How the quick commerce brigade sparked a fall in Radhakishan Damani’s blue chip stock

On 14 October, Avenue Supermarts’ shares plummeted 9% on the Bombay Stock Exchange (BSE), suffering their biggest single-day drop since January 2019. Many brokerages downgraded the stock after the retailer’s second-quarter numbers disappointed the Street, fearing worse is to come. It was a rude awakening for the company, whose shares have returned over 125% to investors in the last five years.

Once seen as a trailblazer of sorts in offline food and grocery retail (along with Big Bazaar), Avenue Supermarts, which started out in 2002 and operates 377 ‘DMart’ stores across multiple states today, may be paying the price for not responding to the threat from quick commerce.

In a scathing note, brokerage Morgan Stanley said. “We have been defending DMart’s business model for a while. However, we now believe the company’s slow response to steadfast market changes toward convenience is starting to hurt the business.” It added, “We note DMart management didn’t view this (growth of quick commerce) as much of an issue a couple of months ago. We believe aggressive scaling strategies from quick commerce players are hurting brick and mortar businesses, implying further deterioration in operational metrics could be coming up.”

ICICI Securities, another brokerage firm, expressed a similar view, noting that “accelerated ramp-up of online grocery formats (quick commerce) in large metro cities led to deceleration of key growth metrics for DMart”. The retailer’s revenue growth of 14% year-on-year (y-o-y) “was materially below its trajectory of >17% over the last few quarters and the lowest growth rate in a quarter ever (excluding covid impacted periods),” it added.

While brokerages focus on listed companies, quick commerce has had an impact well beyond that universe. The rapid growth of instant delivery companies such as Blinkit, Swiggy Instamart, Big Basket Now and Zepto is posing a threat to offline retailers and online marketplaces large and small, right from Avenue Supermarts and Amazon down to the vegetable vendors and your local grocer.

Small shops feel the heat

The proliferation of Qcommerce dark stores—by March 2024, Blinkit had 526 and serviced 26 cities; Swiggy Instamart had 523 in 27 cities—may pale in comparison to the over 12 million kirana stores in the country. But their accelerated growth is affecting the fortunes of small retailers

In Bengaluru, for instance, Shafiq has noticed a 20-25% decline in sales and foot traffic at his convenience store since last October. A loyal customer base, relying on the store for everything from daily essentials like milk and curd to monthly supplies of rice and wheat flour, had kept it thriving until riders dressed in yellow, orange and purple began zipping about the neighbourhood.

Not willing to sit by idly, Shafiq decided to beat the Qcommerce companies at their own game. He started offering delivery services within a five-kilometre radius in January. However, the increased costs of having delivery boys proved unsustainable, forcing him to discontinue the service after just a month.

“If we employ delivery boys full-time, then we have to pay ₹10,000 a month per person. There’s the cost of fuel over and above that. We don’t have a digital presence to let people know that they can order from us and we’ll deliver. The only option was to shut down delivery to save what little we make,” Shafiq said.

Last month, industry body All India Consumer Products Distributors Federation (AICPDF) wrote to trade and industry minister Piyush Goyal expressing concerns over the popularity of quick commerce. Their concerns were simple—quick commerce platforms are increasingly becoming direct distributors for major FMCG companies, sidelining traditional distributors and threatening the livelihood of small retailers, the association said.

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The matter has gone as far as the Competition Commission of India (CCI), Mint reported earlier, with the Department for Promotion of Industry and Internal Trade (DPIIT) directing the competition watchdog to probe quick commerce platforms such as Blinkit and Zepto following complaints from local retailers.

“Mom-and-pop stores are actually getting impacted; overall consumption growth is not big enough to accommodate multiple players servicing demand. There is clear stress in kiranas for sure because they were the go-to shops for top-ups and emergency supplies,” said Ravi Kapoor, partner and leader, retail and consumer sector, PwC India. “At least in the big cities or the top 12 cities, where 90% of quick commerce is happening, that business model is looking increasingly challenging for kiranas.”

But it’s not been easy on the quick commerce companies either. While the proposition to deliver essentials quickly and without a hefty delivery fee is promising, most companies have incurred significant losses. While Zepto’s revenue grew multifold in FY23, its losses spiked nearly three times to ₹1,272 crore from the previous year. Blinkit, now a Zomato subsidiary, turned adjusted-ebitda positive only this March, more than a decade after its inception (as Grofers), signalling the uphill task of building a money-making quick-commerce business. While quick commerce offers immediate convenience, its long-term sustainability could be challenged by rising operational costs that come with expanding assortments and more dark store space. Their success will depend on their ability to operate profitably in densely populated areas with manageable costs, analysts said.

A convenient channel

Manish Gupta, president of sales, Emami Ltd, which sells Navratna oil and Boro Plus cream, explains that “quick-commerce” has always existed in India. “It was earlier called home delivery by your shopkeeper. Now it’s got tech. It’s got a dark store. What is the dark store—the dark store is a replacement of your neighbourhood Kirana,” he explained.

The quick commerce of today was born out of covid-induced lockdowns, when mobility was impacted. Companies such as Dunzo and Grofers (now Blinkit) ferried goods from stores to consumers. The momentum picked up post covid with the entry of Zepto and Swiggy Instamart.

In New Delhi, 31-year-old Pari Sarna, who lives in an apartment complex, finds it hard to shop at a store regularly and has come to lean on quick commerce for her supplies. Her most recent orders, which included soap, toothpaste, and a few snacks to justify the delivery fee, would have typically been purchased at a nearby store. However, the convenience of being able to order online with a minimum delivery fee has lowered the need to visit the supermarket. “For large monthly orders, I still use a supermarket or an online marketplace; but it’s good to have an option when I’m out of time or have guests over. It’s just very convenient,” she explained.

Rich shoppers are hooked to the convenience these platforms offer and this is prompting bigger shifts in the retail ecosystem. Over the last six months—large established e-commerce businesses have pivoted to faster deliveries. Big Basket announced a shift away from slotted deliveries to quick commerce; Nykaa is piloting express delivery via Nykaa Now in select locations. Flipkart has started quick deliveries under Flipkart Minutes in select markets in Bengaluru.

Where the action is

Consumers aside, brands are also latching on to quick commerce platforms. This is especially true for categories that are more frequently purchased and need-based, such as flour, bread, eggs, milk, staples, soaps, and toothpaste. Indeed, certain FMCG categories now draw anywhere between 3.3% to 30% of their revenues from quick commerce. For instance, Hindustan Unilever, the country’s largest listed consumer goods company, said 10% of its ice cream sales now come from quick commerce.

In December 2022, non-grocery items contributed 20% to the gross value merchandise of quick commerce platforms. This increased to 30% in December 2023, per a report by Chryseum Advisors, an investment advisory firm.

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“For various companies, anything from 30% to 50% of e-commerce sales are now beginning to come from quick commerce platforms. This is due to convenience and the concentration of such services at the top end of large cities,” explained Emami’s Gupta. The channel is “big and important” for makers of daily essentials and “everybody wants to be present”, he added.

Another executive at a large FMCG company, who spoke to Mint on condition of anonymity, said in the last five quarters, quick commerce has grown manifold for the company. “There are shifts in channel dynamics for sure,” he said. “If I had a crystal ball, I would say, this will be the next big thing for many categories.”

To lure shoppers, the platforms are also trying to add more products to their offerings. Most platforms sold the recently launched iPhone 16. Big Basket has partnered with Croma to deliver large appliances. Zepto recently partnered with Decathlon India to expand its sporting goods category. It has been expanding into high-growth categories such as toys, beauty, cosmetics, and low-ticket jewellery, aiming to capture a slice of the e-commerce market.

For various companies, anything from 30% to 50% of e-commerce sales are now beginning to come from quick commerce platforms.
– Manish Gupta

That said, food and grocery will continue to remain paramount to driving their sales. “See, 80-85% of the use cases for consumers are the more logical ones: food and grocery. But those 10-15% products may give users a hook to become super loyal to the channel,” explained PwC’s Kapoor.

Big city phenomenon

While its growth is setting off alarm bells, in reality, the quick commerce market is currently just a drop in the small online retail ocean and confined to a tiny part of that ocean: big cities. Ashutosh Sharma, vice president and research director at Forrester, said that online retail accounts for about 5% of the overall retail market today and is expected to grow to 8%, or roughly $169 billion, by 2028, with quick commerce set to play a major role in that growth.

Redseer, a consultancy, pegs the size of the Qcommerce market at $3.34 billion in 2024 and sees it reaching $9.95 billion by 2029 at a compound annual growth rate of over 4.5%. In March, Redseer had said that quick commerce is likely to sustain 40-45% growth over the next three years. But like online food delivery and mobility, it added, the growth is expected to be a metro-first phenomenon (the top 8 cities), with gradual adoption in tier-I markets (the next 50 cities).

While quick commerce companies are taking steps to expand beyond the top metros—those cities will still account for a bulk of their gross order value. For instance, in FY24, 90% of Blinkit’s GMV came from the top eight cities. The Zomato subsidiary is now looking to take its total dark store count to 2,000 by the end of 2026, but most of these stores will be in the top 10 cities.

Funding may not be an immediate challenge for some companies as they plot their expansion. In August, just two months after raising a pre-IPO funding round of $665 million, quick commerce startup Zepto secured follow-on financing of $340 million, led by US-based venture capital firm General Catalyst. The deal raised its valuation to $5 billion.

Swiggy, which is set for a $1.4 billion IPO, may use some of the proceeds from the public listing to scale up its quick commerce business.

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An evolving landscape

“Anytime you have to fight for the wallet, some channel shift will happen in that catchment. The role of the store and the channel keeps on evolving depending on what the shopper’s needs are,” said Emami’s Gupta, adding that conflicts arise whenever a new platform competes for consumer spending.

In the past, he pointed out, similar conflicts ensued over two decades ago when modern trade stores such as DMart, Big Bazaar and Reliance Fresh opened in India’s big cities. More recently, the entry of large e-commerce companies such as Amazon has faced resistance from existing retailers, especially in categories such as smartphones. In other words, this is a new chapter in an old story.

“Even though it’s still very small in size, quick commerce is growing fairly rapidly, and it’s going to displace the other players in some way or the other. But, I don’t see any significant impact right off the bat, especially on kirana stores, because they are also trying to evolve and keep up,” said Forrester’s Sharma.

Over two decades ago, conflicts ensued when modern trade stores such as DMart, Big Bazaar and Reliance Fresh opened in India’s big cities. More recently, the entry of large e-commerce companies has faced resistance from existing retailers.

The lack of a digital presence could be a big reason why kirana shops have fallen behind, he explained. “The days of walking into the store to discover new products are long gone.” But, it’s changing, Sharma added. While some small shops in tier 2 and tier 3 markets are accepting UPI payments, others have started taking orders on WhatsApp, with the option of slotted delivery through their own delivery personnel.

As quick commerce faces increasing scrutiny from stakeholders such as traders, distributors, and potentially the government, new players may emerge to mitigate the intense competition.

For instance, the Open Network for Digital Commerce (ONDC), the country’s network of e-commerce buyers, sellers and everyone in between—is meant to democratize online commerce and eliminate any monopoly. “Just like ONDC, it’s possible that many such platforms will come up to formalize the kirana network,” Sharma added. However, it remains to be seen if these platforms will be able to match Blinkit’s or Zepto’s scale and assortment.