Why Quick Commerce Startups Struggle to Turn a Profit in India
Quick commerce businesses, despite their appeal of fast delivery and convenient shopping, often face financial difficulties, particularly in the Indian market. This is due to the business model's heavy reliance on high operating expenses and thin profit margins. In this article, we will delve into the reasons behind the struggles of quick commerce startups, explore the financial realities of their ventures, and discuss the challenges they encounter in the Indian market.
The Business Model and High Operating Costs
One of the primary challenges for quick commerce startups is the need for a substantial inventory to meet consumer demand promptly. This requirement necessitates the purchase of numerous small warehouses or fulfillment centers, significantly increasing operational costs. These high operating expenses are just one aspect of the financial burden faced by such businesses.
Another critical factor is the cost associated with last-mile delivery, which includes labor, gasoline, and advanced technology to ensure timely deliveries. These expenses eat into the already thin profit margins, making it difficult for quick commerce businesses to break even or turn a profit.
Marketplace Pressures and Customer Retention
The competitive landscape of quick commerce is also a significant factor hindering profitability. These businesses must compete by offering discounts and promotions to attract and retain customers. This strategy, while effective in the short term, reduces profit margins and often leads to a vicious cycle where the company must continually spend more to keep customers engaged.
Moreover, the cost of initial investment and the ongoing operating expenses often exceed sales revenue, creating a deeply challenging financial situation. To illustrate, several prominent quick commerce startups have reported significant losses. Blinkit, for instance, reported a loss of 1190 crores in FY 23, while Swiggy’s losses have widened to 545 million due to its investment in Instamart. Zepto, Big Basket, and Dunzo are among others that have also struggled, with Dunzo reporting losses of 1800 crores and being on the brink of shutting down.
The Role of Kirana Stores and the Indian Consumer
The success of quick commerce startups in the Indian market is significantly hampered by the prevalence of Kirana stores. These local general stores, known for their convenience and cost-effectiveness, offer a stark contrast to the premium services provided by quick commerce apps. In many Western markets, the concept of general stores is less prevalent, which initially made quick commerce apps such as Instacart in the US or Webvan in the UK more appealing.
In India, the preference for Kirana stores is reflected in the demand for online grocery deliveries. During the lockdown, there was a surge in the use of these apps, but as the economy reopened and people returned to their regular shopping habits, the demand for online grocery services began to decline. This trend highlights the difficulty these startups face in establishing a sustainable market presence.
Strategies for Sustained Profitability
To overcome these challenges, quick commerce startups must develop robust distribution networks akin to those of larger players like Reliance Jio Mart. Companies that invest in building a strong distribution infrastructure are more likely to achieve profitability in the long run. Shifting the business model from a pure focus on discounts and promotions to one that emphasizes customer value and satisfaction can also be a strategic approach. Additionally, focusing on niche markets or specific segments of the population where quick commerce services can add significant value would help in sustaining profitability.
As the funding landscape becomes more challenging, these startups must refine their business plans and identify sustainable revenue streams. By addressing the underlying issues and adapting to the unique consumer behaviors of the Indian market, they can work towards achieving long-term success and profitability.