Will Quick Commerce Be Profitable In India?

Summary

The discussion explores the challenges and opportunities in quick-commerce in India, focusing on investment potential, cost dynamics, and the role of major players like Zomato, Swiggy, and Zepto. Key points include the rising operational costs, the price sensitivity of Indian consumers, and the difficulties new brands face in building their identity solely through these platforms. While quick-commerce is beneficial for established brands, newcomers need to balance online presence with strong offline distribution to succeed. The conversation concludes that a hybrid strategy is crucial for long-term brand growth in the Indian market.

Takeaways

• 😀 Quick commerce platforms like Zomato, Swiggy, and Zepto are seeing growth, but their long-term sustainability is questioned due to high operational costs.
• 😀 New brands face significant challenges when using quick commerce, particularly due to high commissions (up to 50%) and competition from the platforms themselves.
• 😀 Price sensitivity in India is a major factor; consumers are reluctant to pay a premium for quick deliveries, which could hinder the growth of quick commerce.
• 😀 Quick commerce might work for established brands with a strong market presence but is less ideal for new brands trying to build their identity and customer base.
• 😀 Quick commerce is unlikely to be a sole distribution channel for new brands; offline channels like restaurants and bars are crucial for discovery and building trust.
• 😀 New brands should be cautious about relying entirely on quick commerce platforms as it may compromise their brand independence and control over customer data.
• 😀 While quick commerce can deliver convenience, it adds significant costs, including labor and delivery expenses, which may make it unsustainable for smaller orders.
• 😀 The Indian market is highly price-conscious, with consumers often choosing products based on price rather than brand loyalty, which impacts the success of quick commerce.
• 😀 The cost of quick commerce delivery might increase over time, and as inflation and operational costs rise, the model may struggle to maintain profitability for smaller brands.
• 😀 Quick commerce in India is different from Western models, where consumers were accustomed to longer delivery times. In India, the expectation for 10-minute delivery is rapidly growing.
• 😀 Building a brand in the beverage and food industry requires more than quick commerce; offline experiences, collaborations, and physical presence in restaurants or bars play a key role in brand discovery.

Q & A

What are the primary concerns when investing in quick commerce companies like Zomato, Swiggy, and Zepto?

The main concerns are the high operational costs, such as labor, fuel, and delivery charges, which could make quick commerce unsustainable. Additionally, the market is very price-sensitive, and it’s difficult to maintain profitability with high commission rates and taxes, especially for smaller brands.

How do quick commerce platforms impact smaller brands?

Quick commerce platforms often impose high commission rates, up to 50%, which makes it challenging for smaller brands to thrive. They also have the power to squeeze these brands by controlling visibility and customer data, leading to difficulties in brand-building and customer loyalty.

Why is consumer behavior in India a challenge for quick commerce?

Indian consumers are extremely price-sensitive, which means they are more likely to switch to cheaper options, even if the price difference is minimal. This creates a challenge for quick commerce companies that need to balance cost and service quality to maintain customer loyalty.

How does the price sensitivity of Indian consumers affect the quick commerce industry?

Indian consumers' price-consciousness is a significant hurdle for quick commerce. Many consumers might opt for cheaper alternatives, even if it's only a small difference in price, making it difficult for businesses to maintain high margins or pass on additional delivery costs to the consumer.

What role do offline channels play in building a brand, especially for new entrants in the craft food and beverage industry?

Offline channels are crucial for brand-building, particularly for craft food and beverage companies. Visibility in physical locations like restaurants and cafes is essential for discovery and establishing customer trust. Relying solely on quick commerce or online platforms may limit a brand’s growth and recognition.

Why is quick commerce considered unsustainable in the long term in markets like India?

Quick commerce is considered unsustainable because of its high operating costs and the price-sensitive nature of Indian consumers. Delivery costs, commissions, and taxes often make it difficult for businesses to maintain profitability, particularly for smaller brands that rely on these platforms for growth.

What are the potential risks for new brands relying on platforms like Zomato and Swiggy for growth?

New brands that rely on platforms like Zomato and Swiggy may face the risk of high commission fees, loss of customer data, and reduced control over their branding. These platforms can also prioritize their own private labels or competitors, leaving smaller brands with less visibility and weaker market positioning.

How do the challenges of quick commerce in India compare to those faced in Western markets?

In Western markets, quick commerce saw a brief spike but eventually died out due to high costs and low profitability. In contrast, quick commerce in India is still growing, but the challenges are similar, including high operating expenses and the difficulty in maintaining profitability in a price-sensitive market.

What impact does quick commerce have on the pricing structure of products in India?

Quick commerce can drive up the cost of products due to the added expenses of labor, delivery, and infrastructure. However, Indian consumers are very price-sensitive, and such price hikes may lead to reduced demand, particularly for mass-market products that are not viewed as premium offerings.

Why is it important for brands to have their own distribution channels, especially in the context of quick commerce?

Having their own distribution channels allows brands to maintain control over pricing, customer data, and brand identity. Without these, brands are at the mercy of third-party platforms like quick commerce services, which can charge high commissions and control visibility, limiting long-term growth potential.