Rapid emergence of Quick commerce is creating stiff competition for e-commerce players. It will also have significant impact on e-com logistics companies. As per estimates quick commerce volumes have grown at 45% – 50% year on year against 17-18% growth of e-commerce volume. This growth rate may further improve with addition of new categories. In spite of limited reach to about 25 cities, quick commerce volumes have already crossed 65 million shipments per month. These volumes are more than 15% of e-commerce volume, which has very strong reach across country through 3PL service providers.
Quick commerce is largely a phenomenon of metro and Tier 1 cities and expected to remain upto tier 2 cities only. While we expect e-commerce to keep its dominance in tier 2 and smaller markets against quick commerce. Operating model of quick commerce revolves around inventory carrying dark stores. The viability of such inventory led model depends on order volume and drop density, which remain very high in urban markets. While in tier 3 or tier 4 cities, maintaining a complete product range with lower order volumes, such model may not be viable for quick commerce companies. On the other hand, customers have limited time for going markets to buy routine things in Metro and Tier 1 environment leading to higher order frequency. While in smaller cities customers have sufficient time for going markets and travel time to market is very low. Customers of smaller cities wait for 2-3 days for some specific things bought through e-commerce channel for a better product option or value.
Quick commerce, a segment which started with delivery of milk to house hold expanded to perishables, grocery and various other things of daily needs. Few months back quick commerce players started delivering smaller electronics products like earphone and chargers. Latest addition to the product portfolio of quick commerce companies is mobiles and white goods. This addition will adversely impact e-commerce players, as mobiles along with white goods & appliances contribute maximum for e-commerce players. In future any move by quick commerce players for entry in apparel may further hit e-commerce players.
So far, all four major quick commerce players: Swiggy Instamart, Blinkit, Zepto and Big Basket largely manages their own logistics, especially with multiple last mile vendors. Organised players like Shadowfax and Elastic Run are also delivering some part of quick commerce for these companies, but major e-commerce logistics players have negligible share in Quick commerce deliveries. So far, major e-com logistics service providers were reluctant to provide service on a single leg – dark store to customer, as value proposition of these major players remains around end-to-end services requiring large & complex network operations.
Declining growth rate of e-commerce, reduced funding and stiff competition has created tremendous pressure on e-com logistics companies, especially for profitability. In such scenario, further stagnation or slow growth in urban volumes of e-com shipments will increase pressure on logistics service providers. In semi urban and rural markets per unit merchandise value of e-com purchases remains lesser than urban markets, which leaves to lesser headroom for delivery cost, while cost of delivering in smaller cities is relatively higher for logistics service provider.
Volmo, captive logistics arm of e-com major Meesho, is already developing model to minimise logistics cost, for low value merchandise, with unorganised and fragmented vendors. Volmo’s model might have certain limitations in terms of quality of services, but it poses severe challenge to major players for their pricing of e-commerce delivery.
In India per unit delivery cost of an e-com shipment is already 30% lower than China, where e-com industry is multiple times larger e-com market. All Chinese e-com logistics major post healthy EBITDA margin unlike Indian counter parts. Under given scenario any hike in e-com delivery price is unlikely. Till couple of year back, only hope for the e-com logistics players to become profitable was volume and cost optimisation. High growth rate in e-com volumes seems unlikely due to competition from quick commerce. This has led change in thought of e-com logistics players to consider joining hands with quick commerce companies for providing services and snatch volumes from them. But days to come will be more challenging for e-commerce logistics service providers for attaining profitability aligned to shareholders expectation.
Published in ITLN: Jul-Aug 24