Quick-Commerce: Not a “Safe” bet with a long road to profitability

Raj was looking at the growth of Zepto, an Indian Quick-Commerce (Q-Commerce) firm which promises “10-minutes delivery”. Working in one of the world’s largest venture capital firm Nequoia , he has to understand this sector fully and decide whether to invest in Q-Commerce industry or not.

But the more he is researching the more he is getting intrigued by this sector!

To his astonishment Zepto had grown phenomenally. Zepto, started by two 19-year Stanford dropouts has raised USD 100 mn led by Y Combinator’s Continuity Fund at a valuation of $570 million within 5 months of its inception!!!

Zepto delivers over 2,500+ items including fresh produce, cooking essentials, snacks and beverages, personal care items and home cleaning products . According to CBINSIGHTS , as of Nov-2021, it had 40 dark stores across Mumbai, Bangalore & Delhi and it was planning to have more than 100 dark stores across Kolkata, Pune, Hyderabad & Chennai.

The growth of Zepto also comes in the global background of Q-Commerce companies gaining phenomenal growth. Globally, Q-Commerce as a format has already picked up a lot of investments. For example, this format is there in China for last 5-7 years with the likes of companies such as Miss Fresh, Dingdong Maicai and Meituan Maicai . In last two years several companies have emerged and/or grown exponentially in Euorope/U.K. (like Getir, Gorillas, Flink, Zapp, Jiffy and Cajoo) and US (like GoPuff).

Gorillas, a Germany based Q-Commerce firm has become the fastest European startup to achieve the unicorn status in just 9 months from inception (which was May’2020). As per its website, it delivers 2000 items in more than 60 cities, including Amsterdam, London, Paris, Madrid, New York, Milan and Munich with a diverse team of more than 14,000 employees globally and built more than 200 warehouses across 9 countries.

In India also, BlinkIt (earlier Grofers), Swiggy’s Instamart, Zomato are gaining much popularity in this space. Even the more established firms such as the likes of Amazon and Walmart Inc-backed Flipkart & Tata owned Bigbasket (through BBNow) are also venturing into Q-Commerce segment.

With so much competition and companies rushing to the Q-Commerce bandwagon with a fear a FOMO, it is very difficult to evaluate the fate of the companies of this segment.

Raj was worried as he does not want to miss the opportunity created by Q-Commerce companies but at the same time two un-solved issues are really making him think twice before recommending investment in this segment. These two issues are:

  • With cut throat competition & insane funding, when & how will these companies reach profitability to justify their valuation
  • How will these companies sustain their entire operations to maintain the promise of delivering in less than 10-20 minutes AND at the same time ensure the safety of delivery partners

He was looking at his Apple MacBook screen while playing with a pen. He has to not only convince his Partner but also convince himself before jumping to Q-Commerce bandwagon with a multi million dollar investment proposal.

So what did Raj finally decide? How did he decide. Please read on our detailed case study with following points covered in the case:

  1. Evolution of Q Commerce industry globally & in India
  2. What’s driving Q-Commerce?
    • Pandemic
    • Evolving consumer behaviours
    • Urbanisation
  3. How does Q-Commerce ensure 10-20 minutes delivery?
  4. Q-Commerce Business Model – Is it sustainable?
    • Operational revenue & expenses model of Q-Commerce companies
    • Upfront Capital Investment
  5. The long unproven road to Profitability
    • Increasing the delivery charges
    • Increasing the order value
    • Decreasing Cost of Goods Sold
    • Improving Driver Efficiency
    • Improving Picking & Packing Efficiency
    • Decreasing marketing costs
  6. The unsafe road to quick delivery
    • What do the CEOs say?
    • Then why delivery executives do rash driving: Answer lies in “Incentive Theory”
    • Solutions for Safe Deliveries
  7. To invest or not to invest?

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