The concept of DTC or quick commerce (Q-commerce) with ultrafast delivery speeds is a new category of e-commerce that has emerged as a by-product of the COVID-19 pandemic and the ensuing lockdowns. The Q-Commerce market which was roughly valued at $25 billion in 2021 is expected to grow to $72 billion by 2025. Quick commerce has been gaining popularity since the e-commerce industry started widening its scope to cater to segments such as grocery. However, the pandemic gave it the necessary boost by pushing an exponentially large number of consumers to rely on online shopping for daily needs. Q-commerce currently accounts for only a 4-5% share of the e-commerce market, however, the rate at which it is transforming consumer buying behavior forecasts phenomenal growth in the coming years.
The rise of Q-commerce can be traced back to three factors which include convenience, round-the-clock availability, and product visibility without significant expenditure or effort. App-based visibility of products, discounts, and timely delivery infrastructure has enabled the success of these platforms over the traditional neighborhood Mom-n-Pop stores. The small shops in the neighborhood offered convenience and delivery services but you still had to visit the shop to select the products of choice as there was no app-based product catalog and immediate delivery was not guaranteed and neither was 24*7 operational availability. All your purchases can be tracked, managed, organized, and traced using Q-commerce systems. Going forward the goal is simple: acquire new customers, serve them better than the shop around the corner, and ensure long-term retention of customers.
On the Threshold of rapid expansion
Quick-commerce penetration within the online consumables market is about 7 percent and is expected to grow to 12-13 percent by 2025. However, once they reach tier 2 cities, these numbers can drastically change as per the demand growth and can increase up to 21%-24% in the next five years. According to a recent Bernstein report, India is already leading other global markets in terms of adoption of Q-commerce, with a 13% penetration of Q-Commerce as a percentage of online grocery. China stands at 7% while Europe is at 3%. The Total Addressable Market (TAM) of USD 45 billion indicates a huge potential for growth.
The quick commerce trend has accelerated due to several factors such as app-based infrastructure, convenience, and rapid delivery. However, the faster turnaround times (TAT), combined with poor profits and high delivery costs, put enterprises under pressure and make quick commerce a risky business model. The cost of last-mile delivery for Q-commerce enterprises in India is projected to be twice that of traditional e-commerce firms. Also, a significant part of this industry works with gig workers. In this rat race of delivering within 10 minutes, the working conditions, health, and safety of the riders and delivery partners remain majorly compromised.
The quick-commerce industry currently has about 2 to 3 lac workforce and could double by the end of the current fiscal year with the growth in demand for several job profiles such as picker/packer, loader/unloader, along with delivery personnel. Inventory officials/Managers profiles would also be required to helm a prominent role in the q-commerce industry. All these personnel costs may get restructured with the use of automation solutions over time. The cost of selecting and packaging can be decreased by rapid commerce players with the correct automation solution. Automated picking systems improve accuracy and productivity, which are essential for online order fulfillment. When opposed to manual operations, automated solutions can help a business save money on real estate rental costs by making use of vertical space that is often underused or non-existent.
Therefore, the question that key players in the q-commerce industry must address is how they can create a profitable and sustainable business model in the long term. The initial costs involved in acquiring customers with discounts and promotional schemes will need to be rationalized with additional service and delivery costs which will need to be passed on to the consumer in due time.
The future of quick commerce
The q-commerce sector is likely to witness significant growth in the coming years at the expense of small shops and companies in metropolitan neighborhoods which will suffer a fate similar to that of actual mobile stores in urban markets. However, private equity companies that are backing these cutting-edge startups will start asking difficult questions. Many major players are turning to debt financing instead of equity fundraising as their funding sources are already running low. Numerous unicorns that received significant money and launched with a flourish have since seen their funding sources dry up, and numerous firms have failed.
Consolidation and rationalization among food delivery aggregators will be key to improving—and arguably generating—higher overall profitability. A fleet of delivery robots or drones can further reduce last-mile costs by carrying more orders and reducing operational energy costs compared to manual operations. Incorporating other categories such as pharmaceuticals, clothing, cosmetics, and gadgets may be the path to further market growth. Only serious players who are committed to developing a successful model that prioritizes the needs of the consumer and has their P&L in order will eventually persist and emerge as long-term winners.
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