructure includes refrigeration, freezers, tagging, billing, and electronic systems (~₹1 lakh).
2. Essential furnishings like racks, shelves, and scanners (₹25–35 lakhs) are critical for efficient stocking and inventory management.

Inventory Cost: ₹30–35 lakhs, A typical dark store manages 6,000+ SKUs:

1. Perishables (e.g., fresh fruits and vegetables): Rotate daily.
2. Non-perishables: Replenished every 4–5 days.

Inventory selection follows dynamic assortment principles based on demand patterns and seasonality.

Rental Deposits: ₹1–1.5 lakhs (if not owned).

Refundable Franchise Deposit: Usually a low double-digit lakh amount to secure franchise rights.

Dark Store Layout and Operations

Store Layout:

• Resembles a supermarket setup with aisles and shelves for organized stocking.
• Employees traverse aisles to pick, pack, and ready orders for delivery personnel.

Order Processing:

• A typical order contains 6 SKUs.
• Processing time (pricing, packing, billing) averages 1.5 minutes.
• With dark stores usually located within a 3-kilometer radius of the customer, deliveries are made within 15 minutes.

Operational Details

Inventory Dynamics:

• Perishable goods are rotated daily to minimize waste.
• High-demand SKUs are consistently stocked, with adjustments based on customer behavior and seasonality.

Workforce and Shift Structure:

• Typically operated in three shifts, ensuring 24/7 functionality.
• Staff per shift: 8 employees.

Cost Efficiency:

Each dark store can process around 1,400 orders daily, translating to a per-order cost of approximately ₹22.

Business Potential

• The dark store model boasts a higher throughput than traditional supermarkets due to its streamlined operations and scale-oriented approach.
• This model leverages technology and optimized logistics to cater to hyperlocal demand / seasonality, making it a scalable and profitable proposition in urban clusters.

Operations Inside a Dark Store

Workforce and Shifts

• Operational Hours: 24/7 with three shifts.
• Staffing: 8 workers per shift, totaling 24 workers.
• Monthly Staff Salaries: ₹4.5 lakhs, averaging ₹18,750 per worker per month.

Store Costs

1. Rent: ₹3.5 lakhs per month for a 3,500 sq. ft. space, averaging ₹100/sq. ft.
2. Utilities (electricity, water, plumbing): ₹1.5 lakhs per month.
3. Total Fixed Costs: ₹9.5 lakhs/month (rent, utilities, and salaries).

Order Volume and Cost Analysis

1. Daily Orders: 1,400 orders.
2. Monthly Orders: ~42,000 orders.
3. Cost Per Order:

• Total Costs: ₹9.5 lakhs/month.
• Cost per Order: ₹9,50,000 ÷ 42,000 = ₹22.61 per order.

Throughput Comparison: Dark Stores vs. Supermarkets

Efficiency Advantage:

• A dark store’s primary focus is fulfillment efficiency, not foot traffic or in-store experience.
• Orders are processed quickly using streamlined workflows and inventory management systems, enabling a higher throughput than supermarkets.

Order Volume:

• Supermarkets typically serve 500–700 customers daily, compared to 1,400 daily orders for a dark store.
• Dark stores can handle double to triple the volume of a traditional supermarket due to their scale-driven model.

Scale Economics:

• At higher volumes, dark stores achieve economies of scale, reducing costs per order and increasing profitability.

Key Insights

• Cost Efficiency: At ₹22 per order, dark stores offer cost-effective operations compared to the customer acquisition and logistics costs faced by traditional supermarkets.
• Revenue Potential: Assuming an average order value (AOV) of ₹500–₹600, monthly revenue can range from ₹2.1–₹2.5 crores, making dark stores a highly lucrative model.
• Future Scalability: With urban consumer demand for quick commerce rising, dark stores are positioned to scale rapidly, further improving cost structures and customer satisfaction.

Mother Warehouse

Hub & Spoke Model

Structure:

• Mother Warehouse: Centralized facility acting as the hub.
• Dark Stores: Operate as spokes, serving customers within a 3–5 km radius.

Operational Flow:

• Goods are replenished daily or multiple times a day from the mother warehouse to ensure dark stores maintain optimal inventory levels.
• High-demand, fast-moving SKUs (e.g., fresh groceries) are prioritized in dark stores for immediate availability, whereas infrequent and high-value SKUs (e.g., electronics) are stored at the mother warehouse.

Scale and Siting

• Dark Store Density: Typically, one mother warehouse serves 40 dark stores, making strategic placement critical.
• Mother warehouses are usually located outside city centers to accommodate their larger size and avoid high real estate costs.

Size Comparison:

• Dark Stores: 2,500–3,500 sq. ft.
• Mother Warehouses: Range from 20,000 sq. ft. to 1.76 lakh sq. ft., depending on the scale of operations.

Demand Mapping and Location Selection

Dark Store Locations:

• Must balance proximity to high-demand urban clusters and delivery feasibility (average 15–20 minutes per order).
• Requires demand prediction and local consumption pattern analysis to optimize placement.

Mother Warehouse Placement:

Selected based on logistical efficiency, such as ease of access to transportation routes and proximity to supplier networks.

Inventory Management and Cost Optimization

Daily Restocking:

Dark stores are restocked daily or even multiple times a day, reducing on-site storage requirements and maximizing freshness for perishables.

SKU Distribution:

• High-Demand Items: Stocked in dark stores for rapid turnaround.
• Infrequent or High-Value Items: Stored centrally to minimize carrying costs at dark stores while still meeting customer needs.

Warehouse Ownership:

Unlike franchised dark stores, mother warehouses are owned and operated by the company, ensuring better control over operations and strategic alignment.

Key Metrics and Insights

1. Cost-Efficiency Through Scale:
2. By consolidating storage for infrequent SKUs, companies save on storage costs at dark stores, which are located in premium urban areas.

Inventory Turnover:

Mother warehouses enable dynamic SKU rotation, adapting to seasonal and real-time demand trends for optimal sales performance.

Throughput and Utilization:

With high-volume throughput, centralized warehouses help maintain supply consistency, reducing the risk of stockouts in dark stores and enhancing customer satisfaction.

Growth Opportunity for Quick Commerce

• Companies could enhance efficiency by leveraging AI-driven demand forecasting models and automated inventory systems in mother warehouses.
• Real-time SKU management would enable quicker decisions on replenishments, especially for perishables and high-value items.
• Sustainability Gains: Centralized warehousing reduces the environmental footprint by optimizing delivery routes and reducing duplicate shipments to dark stores.

Delivery Guys

• Delivery drivers in quick commerce face harsh conditions, working in extreme weather conditions like 40°C heat or rain, yet they ensure timely deliveries. Many are hired through labor contracting agencies, rather than being independent gig workers. Their pride lies in their uniform, which signifies a stable job that they proudly share with their families.
• Not all delivery drivers own bikes; some rent electric scooters, while others rely on bicycles. A typical delivery partner works 7 days a week, 10 hours a day, delivering 1 order every 30 minutes (around 2 orders per hour). They earn an average of ₹58 per delivery, including incentives. Over a week, with 120 deliveries, this amounts to ₹4,000 net earnings, after operational costs like fuel and maintenance (₹2,800).
• In total, they earn ₹16,000 to ₹18,000 per month. This excludes potential tips or other side gigs. While the income may be higher with tips, their working life remains challenging due to long hours and physically demanding conditions.

Profit Equation of a quick commerce company

The profit equation of a quick commerce company is straightforward:

Profit = Revenue — Costs

Where:

• Revenue = GMV (Gross Merchandise Value)
• GMV is calculated as Average Order Value (AOV) × Frequency.
• Costs = Wastage + Delivery + Warehouse Costs.

As quick commerce (QCom) companies scale, they become better at forecasting inventory needs. This improves efficiency and reduces wastage as a percentage of total costs. As a result, their path to profitability becomes clearer. For example, Blinkit’s quarterly EBITDA losses have significantly decreased from ₹326 crores to ₹89 crores, with Q1FY25 losses reported at just ₹3 crores, reflecting improved demand-side adjustments.

Revenue Enhancers:

• Fees: A small fee, typically ₹2-₹4, is charged by QCom companies or sellers on the platform.
• AOV (Average Order Value): Over the past two years, AOV has increased by approximately 20%. This is a key revenue driver for QCom companies.
• Advertising Income: The share of advertising income has increased from 1% to 2–3% over the last two years.

Levers to Improve Revenue:

Obvious Levers:

• Fees: Increased fees from sellers or users.
• Ads: Revenue from in-app ads and promotions.
• Category Expansion: Expanding into new verticals like electronics, fashion, home appliances, and furniture.
• Loyalty Programs: Programs like Swiggy One or Zepto Pass encourage repeat purchases and habit formation.

Non-Obvious Levers:

• Financial Services: Offering co-branded credit cards (like Swiggy’s cashback offers) and working capital loans to franchisees and delivery drivers.
• Stock-Up or Top-Up Purchases: Selling larger quantities of high-demand perishable items, such as trays of eggs or large bags of rice. This helps improve top-up purchases.
• Private Labels: QCom companies are launching their own branded products (e.g., Zepto meat), which are expected to increase both GMV and profitability.
• Partnerships: Collaborations with brands like Decathlon to introduce new product categories further boost GMV.

Revenue Growth in Action:

31% of urban Indians use QCom for primary grocery shopping, showing strong demand for quick commerce in essential categories. By increasing SKU sizes and introducing private labels, QCom companies drive more value per order. This, coupled with strategic partnerships, leads to substantial growth in GMV and a more efficient path to profitability.

Opportunties for you!

1. Partnering as a Franchise Owner:

• Many QCom companies provide franchise ownership opportunities. For example, Blinkit, Zepto, and Dunzo allow entrepreneurs to own and operate their own dark stores. These franchises are particularly lucrative in non-metro cities, where demand for quick deliveries is increasing.
• Capital research is essential to understand the initial investment required, which can range from ₹80–90 lakhs, depending on the location and operational scale.

2. Manpower or Fleet Management Business:

• Entrepreneurs with deep connections in lower-tier cities can take advantage of the high demand for delivery services. High attrition rates (3–6 months) are a challenge, but with the increasing volume of orders in the QCom space, the business can scale effectively.
• Setting up a delivery fleet business or managing delivery personnel can prove profitable as QCom companies increasingly rely on local contractors to meet demand.

3. Consumer Product Creation:

• There is a growing trend of QCom-native consumer products — those designed for impulse buys and immediate gratification, such as small-sized products or single-meal items. The food and beverage category is prime for this.
• Research-driven product creation can lead to significant success. For example, GoZero, an ice cream brand, saw 700% growth via QCom, with sales almost 4 times higher in FY23. Similarly, Swish (a fresh food delivery service) is gaining traction by leveraging quick delivery models.

4. Fashion in Quick Commerce:

• The fashion industry in QCom is growing rapidly, with incumbents like Myntra offering 4-hour delivery for specific SKUs. New players like Slikk are also entering the market, capitalizing on the demand for faster deliveries.
• Exploring returns management and consolidation with bigger QCom brands can also help expand this sector. The integration of return processes into the QCom model is essential for the industry’s success.

5. Food Delivery Innovations:

• Despite setbacks like Zomato’s shutdown of 10-minute deliveries, companies like Swiggy and Swish are experimenting with faster delivery models, focusing on food categories like healthy meals.
• Protin Chef, for example, reduced delivery times from 25 minutes to 15 minutes by strategically shrinking delivery radii and offering constant menu refreshment. This is a key innovation as it reduces operational costs and makes quicker deliveries feasible.
• Though the CAPEX for such businesses can be high due to the need for specific infrastructure and small-radius delivery systems, the demand for fast, fresh meals is a lucrative opportunity.