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10-Minute Delivery Was on a Roll, Until It Wasn't: What Changed? We Explain

The pandemic-era business model of instant delivery apps like Blinkit are economically unviable, say experts.

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10-Minute Delivery Was on a Roll, Until It Wasn't: What Changed? We Explain
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In December 2021, Grofers changed its name to Blinkit to reflect its focus on 10-minute delivery. Outlining his vision, CEO Albinder Dhindsa had said, "We saw that this is going to be the future of commerce."

The rebranding not only signaled Dhindsa's ambitions for the startup but also intensified the race to slash delivery time as part of a new e-commerce offshoot called quick commerce.

However, just one-and-a-half years down the road, the winds seem to have shifted. Blinkit's delivery services took a hit in Delhi-NCR after hundreds of delivery partners recently went on strike against a new payout structure that they claimed would eat into their earnings.

"If I used to work eight hours to earn Rs 1,000 a day, it will now take me 14-15 hours to make that much money," a worker, on the condition of anonymity, told The Quint. The worker showed us his trip history, where most of his orders had fetched him Rs 15, and only a few had gone up to Rs 25 and Rs 31.

As videos purportedly showing Blinkit delivery partners protesting and chanting slogans made their way onto social media, BharatPe co-founder and former Shark Tank India judge Ashneer Grover gave his two cents. "Problem is 10Min delivery has no economics - low ticket size and low margin can never be solved through forced low delivery cost," Grover tweeted.

There are others who share Grover's view on quick commerce. Speaking at a recent investor summit in Mumbai, Big Basket CEO Hari Menon said, "The economics just don't work at 10-15 minutes, which is frankly the fact," as reported by Moneycontrol.

Blinkit's troubles aside, well-known entrepreneurs are having a change of heart about quick commerce. Has the quick commerce hype train slowed down? Does it have to do with the predominant business model? What will it take for quick commerce to become economically sustainable? Let's delve deeper into these questions.

10-Minute Delivery Was on a Roll, Until It Wasn't: What Changed? We Explain

  1. 1. What Is the Economics Behind 10-Minute Delivery?

    The concept of 10-minute delivery is propped up by two economic theories, namely network effects and product differentiation.

    "A service becomes more valuable to me because others are using the service. For instance, Facebook is more useful if more friends join Facebook. These are called direct network effects," Viswanath Pingali, associate professor of economics at Indian Institute of Management (IIM) Ahmedabad, told The Quint.

    "Indirect network effects, on the other hand, is when drivers join my network, more cars are available, and that leads to more passengers joining me and that encourages more drivers and so on," he added.

    In the case of quick commerce, companies could rely on both types of network effects. "The more consumers join, the more effective the delivery logistics of quick commerce companies become (direct network effects). The more sellers join, the more buyers will follow, which means that more sellers would find it attractive, and so on (indirect network effects)," he explained.

    However, according to Pingali, companies must exercise caution in relying excessively on network effects as research suggests that these effects have limitations.

    While network effects could help drive adoption, product differentiation is what quick commerce players are after when they promise ultra-fast delivery times. "Now, giants like Flipkart and Amazon exist. So, if you have to differentiate [products], delivery time is one of the aspects," Pingali clarified.

    Expand
  2. 2. How Does It Generate Revenue? 

    In their early days, Grofers (which is now Blinkit) and Swiggy's Instamart acted primarily as aggregators, sourcing their inventory from nearby specialty stores and supermarkets, according to a report by Financial Express.

    However, by 2018, most of these companies had abandoned the aggregation model and instead switched to a pure-play inventory model, the report said. This involved operating out of warehouses and dark stores, with some companies even launching their own grocery private labels in order to achieve higher margins. The change was evident in the business strategies of companies like Dunzo, BigBasket, and Blinkit, it added.

    Is it a robust business model? Ganesh Prabhu, a professor teaching product innovation, strategic management, and entrepreneurship at Indian Institute of Management (IIM), Bangalore, doesn't seem to think so.

    Speaking to The Quint, Prabhu said, "In my classes, I have been teaching about this type of issue. And typically, it is called a sensitive business model as it is very hard to manage and get it right."

    "There are n number of ways to get it wrong. You have to get the inventory right, you have to get the inventory mix correct, you have to ensure that they're all high-value inventory while also ensuring that they're in high demand," he added.

    Expand
  3. 3. When Does Quick Commerce Get It Right?

    According to Prabhu, the quick commerce model is best exemplified by neighbourhood kirana stores that are spread all across the country.

    "If you call a kirana store, they will also deliver two items to you in 10 minutes. That works well because the shop is close by and offers a wide range of products. It also doesn't cost them much to do it because the delivery person is otherwise occupied in the shop, and is not doing just this work," the IIM Bangalore professor said.

    One of the reasons that makes the kirana store model economically viable is that it has an inventory that can be purchased by walk-in customers as well as for delivery to nearby houses, Prabhu opined.

    When it comes to success stories among online retailers, Prabhu offered the example of a US-based e-grocer called Boxed (formerly MaxDelivery) that operates primarily in New York City's Manhattan. "By and large, it (Boxed) has only premium items, it doesn't have anything which is low price and low margin," he explained.

    The geographical location of quick commerce retailers also matters, at least in the case of Boxed. "Manhattan is mostly filled with rich people. There are tall buildings, it has a very high density of population and very high affluence population. But that's the only location in the whole of the US where this business is viable. If you go to any other city in the US, it may not be viable," Prabhu said.

    Perhaps, this also explains why most quick commerce apps like Blinkit or Dunzo have not been able to expand to Tier-2 and Tier-3 cities in India.

    According to market research firm RedSeer, most of the demand for quick commerce is concentrated in metropolitan and Tier-1 cities. These areas have the highest concentration of mid to high-income households, which make up the majority of the potential customer base for this market, as per the estimates provided.

    In a blogpost, RedSeer has also estimated that India's quick commerce market size would increase from $0.3 billion to $5.5 billion, without going into the details. However, in response to detailed questions posed by The Quint, a company representative said, "We don't have answers for these questions now. We would want to skip this."

    Expand
  4. 4. In What Ways Has Quick Commerce Gone Wrong?

    From 2017 to 2019, startups such as Doodhwala, Ninjacart, and SuprDaily attempted to disrupt the market by offering morning milk-delivery subscriptions. However, they ultimately had to reduce the scale of their operations or were acquired by larger competitors like BigBasket and Swiggy.

    Last year, Reliance Retail and Ola shut down their quick commerce grocery delivery service called JioMart Express and Ola Dash, respectively. In February, Morning Context reported that Dunzo would be scaling down its dark store network and returning to grocery delivery from supermarkets. Flipkart Quick saw the same fate.

    "It [quick commerce] ignores a lot of externalities. For instance, it is creating havoc with local traffic by putting the safety of delivery folks and the other drivers on the road at risk," Pingali said. In 2022, Chennai Traffic Police imposed fines on over 970 delivery partners for violating traffic rules such as riding without a helmet and biking on the wrong side of the road, among others, as per The Indian Express.

    There have also been several reports of delivery partners losing their lives in the scramble to deliver items within small time frames.

    Echoing Pingali's views, IIM-B professor Prabhu said, "If you work it out, you will quickly realise that it is not viable to offer this type of service."

    "I am not sure anyone is articulating: What is the premium people want to pay for quick delivery? Currently, faster delivery seems to be a service that is being provided, without asking the question of value addition," Pingali further said.

    However, Zepto co-founder Aadit Palicha has made the case that shorter delivery times is preferred by consumers.

    "When you look at the revenue retention data, hundreds of thousands of customers getting consistent eight- to 12-minute deliveries has better revenue retention versus customers getting 20-25 minutes delivery. So, do customers want quick deliveries – absolutely, if you're giving them 10-minute delivery, versus 25 minutes, they will pick the former," he argued at the Sharrp Summit in Mumbai on 12 April.

    Around 80-100 of Zepto's dark stores have achieved positive cash flow in the past 12-14 months, according to co-founder Palicha. The instant delivery startup was reportedly able to achieve this by reducing costs and executing higher sales. 

    Looking at Zepto's FY22 financials, the company generated a total revenue of Rs 142.3 crore and incurred a loss of Rs 390.3 crore on a standalone basis. Its expenses in FY22 stood at Rs 532.7 crore.

    In May last year, Zepto reportedly raised $200 million in its Series D round of funding, and it is currently valued at $900 million.

    Expand
  5. 5. Are Quick Commerce Apps All but Finished?

    Taking a dim perspective on what the future holds for quick commerce apps, Prabhu said, "You can never make money and if somebody believes that it will work at some point, they will buy it out or they will close it because it's lost money."

    On the contrary, Pingali believed that quick commerce might not perish but instead be limited to a few segments (medicines, for instance) or rationalise to reasonable delivery times such as same-day or next-day deliveries.

    (At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

    Expand

What Is the Economics Behind 10-Minute Delivery?

The concept of 10-minute delivery is propped up by two economic theories, namely network effects and product differentiation.

"A service becomes more valuable to me because others are using the service. For instance, Facebook is more useful if more friends join Facebook. These are called direct network effects," Viswanath Pingali, associate professor of economics at Indian Institute of Management (IIM) Ahmedabad, told The Quint.

"Indirect network effects, on the other hand, is when drivers join my network, more cars are available, and that leads to more passengers joining me and that encourages more drivers and so on," he added.

In the case of quick commerce, companies could rely on both types of network effects. "The more consumers join, the more effective the delivery logistics of quick commerce companies become (direct network effects). The more sellers join, the more buyers will follow, which means that more sellers would find it attractive, and so on (indirect network effects)," he explained.

However, according to Pingali, companies must exercise caution in relying excessively on network effects as research suggests that these effects have limitations.

While network effects could help drive adoption, product differentiation is what quick commerce players are after when they promise ultra-fast delivery times. "Now, giants like Flipkart and Amazon exist. So, if you have to differentiate [products], delivery time is one of the aspects," Pingali clarified.

ADVERTISEMENT

How Does It Generate Revenue? 

In their early days, Grofers (which is now Blinkit) and Swiggy's Instamart acted primarily as aggregators, sourcing their inventory from nearby specialty stores and supermarkets, according to a report by Financial Express.

However, by 2018, most of these companies had abandoned the aggregation model and instead switched to a pure-play inventory model, the report said. This involved operating out of warehouses and dark stores, with some companies even launching their own grocery private labels in order to achieve higher margins. The change was evident in the business strategies of companies like Dunzo, BigBasket, and Blinkit, it added.

Is it a robust business model? Ganesh Prabhu, a professor teaching product innovation, strategic management, and entrepreneurship at Indian Institute of Management (IIM), Bangalore, doesn't seem to think so.

Speaking to The Quint, Prabhu said, "In my classes, I have been teaching about this type of issue. And typically, it is called a sensitive business model as it is very hard to manage and get it right."

"There are n number of ways to get it wrong. You have to get the inventory right, you have to get the inventory mix correct, you have to ensure that they're all high-value inventory while also ensuring that they're in high demand," he added.

ADVERTISEMENT

When Does Quick Commerce Get It Right?

According to Prabhu, the quick commerce model is best exemplified by neighbourhood kirana stores that are spread all across the country.

"If you call a kirana store, they will also deliver two items to you in 10 minutes. That works well because the shop is close by and offers a wide range of products. It also doesn't cost them much to do it because the delivery person is otherwise occupied in the shop, and is not doing just this work," the IIM Bangalore professor said.

One of the reasons that makes the kirana store model economically viable is that it has an inventory that can be purchased by walk-in customers as well as for delivery to nearby houses, Prabhu opined.

When it comes to success stories among online retailers, Prabhu offered the example of a US-based e-grocer called Boxed (formerly MaxDelivery) that operates primarily in New York City's Manhattan. "By and large, it (Boxed) has only premium items, it doesn't have anything which is low price and low margin," he explained.

The geographical location of quick commerce retailers also matters, at least in the case of Boxed. "Manhattan is mostly filled with rich people. There are tall buildings, it has a very high density of population and very high affluence population. But that's the only location in the whole of the US where this business is viable. If you go to any other city in the US, it may not be viable," Prabhu said.

Perhaps, this also explains why most quick commerce apps like Blinkit or Dunzo have not been able to expand to Tier-2 and Tier-3 cities in India.

According to market research firm RedSeer, most of the demand for quick commerce is concentrated in metropolitan and Tier-1 cities. These areas have the highest concentration of mid to high-income households, which make up the majority of the potential customer base for this market, as per the estimates provided.

In a blogpost, RedSeer has also estimated that India's quick commerce market size would increase from $0.3 billion to $5.5 billion, without going into the details. However, in response to detailed questions posed by The Quint, a company representative said, "We don't have answers for these questions now. We would want to skip this."

ADVERTISEMENT

In What Ways Has Quick Commerce Gone Wrong?

From 2017 to 2019, startups such as Doodhwala, Ninjacart, and SuprDaily attempted to disrupt the market by offering morning milk-delivery subscriptions. However, they ultimately had to reduce the scale of their operations or were acquired by larger competitors like BigBasket and Swiggy.

Last year, Reliance Retail and Ola shut down their quick commerce grocery delivery service called JioMart Express and Ola Dash, respectively. In February, Morning Context reported that Dunzo would be scaling down its dark store network and returning to grocery delivery from supermarkets. Flipkart Quick saw the same fate.

"It [quick commerce] ignores a lot of externalities. For instance, it is creating havoc with local traffic by putting the safety of delivery folks and the other drivers on the road at risk," Pingali said. In 2022, Chennai Traffic Police imposed fines on over 970 delivery partners for violating traffic rules such as riding without a helmet and biking on the wrong side of the road, among others, as per The Indian Express.

There have also been several reports of delivery partners losing their lives in the scramble to deliver items within small time frames.

Echoing Pingali's views, IIM-B professor Prabhu said, "If you work it out, you will quickly realise that it is not viable to offer this type of service."

"I am not sure anyone is articulating: What is the premium people want to pay for quick delivery? Currently, faster delivery seems to be a service that is being provided, without asking the question of value addition," Pingali further said.

However, Zepto co-founder Aadit Palicha has made the case that shorter delivery times is preferred by consumers.

"When you look at the revenue retention data, hundreds of thousands of customers getting consistent eight- to 12-minute deliveries has better revenue retention versus customers getting 20-25 minutes delivery. So, do customers want quick deliveries – absolutely, if you're giving them 10-minute delivery, versus 25 minutes, they will pick the former," he argued at the Sharrp Summit in Mumbai on 12 April.

Around 80-100 of Zepto's dark stores have achieved positive cash flow in the past 12-14 months, according to co-founder Palicha. The instant delivery startup was reportedly able to achieve this by reducing costs and executing higher sales. 

Looking at Zepto's FY22 financials, the company generated a total revenue of Rs 142.3 crore and incurred a loss of Rs 390.3 crore on a standalone basis. Its expenses in FY22 stood at Rs 532.7 crore.

In May last year, Zepto reportedly raised $200 million in its Series D round of funding, and it is currently valued at $900 million.

ADVERTISEMENT

Are Quick Commerce Apps All but Finished?

Taking a dim perspective on what the future holds for quick commerce apps, Prabhu said, "You can never make money and if somebody believes that it will work at some point, they will buy it out or they will close it because it's lost money."

On the contrary, Pingali believed that quick commerce might not perish but instead be limited to a few segments (medicines, for instance) or rationalise to reasonable delivery times such as same-day or next-day deliveries.

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

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Topics:   E-Commerce   Swiggy   Delivery 

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