Startup and VC Ecosystem Updates | Issue# 7 [November 18, 2024]
What?
The Quick Commerce (QC) battle is intensifying in India, with Blinkit, Swiggy’s Instamart, and Zepto competing fiercely, while heavyweights like Amazon (plans to launch instant delivery in Q4 FY25), Flipkart (with Flipkart Minutes), Tata’s BigBasket, and Reliance’s JioMart are gearing up to go all-in on QC. This is driven by shifting consumer behavior, with users increasingly seeking instant gratification.
The line between ecommerce and QC is blurring as Blinkit, Instamart, and Zepto strengthen their infrastructure and logistics to deliver non-grocery items within 10-15 minutes. Technically, QC has redefined the Indian ecommerce landscape.
Indian consumers, especially in Tier 1 and Tier 2 towns and cities, have increasingly turned to QC for both grocery and non-grocery items in recent quarters, fuelling investments in the QC space. Zepto recently raised $1 Bn in a matter of a few months. Zomato-owned Blinkit has been championing the efforts to establish QC as a successful segment in India and Zomato’s popularity as a public company has only added to its visibility. Recently, Inc42 analyzed the QC giant’s position in the competitive QC race. Let us dive deeper.
Performance
Blinkit currently leads the QC market in India with a 40% market share, experiencing a Year-on-Year (YoY) and Quarter-on-Quarter (QoQ) growth of 122% of 25%, respectively. The company reported a record revenue of INR 1,156 Cr in Q3 2024, more than doubling from INR 505 Cr in the same period last year. Blinkit achieved a robust 23% sequential (QoQ) revenue growth in Q3 2024, driven by its expansion efforts. Zomato announced in its Q4 FY24 earnings report that Blinkit achieved EBITDA positivity in March 2024. However, Blinkit’s market share has decreased from 46% to 40% in Q3 2024 as competition intensifies. This highlights the need for Blinkit to keep innovating to maintain or grow its market share and revenue.
Strategy
The revenue growth in the past quarter can be attributed to Blinkit’s aggressive expansion strategy. The QC giant is banking heavily on scaling up its network of dark stores across the country. The company expanded by adding 152 new dark stores and seven warehouses in Q3 2024.
While food delivery and the B2B supply chain platform Hyperpure are Zomato’s top revenue drivers, it may aim to push Blinkit to the top, given the significant revenue growth it has been experiencing. Given Swiggy (through Bolt), Zepto, and Zomato are planning instant food delivery in 10-15 minutes (more information here) – much like Swish, it is possible that food delivery evolves into a QC service. In fact, Blinkit is working on launching its quick snack delivery service Cafe across cities. Therefore, it becomes crucial for Zomato to focus on strengthening the distribution and delivery network for Blinkit.
Instead of horizontal expansion, Blinkit has been focusing on vertical integration and diversifying into non-grocery categories like electronics and FMCG products. For expanding SKUs, the company relies heavily on data-driven decisions to list FMCG products with market potential, instead of listing everything possible. Items, such as printouts, paan shop products, seasonal appliances, kitchen appliances with high-usage frequency, corroborate this data-driven and focussed approach. These products may not significantly boost Average Order Value (AOV), but they can help increase the revenue by complementing Blinkit’s grocery offerings. As evident with the recent availability of iPhone 16 on its platform, the company has also been looking to increase fast-moving SKUs to improve the AOV and profit margins. This is another example of its data-driven approach towards its SKUs, as unlike ecommerce giants like Amazon and Flipkart, it will probably phase out the iPhone 16 offering based on the demand.
The use case that Blinkit solves for is instant gratification, something the ecommerce giants like Amazon and Flipkart do not exactly offer. Therefore, while the company is eating into Amazon’s and Flipkart’s lunch, it is also directly challenging local kirana stores, which typically offer 1,500 to 2,000 SKUs to meet the instant needs of customers.
What Works
Blinkit is benchmarking its product pricing with Amazon and Flipkart. This enables the QC giant to offer instant delivery at lower costs, thereby achieving improved sales margins and greater competitiveness. Additionally, the reliance on data-backed decision-making to tailor the expansion strategy across categories and SKUs seems to work well for the company.
Blinkit’s new self-service tool enables Direct-to-Consumer (D2C) brands to list their products, allowing the company to compete with Amazon and Flipkart. D2C brands prefer QC platforms due to lower competition, city-specific inventory flexibility, and instant payment – a significant advantage over Amazon’s 3-4 day payment cycle. In fact, compared to ecommerce giants, QC platforms allow brands to significantly reduce their inventory from a 60-day supply to just one week’s worth. Therefore, such brands are willing to offer higher commissions (35%-40%) to QC companies like Blinkit, whereas, the likes of Amazon and Flipkart charge 20%.
Challenges
With groceries, many items like vegetables and dairy can be locally sourced, simplifying the logistics and supply chain process. However, although QC players like Blinkit see growth with expanded SKUs, they face rising operational costs. A shift towards ecommerce requires increased focus on strengthening logistics, warehousing, and dark store infrastructure. This increases the working capital, which becomes an important metric in this case, apart from delivery cost, AOV, and order density. In the future, QC companies like Blinkit may consider dark stores located on city outskirts for infrequent and high-value purchases, thereby adding to the delivery time. A solution to this problem is to consider less stricter delivery times, which will allow stacking of orders. Slower, stacked deliveries and higher order value are key to profitability in QC, a strategy also seen with Swiggy’s mega dark stores.
Competition
With Amazon, Flipkart, Tata, and Reliance venturing into QC, the competition is intensifying for Blinkit, Instamart, and Zepto. Amazon and Flipkart previously used strategies like deep discounting to dominate ecommerce and may adopt similar tactics to challenge the established QC players.
Although Blinkit has prioritized price benchmarking, many daily-use products remain priced at 10%-20% premium, limiting the appeal in India’s price-sensitive market and giving competitors room to catch up. This is also reflected by a drop in its order value per store, which has declined due to new store additions. However, the company believes that newer stores tend to take some time to match the sales of the established ones. The impact of the new stores will probably be more prominent in 2025.
While D2C brands are willing to pay premium commission to Blinkit (and other QC platforms), this may change as the SKUs grow and reach a threshold. The brands will not be comfortable dishing out premium commission for Blinkit and would have to explore alternatives. The QC giant must balance SKU expansion with D2C brands’ need for visibility and sustainable costs to maintain partnerships.
To fuel operational costs and counter the likes of Swiggy, Zepto, and heavyweights like Amazon, Flipkart, Tata, and Reliance, Zomato is planning to invest heavily in Blinkit to help it scale. This is clear from the fact that despite holding a cash reserve of INR 10,814 Cr (as of September 30, 2024), Zomato has revealed plans to raise up to INR 8,500 Cr ($1 Bn) through a Qualified Institutional Placement (QIP). Additionally, Blinkit has recently launched a host of new features to strengthen its market dominance. Apart from the quick snack delivery service Cafe, newly added capabilities includes Blinkit Seller Hub to help brands list on the platform, EMI option for customers with purchases above INR 2,999, and a pilot program to test a large order fleet to help deliver bulkier consumer products within Delhi-NCR.
Advantages
Blinkit’s is backed by a decade-long experience in grocery delivery. This gives the company an edge over Swiggy and Zepto. In fact, Zomato had ventured into QC twice before. However, the food delivery giant was quick to realize that its delivery fleet was not optimized for managing its dark store operations. Zomato’s acquisition of Blinkit and substantial investments highlight its strong belief in the QC company’s potential to be a market leader in the segment. Additionally, the fact that Blinkit is a standalone application gives it enough flexibility to chart its strategy and path ahead. However, this is not the case with Swiggy, which must navigate the limitations of its unified app architecture.
Thoughts
Blinkit is focusing on expanding its dark store network and heavily relies on a data-driven approach for vertical SKU growth. By benchmarking product pricing for non-grocery items (e.g., consumer electronics) and other consumer products to align with ecommerce giants such as Amazon and Flipkart, the QC leader is able to achieve lower delivery costs and better sales margins. Although the company charges premium commission from D2C brands on the platform, the brands benefit from quick order fulfillment, shorter inventory cycles, and enhanced discovery. These strategies, alongside its decade-long experience in grocery delivery, have positioned Blinkit as a QC market leader in India. Another factor that gives Blinkit the flexibility to define its strategy (unlike its rival Swiggy Instamart) is the fact that it is a standalone application, rather than being integrated within the Zomato app.
Scaling QC operations, including dark stores, supply chain, and logistics, requires significant working capital to manage operational costs. Blinkit may consider slower, stacked delivery for infrequent and high-value items, which can help reduce delivery times and costs, and therefore, operational costs. However, we believe that removing premium pricing from daily-use products will likely improve its AOV and active user count. Similarly, the QC giant may need to reconsider the premium commission for D2C brands as their SKUs expand and eventually plateau. It will aim to sustain revenue from D2C partnerships while providing brands with a sustainable pricing structure and enhanced visibility.
Well, with the QC battle intensifying, we are certainly excited. We anticipate that Blinkit will expand its offerings to include food delivery services in the near future. With parent Zomato aiming to raise funds despite its significant cash reserve and a slew of new offerings (see section Competition), Blinkit is well-positioned to compete with the QC and ecommerce giants to maintain its market dominance. Innovation and a focus on profitability have been key in helping the QC giant bolster Zomato’s shareholder trust, as reflected in its performance and stock growth over the past 3-4 quarters.
The stiff QC competition in India is exemplified by the fact that Zepto’s monthly cash burn grew six times to INR 250 Cr in September and October 2024 from INR 35-40 Cr in May 2024, as the company ramped up its investments in operations, digital marketing, and hiring. In fact, we anticipate increased VC participation to support the growth of the Indian QC landscape. For consumers, it helps to have competing options that offer instant gratification of needs. With innovation and technology driving growth in the Indian QC ecosystem, we are confident that the Zomato-led Blinkit will continue to innovate and enhance the platform with capabilities that add value for its users. We wish them continued success.
If you are interested to learn more, feel free to check out this coverage by Inc42.
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Acronyms used in the blog that have not been defined earlier: (a) Venture Capital (VC), (b) Financial Year (FY), (c) Billion (Bn), (d) Indian Rupee (INR), (e) Crore (Cr), (f) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), (g) Business-to-Business (B2B), (h) Fast-Moving Consumer Goods (FMCG), (i) Stock Keeping Unit (SKU), (j) Equated Monthly Instalment (EMI), and (k) National Capital Region (NCR).