Market dynamics are forcing e-commerce companies to constantly evolve and undercut each other. Companies are competing not only on pricing and quality but also on how fast they reach your doorstep i.e 10-minute delivery.
The pandemic helped to push online grocery shopping into the mainstream, revolutionizing a swath of the $2 trillion-a-year global grocery market. With a majority of people preferring to shop groceries online, vis-à-vis the pandemic, both, industry heavyweights and new entrants are exploring a new vertical — quick commerce or q-commerce. The market penetration of quick-commerce is estimated at around $0.3 billion in 2021 and it is expected to grow to $5 billion by 2025 in India.
Lots of startups, big and small, are rushing into q-commerce. There has been quite a disruption in the grocery delivery space with a new entrant Zepto, which operates a 10-minute grocery delivery service. Grofers rebranded as Blinkit has started 10-minute grocery delivery in many cities. Swiggy has launched Instamart and is promising 20-30 mins delivery. Dunzo has launched Dunzo Daily. Even Ola has started testing quick grocery delivery in Bengaluru.
Who needs 10-minute delivery?
Shifting to digital platforms to promote cashless transactions, the world has gone through extreme ramifications that now appear to be promoting a permanent behavioural shift.
India’s retail market is huge: $800 billion. And it’s dominated by the 11 million Kirana shops!! One can get all things from nearby Kirana shops. So why should one order online? More importantly – who needs 10-minute delivery and is there a real business use case here?
To answer this, let’s understand how we are wired as humans. Humans optimize for time naturally, regardless of whether there is an urgency or not. In general, we tend to optimize for time if there is a way to accomplish something in less time.
To this extent – whether consumers ‘need’ 10 min delivery – is a moot question. If two companies are offering the same products at the same prices, we will naturally choose the one which services in lesser time.
Having said that – quick commerce is more relevant for unplanned buys, impulse or emergency purchases but whether 10-minute delivery is feasible as a business model is a completely different discussion that requires delving into the economics of 10-minute deliveries.
How does 10-minute delivery work?
Let’s first understand how 10-minute delivery works as a concept.
Mini Warehouses or Dark Stores
To deliver items in 10 minutes, warehouses need to be closer to people’s homes. That’s why these 10-minute delivery startups create lots of mini-warehouses or dark stores in every city.
Dark stores or micro-warehouses are located close to the point of delivery. Each dark store manages a focused set of 2,000-2500 stock-keeping units (SKUs) or distinct product items. Startups are using technologies inside these dark stores to reduce the processing time for orders.
For example, Blinkit (formerly Grofers) has lots of mini-warehouses within 2kms of people’s homes. Their stores are so densely located that they can deliver 90% of their orders within 15 minutes even if their riders drive at 10kmph. Their in-store planning and tech are now so good that they pack most orders in under 2.5 minutes. Dunzo has a chain of mini-warehouses called Xpress Mart located within 5kms of people’s homes. Swiggy’s Instamart and Zepto also follow the same strategy.
Limited SKUs
10-minute delivery has brought a big shift in the mindset of grocery e-commerce players.
Earlier, they were following the supermarket strategy: They kept lots of SKUs in the warehouses to give more choices to customers. But it resulted in slow delivery.
Now they have changed their strategy to the Kirana shop strategy. They have mini-warehouses, and they keep limited inventory in these warehouses. Sure, limited inventory means fewer choices for customers, but an assortment of 2000-2500 sizes covers the most essentials and fast-moving items. Once an order is placed, it is picked and packed within 1.5-2.5 minutes to allow for sufficient time for delivery within the stipulated 10 mins.
About 10-minute delivery – Business model
Quick commerce dark stores carry 15-20% of the assortment needed in typical households.
The typical average order value is ~350-400.
This business can only make sense if there are a lot of orders being generated in a high-density customer cluster based on a limited catalogue. If this happens – then there can be the hope of optimizing the delivery costs and preserving margins.
Our verdict
A 10-minute value proposition won’t hold for long. Once investors start to limit the funding of losses, this will become compromised. Once compromised, the quick commerce players will have to increase assortment (to increase average order value). It thereby requires larger warehouses, in turn increasing the serviceability radius. As soon as the serviceability radius increases – one can no longer promise or honour the 10-minute deliveries.