Quick commerce and the slow road to profits

Players like Zepto, Dunzo and Blinkit have reported staggering losses in FY'23. Industry observers believe price wars and the 'need for speed' propositions are to be blamed

by Nilanjana Basu
Published - November 09, 2023
4 minutes To Read
Quick commerce and the slow road to profits

The quick commerce sector once hailed as the saviour of convenience in the fast-paced digital age has found itself on a rather rocky road in FY’23. Key players like Zepto, Dunzo, and Blinkit, have recently reported staggering losses, leaving industry observers wondering what's gone wrong in this once-promising landscape.

The financial reports for the current fiscal year are, to put it bluntly, startling. Zepto's losses have tripled, Dunzo posted a Rs 1800 crore loss, a substantial leap from Rs 464 crore in the previous year, and Blinkit's losses widened to Rs 1190 crore, up from Rs 1021 crore in FY '22. Such financial setbacks have cast a shadow over an industry that was once synonymous with the future of convenience.

This sector once emerged as a disruptive force, offering a solution to the perennial problem of time-starved consumers. The lure was undeniable - have your necessities delivered to your doorstep within minutes, thanks to the magic of app-based services.

The rocky road 

The allure of quick commerce lies in its promise of immediacy, and herein lies the crux of the problem.

An industry expert shares with the condition of anonymity, that the quick commerce model, while attracting a vast customer base with its convenience, has its own set of operational challenges. “Maintaining fresh inventories, managing an ever-growing fleet of delivery personnel, and fending off relentless competition - all in the name of speed - have proved to be a significant operational headache,” the person says.

Furthermore, rapid growth and geographical expansion have necessitated substantial capital investment. Building a robust logistical network and infrastructure can be a costly endeavour, and as the financials indicate, it's been a tough ride for many quick commerce companies.

“It's essential to acknowledge that the post-pandemic challenges will force companies to adapt and evolve, and not all will survive. The demand and supply dynamics are evident in the case of companies like Zomato, which handles 6-8 crore orders every month, and Swiggy, with 5-6 million unique transacting users monthly,” said Rashi Bhushan, Associate Vice President - Digital, MudraMax.

The price wars

Competing in the quick commerce realm often means engaging in a brutal price war. The promise of swift deliveries and competitive pricing has led to a battle for market share. However, offering constant discounts and promotions can quickly erode profit margins, especially when paired with the high costs of maintaining fast, reliable delivery services.

This 'discount-first' mindset has attracted users. Still, it often fails to turn them into loyal, high-value customers, resulting in a vicious cycle that's detrimental to the bottom line, say experts.

“The business of quick commerce is not just about having a fleet of delivery boys, but about the larger issue of setting up the whole chain of infrastructure,” says business strategist Lloyd Mathias. He feels that these quick commerce companies spread their net very wide and opened up in too many geographies where it was somewhat difficult to meet the consumer promise.

Experts also feel that the primary consumer need of ‘delivery in 10-15 minutes’ is not as great as estimated.

“Between these issues, the quick commerce companies have to do a lot of soul searching,” Mathias added.

A light at the end of the tunnel?

The challenges faced by quick commerce firms are not insurmountable. Industry leaders are already implementing strategies to address these issues. For instance, some are focusing on optimizing their supply chains, leveraging data analytics for demand forecasting, and experimenting with subscription models to enhance customer loyalty and profitability.

An industry spokesperson says that quick commerce companies are learning to balance the need for speed and convenience with the demand for profitability.

“As the sector grapples with its financial woes, it's evident that it's still a work in progress, adapting to meet the ever-shifting demands of consumers and the complexities of logistics and operations,” the person said.

The road to profitability might be a bit longer than initially anticipated, but there's little doubt that the promise of quick commerce remains a compelling one.