2024-09-11 23:00:19
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When I first moved to Mumbai three years ago delivery app Dunzo became an essential lifeline in the semi-locked down megacity at the tail-end of the coronavirus pandemic.
Even before Covid, the pioneering digital courier service, which hooked up customers with the country’s legion of small family-owned stores and grocers, had developed a fan following in its home base of Bengaluru, sparing residents outings in the notorious traffic of India’s technology hub.
Since then ultra-speedy deliveries within 20 minutes have become ubiquitous in the country’s congested metros. Online disrupters hastily shuttling small volume orders also caught favour among families with low disposable incomes and limited storage in cramped homes.
The intensive cash-burning operations have overcome initial industry scepticism after establishing deep networks of dark stores that house a wide-range of goods — from fizzy drinks to fresh vegetables — in a compact delivery radius.
While remaining a sliver of India’s overall retail market, the country’s digital quick commerce sector has witnessed a more than 10-fold annual expansion over the past couple of years to become a $3bn market in 2023, according to JM Financial.
The Indian investment bank estimated earlier this year that the industry size could reach $40bn by the end of the decade, as millions of urbanite Indians become addicted “to a hypnotic dose of value and convenience”.
“The rise of quick commerce has taken a whole lot of people, including me, by big surprise,” says Arvind Singhal, chair of India retail-focused consultancy Technopak Advisors. “Now to me anything more than 20 minutes looks very slow — it’s incredible.”
But more recently it has become difficult for me to get deliveries with Dunzo and several of my orders have been cancelled. It appears to have come under financial pressure despite deep-pocketed investors including Google and Reliance Retail, an arm of Mukesh Ambani’s conglomerate.
Indian media have reported that the start-up laid off 75 per cent of its core staff last month, with just 50 remaining, and that any further capital raise would probably sharply reduce the $744mn valuation it received last year.
While Dunzo’s founder Kabeer Biswas did not respond to a request for comment, analysts say the app failed to convince users to shift to its in-house Dunzo Daily service, its dark network of stores.
Many customers were probably put off as its delivery fees climbed in a country where every rupee is counted by thrifty households, Singhal says. Akshay D’Souza, a consumer consultant, adds: “They got driven towards a more profitable model a little too soon.”
Dunzo’s demise is one part of a wider industry consolidation.
Many of India’s once 10 active players have folded and quick commerce is now dominated by a trio of trendsetting apps — Blinkit, owned by listed takeaway company Zomato; SoftBank-backed Swiggy and Zepto. The latter recently raised funds at a $5bn valuation, indicating there is still investor appetite to back the winners of the consolidation.
While the market leaders remain unprofitable, they are steadily increasing revenues as they look to expand further outside India’s three biggest cities — Bengaluru, Delhi and Mumbai.
Redseer Strategy Consultants expects at least 500 new dark stores to be added this year, with a focus on the top 30 to 50 urban centres.
Their hold will be increasingly challenged by powerful local and foreign groups, which were initially caught off guard. India’s Tata Sons, as well as global ecommerce titans Amazon and Walmart, are heavily investing and launching their own rapid services.
Maintaining standards while expanding outside of India’s most affluent cities will be crucial. A survey of 24,000 people by Indian pollster LocalCircles late last year found many consumers were moving away from buying fresh produce online.
The quality of fruit and vegetables provided by the platforms was low, according to 73 per cent of the respondents, who said they were heading back to their local markets after facing issues with poor inventory stock and as the apps reduced discounts.
Customer loyalty will be further tested if delivery fees are raised to boost profitability. “It is a cash burn business,” says D’Souza, who expects that direct costs to the consumer will have to go up. “Eventually there will be pressure on a lot of these quick commerce platforms to drive profitability.”
chris.kay@ft.com
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– What factors contributed to the rapid expansion of India’s quick commerce industry during the pandemic?
Table of Contents
The Rise and Rise of India’s Quick Commerce Industry: A 10-Fold Expansion in Just Two Years
In the midst of the coronavirus pandemic, India’s quick commerce industry emerged as a beacon of hope for the country’s congested metros. With the pioneering digital courier service, Dunzo, leading the charge, the industry has witnessed a phenomenal 10-fold expansion in just two years, reaching a staggering $3 billion market size in 2023. According to Indian investment bank, JM Financial, the industry is expected to grow to a whopping $40 billion by the end of the decade.
The Rise of Quick Commerce in India
Dunzo, founded in Bengaluru, quickly gained a massive following in India’s technology hub, sparing residents the hassle of navigating notorious traffic jams. The app’s ultra-speedy deliveries within 20 minutes soon became the norm, disrupting the traditional retail landscape. The innovative model of hooking up customers with small family-owned stores and grocers resonated with Indians who valued convenience and affordability.
Industry experts, like Arvind Singhal, chair of Technopak Advisors, acknowledge the unprecedented growth of quick commerce in India. “The rise of quick commerce has taken a whole lot of people, including me, by big surprise. Now, anything more than 20 minutes looks very slow – it’s incredible,” Singhal remarks.
Challenges Ahead: Dunzo’s Financial Woes
Despite its early success, Dunzo has recently faced financial difficulties, leading to staff layoffs and a significant reduction in its valuation. The app’s failure to convince users to shift to its in-house Dunzo Daily service, which includes its dark network of stores, has been attributed to its increasing delivery fees. “They got driven towards a more profitable model a little too soon,” notes Akshay D’Souza, a consumer consultant.
Industry Consolidation: The Rise of New Players
Dunzo’s struggles have triggered a wave of consolidation in the quick commerce industry. Many smaller players have either folded or been acquired, leaving a trio of dominant apps – Blinkit, Swiggy, and Zepto – to lead the charge. Zepto, which recently raised funds at a $5 billion valuation, has demonstrated that investor appetite remains strong for the winners of the consolidation.
The Road Ahead: Expansion and Competition
While India’s quick commerce industry leaders remain unprofitable, they are steadily increasing revenues as they expand their reach beyond India’s three biggest cities – Bengaluru, Delhi, and Mumbai. Redseer Strategy Consultants predicts the addition of at least 500 new dark stores this year, with a focus on the top 30 to 50 urban centers.
However, the industry’s growth will be increasingly challenged by powerful local and foreign groups, such as India’s Tata Sons, Amazon, and Walmart, which are investing heavily in their own rapid services. Maintaining standards while expanding outside of India’s most affluent cities will be crucial, as a recent survey by LocalCircles found that many consumers are moving away from buying fresh produce online due to quality concerns.
India’s quick commerce industry has witnessed unprecedented growth in just two years, driven by the demand for convenience, affordability, and speed. While consolidation and competition will shape the industry’s future, the prospects remain exciting, with huge potential for expansion and innovation.
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What factors contributed to the rapid growth of quick commerce in India?
The Rise and Fall of Quick Commerce in India: A Story of Disruption and Consolidation
India’s quick commerce sector has witnessed a remarkable 10-fold annual expansion in recent years, reaching a staggering $3 billion market in 2023. The industry’s rapid growth has been fueled by the increasing demand for speedy deliveries, particularly in the country’s congested metropolitan areas. However, beneath the surface, the sector is undergoing a significant transformation, marked by consolidation, financial pressures, and shifting business models.
The Pioneer: Dunzo’s Rise to Fame
Dunzo, a pioneering digital courier service, revolutionized the way Indians shopped, especially during the COVID-19 pandemic. Founded in Bengaluru, Dunzo connected customers with small family-owned stores and grocers, saving residents the hassle of navigating the city’s notorious traffic. The app’s popularity soon spread to other cities, including Mumbai, where it became an essential lifeline for many.
The Rise of Quick Commerce
Dunzo’s success paved the way for other quick commerce players, which offered ultra-speedy deliveries within 20 minutes. These online disruptors resonated with families with low disposable incomes and limited storage space in cramped homes. By establishing deep networks of dark stores that housed a wide range of goods, these companies were able to overcome initial industry skepticism.
Financial Pressures and Consolidation
Despite its initial success, Dunzo has recently faced financial pressures, resulting in significant layoffs and a probable reduction in its valuation. The company’s failure to convince users to shift to its in-house Dunzo Daily service, its dark network of stores, has been cited as a major reason for its decline. High delivery fees, which increased over time, also deterred price-sensitive customers.
As a result, the quick commerce sector has undergone significant consolidation, with many players folding or being acquired. Today, the market is dominated by a trio of trendsetting apps – Blinkit, owned by listed takeaway company Zomato; SoftBank-backed Swiggy; and Zepto, which recently raised funds at a $5 billion valuation.
The Future of Quick Commerce in India
While the market leaders remain unprofitable, they are steadily increasing revenues as they look to expand further outside India’s three biggest cities – Bengaluru, Delhi, and Mumbai. According to Redseer Strategy Consultants, at least 500 new dark stores are expected to be added this year, with a focus on the top 30 to 50 urban centers.
However, maintaining standards while expanding outside of India’s most affluent cities will be crucial. The sector will also face increasing competition from powerful local and foreign groups, which are investing heavily in their own rapid services. Tata Sons, Amazon, and Walmart are among the major players looking to capitalize on India’s growing quick commerce market.
Conclusion
India’s quick commerce sector has undergone a remarkable transformation in recent years, driven by the demand for speedy deliveries and convenience. While financial pressures and consolidation have marked the industry’s growth, the sector’s potential remains vast. As the market continues to evolve, companies will need to adapt to changing consumer behavior, invest in innovative logistics solutions, and expand their reach to smaller cities and towns. The winner of this race will be the company that can strike the right balance between value, convenience, and profitability.
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