Q-comm might take longer to ship luck in Bharat – Trade Information

After tasting success in urban centres, quick commerce startups are now looking at Tier 2 and 3 markets as the next growth frontier. Replicating their Tier-1 success in smaller towns and cities, however, could take as long as five to seven years. And while the opportunity is huge,  it will come with region-specific challenges, say analysts. “While convenience as a value proposition should hold in Tier 2 and 3 cities as well, lower AOV (average order value) and concentration of demand due to lower population density and a slow change in consumer behaviour, could adversely impact unit economics,” Pankaj Makkar, managing director, Bertelsmann India Investments, told FE.

The e-commerce market share of these geographies has been steadily increasing. However, despite the overall adoption, the biggest challenge for quick commerce players will be achieving ‘habit formation’, say analysts.In urban India, quick commerce players like Blinkit, Zepto, Swiggy Instamart and BB Now (BigBasket) could change the ‘planned buying’ or ‘kirana store shopping’ habits of consumers to a large extent in no time. However, other geographies may take time, which is likely to cause lower city-level growth and a longer time to profitability.  Analysts estimate it will take five to seven years for habit formation and to achieve urban-like success in Tier 2 and 3 cities.

“This timeline considers the time needed for infrastructure development, consumer education, and the gradual shift in shopping habits,” Shashank Randev, founder and partner, 100X.VC, said.According to Goldman Sachs, India’s addressable quick commerce market in the top 50 cities stands at $150 billion as of 2023 and the market can accommodate up to five profitable players by FY30. India’s overall new commerce segment, which also includes D2C (direct-to-consumer), social commerce and live commerce,  accounts for 1.7% of all retail sales and is expected to rise to $40 billion by 2030, from $2 billion in 2022, says Deloitte’s report on the future of retail.  

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The massive opportunity has naturally led to increased competition in the segment. For instance, e-commerce giant Flipkart will enter the segment with ‘Flipkart Minutes’ this month. Reliance Retail has also been planning a q-commerce foray. Ola has re-entered the grocery delivery space via ONDC, while Uber has reportedly ramped up its hyperlocal delivery services.Praveen Govindu, partner, Deloitte (India), consulting believes the best approach leading players should now take is to look at scaling and strengthening their existing markets, and deepen penetration.

“They can look at a phased rollout in Tier 2, 3 markets, take learnings and keep scaling with a three- to five-year horizon for an all-India play,” he said.Zomato, too, recently emphasised that Blinkit will continue to focus on the top eight cities, including Delhi-NCR, Mumbai and Bengaluru, to expand its dark store network and penetrate deeper into the urban markets. Of the 75 new stores the firm added in FY25 Q4, 80% were in these eight cities. Govindu also thinks that unit economics and cost to serve will ultimately determine penetration into Tier 2- 3 markets.

Overall, quick commerce platforms service around 30 cities at present and have plans to expand to 40-50 cities over time. “Currently, our presence is primarily in the Tier I cities including Delhi-NCR, Chennai, Bengaluru, Mumbai, Hyderabad, Pune, and Kolkata with 350 dark stores. We will be expanding to 10 new cities including Ahmedabad, Jaipur, Chandigarh, and Coimbatore by March 2025,” Zepto’s spokesperson said. BB Now has 78 stores in Tier 2 cities and two pilot stores in Tier 3/4. The company claims that these are doing fairly well in terms of output metrics.

Analysts say that building trust by understanding the local landscape and preferences is crucial to scaling in these geographies. “These platforms must have the selection customers want, which is local and regional brands, at the prices they are used to buying at,” Makkar said. They might also have to work on customised offerings for these belts. For instance, they may have to introduce vernacular/voice-based search to be able to scale in these regions. Further, profitability remains a distant goal for many q-commerce companies.

“The need for numerous dark stores, a large fleet of delivery personnel, and sophisticated technology infrastructure results in high operational expenses,” Randev said. Notably, traditional commerce players have also struggled to serve these markets, primarily due to low AOVs and developing logistics networks. “However, we believe that as more users from these markets begin to transact online over the next five years, these markets will become very attractive for both incumbents and new entrants,” Nitya Agarwal, vice president, investments, 3one4 Capital, said.