PremiumWith mounting pressure to turn profitable, the quick commerce sector could expand into other categories in the future, such as pharma, cosmetics and electronics. But along with the innovation spree, the companies must also deal with worker discontent
Last month, Zomato created yet another flutter by announcing inter-city food deliveries: Get biryani from Hyderabad, sitting in your Delhi flat. This came months after the short-lived hype over “10-minute food delivery". In a country where life-saving ambulances take longer to arrive, new-age startups have gone all-out with innovative and exciting models to stay on top—the latest being an iPhone 14 delivery in 10 minutes.
Thanks to the pandemic-led lifestyle shifts, the elusive goal to break even looks more achievable than ever for delivery-tech companies. The quick commerce space has become highly competitive and a race to grab market share even amid losses could keep prompting unprecedented ideas, say experts.
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“With new users not growing as rapidly as expected, players are looking to unlock greater market share from existing users, prompting these rapid innovations," Abhishek Gupta, engagement manager at RedSeer Consulting, said. With mounting pressure to turn profitable, the sector might even expand into other categories in the future. That day may not be far when robots and drones deliver paracetamol and cosmetics in under 30 minutes. “Investments in high-end inventory and supply chain management technologies along with strategic dark store locations could be key (for more innovations)," Harsha Razdan, partner at KPMG India, said. “Companies will also need to leverage economies of scale and invest in the right customer acquisition and retention strategies, and devise systems to ensure efficiency, safety, and sustainability in the long term."
Innovations in the Q-commerce (QC) space have been funded by bullish investments. The sector is expected to grow by 10-15 times to become a $5.5-billion industry by 2025, according to consultancy RedSeer. Four major hyperlocal delivery companies—Zomato (including Grofers), Dunzo, Zepto and Swiggy—have collectively seen investments worth over $6 billion in the last five years, according to an analysis of funding by Mint.
Yet most of these companies are still loss-making . The biggest player in the space, Zomato, has said it hopes to Ebitda breakeven by this fiscal-end. “Overall profitability (of quick commerce business) will also be a function of how aggressively we expand and open new dark stores," Zomato said in an investor call recently. With a sharp eye on the profitability ball, going forward, QC companies could be more selective in scaling innovations given the funding winter and the need to conserve capital, analysts said.
Meanwhile, innovations need to stand the test of time. After an audacious launch, the hype around 10-minute delivery has fizzled out as companies have had to tackle backlash over rider safety, along with challenges in fulfilling timely orders and insufficient expansion of dark stores for want of capital.
“Ten-minute delivery was a great way to attract customers, but most companies seem to be delivering within an average of 15-30 minutes, or even more," said Anand Ramanathan, partner at Deloitte India.
What happened then? Simply put, the model quickly unravelled as unit economics’ realities caught up: companies looked to cut costs and reduce cash burn to preserve investor capital, amidst a funding winter this year. The model also threw up logistical challenges during rush hours, while companies grappled with shortages of delivery staff. The failure should be a lesson for companies in innovating sustainably.
The sector is incomplete without its workers, and the chasm between startups and gig workers is widening. Measures to boost profits have often irked delivery staff, who are staring at falling incentives, steep targets and lack of social security.
“Hyperlocal startups don’t speak to delivery workers or take their concerns into account before designing innovations," said Shaik Salauddin, general secretary of Indian Federation of App-Based Transport Workers (IFAT), an industry body.
Dunzo’s attempts to batch orders to improve profitability were met with protests with workers alleging more work for less pay. Swiggy, Zomato and Fraazo have all grappled with protests, mirroring a global trend. As gig workers command a greater share in the service workforce, the innovations for profitability must account for them. Zomato’s repeated insistence that staff were not forced to deliver within 10 minutes is a testament to that.