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Speed Meets Convenience: The Quick Commerce Phenomenon in India

IFSA LSR
Authors: Saumya Gupta & Vani Bedi
Published on: February 6, 2025

“India’s growth is precarious, both the optimist and Pessimist are disappointed”

~ Ruchir Sharma, Author for the financial times

Introduction

In the era of ‘hustlers’, it has become easier to deviate one’s attention to anything that delivers ‘instant gratification’. From content creators posting about the world’s utopian vision coming to life to certain industries offering the convenience of getting that one packet of milk for your mother’s evening tea in less than 10 minutes, without the extended taunts and without having to walk miles as far as the grocery store behind your home. 

‘Quick Commerce’ , the new age trend that has managed to captivate generations of people and perhaps even generational wealth has nonetheless, taken the country by storm, creeping into a majority Indian household conceptually, if not in practice. It is thereby inevitable that we study this concept beyond the consumer perspective to comprehensively evaluate what makes this unique retail model the catalyst of the Indian economy. 

In this article thereby, we will be exploring both a consumer and supplier centric perspective of the booming industry using relevant data-sets and graphical representation to support our basis of both a qualitative as well as quantitative analysis. Moreover, to derive insights into the business models, we would also be analyzing the financials and revenue streams of the key features that makes the new-age Quick Commerce a significant competitor to well-established E-commerce platforms like Amazon and Flipkart. A panoramic understanding of the industry will be followed by our potential framework of the ‘paths to profitability’ to help mitigate the struggles and risk scenarios of the said industry. 

The Quick Commerce Revolution in Making

‘ The reason it seems that price is all that your customers care about is that you haven’t given them anything else to care about’ 

~ Seth Godin, American Entrepreneur

Market Analysis: 

Before we begin to analyze what makes Quick Commerce an essential differentiator, it is essential that we build an understanding of the market sizing and general cost-benefit consumer preferences. 

Source: Blume Indus Valley Annual Report 2024 (Think School)

Based on the Blume report, the Indian Market is subdivided into 3 categories namely India 1, India 2 and India 3. India 1 includes the consuming class which entails people who prefer benefits and convenience and are thereby willing to pay higher premiums (if so required) to avail the benefits of faster or better quality services. As per the Goldman Sachs ‘Affluent India’ estimate, the number of people in the consuming class is only said to increase over the years and thereby constitutes a significant rise in market size of quick commerce platforms like Blinkit, Zepto among others. 

India 2 is typically inclusive of the Aspirant Class who weigh both cost and convenience to choose the most optimum service. This essentially constitutes a potential market for the quick commerce platforms which at the same time may be a challenge to penetrate into, given the working of the delivery cost and other service premiums charged by the said platforms. 

India 3 categorizes the ‘Non Monetizable’ or Non-Users where preference for lower cost seemingly outweighs the preference for convenience and quality services, often influenced by low income or lack of access to technology and resources, constitute a majority of the Indian population. 

The 5C+1 Mastery of the Indian QC Channel: 

In the era of globalization and escalating awareness about brand positioning and its corresponding status representation, it is inevitable that the Indian consumers shift their demand and aspirations towards products and services available instantly and often at luring discounts, a consumer need that Quick Commerce channels address significantly, through the following mediums:

  1. Speed and Convenience: Many consumers refrain from traveling long distances to large supermarkets due to limited transportation options or inconvenient infrastructure. Even visits to nearby stores can be challenging, given busy family schedules and the rise of nuclear households. Quick commerce (QC) platforms enhance the shopping experience by ensuring most orders are delivered within 10 to 30 minutes.
  2. An Exponential Catalogue: Consumers often prefer a one-stop shopping experience, but neighborhood kirana stores typically stock only 1,000–1,500 SKUs due to space and financial constraints, limiting product variety. In contrast, QC platforms operate dark stores with over 6,000 SKUs, significantly enhancing customer satisfaction.
  3. Competitive Pricing and Loyalty Benefits: Kirana stores typically sell at MRP due to low margins, leaving little room for discounts. In contrast, QC platforms leverage scale to build direct partnerships with brands and distributors, bypassing complex supply chains and reducing costs. These savings are partly passed on to consumers through lower prices. Additionally, some QC platforms offer loyalty programs with benefits like discounts, delivery fee waivers, and cashback for a nominal membership fee.
  4. Round-the-Clock Services: Most kirana stores in India are family-owned businesses with limited resources and fixed operating hours. In contrast, QC platforms operate dark stores optimized for 24/7 service, utilizing multiple shifts to ensure continuous availability.
  5. Customer Services: A key challenge for customers shopping at unorganized retailers is the lack of standardized post-purchase service, often resulting in a nonexistent support experience. Online ordering effectively addresses this issue by providing 24/7 customer support and standardized return and exchange policies.

Covid Pandemic-The Guiding Path for Quick Commerce:

Source: Indus Valley Annual Report, Blume (2024)

Onset of the pandemic further shifted the consumer preference to procuring basic necessities such as groceries at the comfort of one’s homes. A logistic boundation once has thereby transformed into a luxury and perhaps a booming industry globally. 

As can be witnessed in the graph, the sales for Apple India has surpassed HUL sales, one of the largest FMCG brands in India delivering a stringent revelation into the ever-changing Indian consumers market, especially with both the SKU’s being available on QC Channels.

Understanding Dark Stores: The Backbone of Quick Commerce

Dark stores play a pivotal role in the success of quick commerce businesses like Zepto. They’re essentially warehouses designed for hyperlocal delivery, but with a twist – they’re not open to the public. Let’s break down their key aspects:

What are Dark Stores?

Dark stores are mini-warehouses or micro-warehouses located in urban areas, strategically placed to ensure ultra-fast deliveries. Unlike traditional retail stores, these facilities are only accessible to delivery teams, not customers. 

Why are Dark Stores Important?

  1. Proximity to Customers: The closer dark stores are to high-density neighborhoods, the faster the delivery time. By setting up stores near customer clusters, delivery partners can quickly access inventory and fulfill orders without wasting time on long-distance travel.
  2. Efficient Operations: Items that are ordered frequently (e.g., groceries, essentials) are stored closer to the entrance of the dark store, while less frequently ordered items are placed further back. This ensures quick pick-ups and minimizes time spent searching for products.
  3. Scalability & Expansion: Once a dark store’s capacity is maxed out, companies can open additional stores or add more delivery partners to handle the increased volume. This model allows for rapid scaling in high-demand area

 

Source: Zepto’s business model by Growth X

How Do Dark Stores Work?

  • Item Selection: When a customer places an order, operations executives receive a digital list and a map that guides them to pick the products efficiently.
  • Optimized Layout: Products are organized based on demand frequency. Fast-moving items are near the front, while slow-moving ones are stored at the back.
  • Speedy Packaging: Once the order is picked, it’s packed quickly, ensuring minimal delays before dispatch to the delivery partner.

Source: Zepto’s business model by Growth X

 Quick Commerce : Financial Breakdown 

Think of Q-commerce like trying to bake a giant cake in 30 minutes. You have all the ingredients (the orders), the recipe (the operations), and the goal (a delicious, profitable cake). But if you’re not managing your ingredients properly, you’ll end up with a dry, and unappetizing cake. In Q-commerce, this “cake” is the business, and the margins are the secret ingredient that determines whether you’re serving up a winning recipe or a flop.

Let’s take Blinkit, one of India’s leading quick commerce players, as an example. Blinkit promises deliveries in under 15 minutes, but this speed comes with high costs. From setting up dark stores to paying for last-mile delivery, margins are thin but crucial for profitability. Here’s the catch: to make this business model work, Blinkit needs to balance a higher Average Order Value (AOV) with scalability and tight cost management. The key is in understanding the contribution margin — the amount left after covering the variable costs. A higher contribution margin allows Blinkit to cover fixed expenses and eventually scale profitably.

In the following example, we’ll break down how Blinkit (and other quick commerce players) manage their costs and revenues, and see how they use economies of scale to turn the business into a potential goldmine. Keep reading to see how the numbers come together.

Assumptions:

  • Average Order Value (AOV): ₹400 (this is the price each customer typically spends on their order) –  As per Economic Times , Q-commerce companies saw an AOV of INR 400 in year 2022 , in our analysis we will be doing calculations both with high AOV as well as a low AOV and understanding the profitability and scaling game alongside 
  • Daily Orders: 600 orders/day (we’ll be assuming the dark store processes 600 orders daily on a higher end )
  • Gross Margin: 20% of AOV (a standard margin in Q-commerce, though this can vary depending on factors like product cost and demand)
  • Delivery Charges: ₹40 per order (this is the cost for last-mile delivery)
  • Employee Salaries, Rent, and Other Costs: Already factored into the operating cost structure.

Contribution Margin Before and After AOV Increase:

Table 1: Contribution Margin Breakdown Before and After AOV increase

Here’s a breakdown of how contribution margins change when the Average Order Value (AOV) increases. Let’s look at both before and after the increase in AOV to see how scalability makes a significant difference.

Key Insights:

  • Before AOV Increase: The gross margin per order is ₹80, and the contribution margin per order is ₹40 after factoring in delivery charges.
  • After AOV Increase: The gross margin increases to ₹110, and the net contribution margin per order rises to ₹70.
  • Scalability: As we scale from 300 orders to 600 orders per day and increase AOV from ₹400 to ₹550, we see a significant improvement in profitability. This is where the magic of scalability kicks in — the more orders, the higher the margins, and the faster the growth.

Revenue Factors Breakdown:

Table 2: Revenue Factor Breakdown

Now, let’s explore how Q-commerce businesses generate their revenue. The major contributors are warehousing services, marketplace commissions, ads, and customer fees.

Key Insights:

  • Warehousing & Marketplace Commission (₹72): This is the bulk of the revenue, representing income from storing and selling products through the platform.
  • Advertising Revenue (₹21): Revenue generated through in-app ads or promotional content.
  • Customer Fee (₹18): The fee that the customer pays for the delivery service.

Cost Factors Breakdown:

Table 3: Cost Factor Breakdown

Q-commerce businesses have to manage several key cost drivers. These are the ingredients that need to be carefully measured to avoid overspending and eroding margins.

Key Insights:

  • Last-Mile Delivery (₹42): The most significant cost, covering the expenses of delivering products to customers.
  • Dark Store, Mid-Mile & Warehousing (₹39): Costs related to maintaining the infrastructure for dark stores and warehouses.
  • Packaging, Wastage, Support & Communication (₹12): These are the costs of packaging and handling products, as well as supporting customer communication.
  • Customer Acquisition Cost (CAC) (₹18): The marketing and advertising expenses needed to acquire new customers.

Profitability and Scalability Analysis:

Table 4: Profitability and Scalability Analysis

Now, let’s combine the revenue and cost factors to understand the overall profitability and scalability of a Q-commerce business:

Key Insights:

  • Contribution Margin: Despite similar margins in both scenarios (₹15.2 per order), the impact of scaling operations and increasing AOV is significant. Higher AOV and increased order volume will yield much higher profitability.
  • Scalability: With a larger AOV (₹550) and more orders, the business achieves better profitability, making Q-commerce an attractive option for businesses that can manage these variables effectively.

Quick Commerce is a highly scalable model where margins become the difference between success and failure. By increasing the Average Order Value (AOV) and processing more orders per day, the business improves its contribution margin, thereby making it much more profitable. The key takeaway is that , getting the balance right — between costs and revenues — is essential for turning Q-commerce into a gold mine.

The Competitive Matrix -Uncovering the Market Dynamics:

Our analysis, based on public disclosures and industry discussions, reveals the following insights on the competitive matrix

Conclusion:

Quick commerce is revolutionizing the retail sector in India by bringing speed, convenience, and efficiency to the forefront of consumer shopping experiences. With the rise of platforms like Zepto and Blinkit, the industry is meeting the growing demand for fast deliveries, often within minutes, reshaping how urban consumers approach everyday purchases. While the scalability of quick commerce faces challenges such as operational complexity and maintaining profitability, the integration of innovative technologies and streamlined logistics provides a strong foundation for future growth. As the sector evolves, it holds the potential to redefine not only how we shop but also the broader landscape of e-commerce in India, positioning itself as a key player in the future of retail.

 

Sources: