Quick commerce in India: Boon or bubble waiting to burst?

With promises of delivery within 20 minutes, this segment gained prominence during the pandemic and has since become an integral part of urban lifestyles, offering unparalleled convenience at competitive prices.

But as the sector attracts significant investor interest and reshapes the way Indians shop, a pressing question arises: Is q-commerce a sustainable boon or a bubble waiting to burst? Let’s delve deeper.

What is quick commerce?

Quick commerce, or q-commerce, focuses on delivering groceries and essential items within 10–20 minutes of placing an order. It merges the convenience of e-commerce with the speed of on-demand delivery, relying on advanced logistics, dark stores, and artificial intelligence (AI)-powered systems to optimize inventory placement and delivery times.

Typically, q-commerce companies maintain about 10,000 stock-keeping units (SKUs) featuring popular items across categories. These SKUs are housed in strategically located dark stores in densely populated areas, enabling rapid order fulfilment. This hyper-local strategy allows companies to concentrate a large volume of orders within a small geographic area, significantly improving delivery efficiency.

India’s high demand density gives q-commerce a distinct edge over markets like the US and the UK, where such density is lower. Additionally, lower delivery and labour costs in India make this business model highly attractive and potentially profitable.

Key players and market dynamics

India’s q-commerce sector is dominated by Blinkit, Zepto, and Swiggy’s Instamart. Blinkit leads with a 46% market share, followed by Zepto (29%) and Instamart (25%), according to reports. The success of these players has spurred the entry of smaller competitors like Big Basket and Flipkart Minutes, with more players eyeing the space.

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The number of dark stores has emerged as a critical factor in this competitive race. Blinkit leads with 639 dark stores, followed by Instamart (500), Zepto (400), and Big Basket. These stores are vital to meeting consumer demands for faster delivery in densely populated areas.

The sector’s rapid growth reflects its appeal. Q-commerce’s share in online retail rose from a mere 0.14% in 2018 to 4.8% in 2023. Analysts expect this share to grow annually by 60–80%, potentially reaching 17–30% of the online retail market by 2028. By then, the market is projected to be valued between ₹2.32 trillion and ₹4.24 trillion. This growth is driven by rising urbanization, increased purchasing power, and consumer demands for speed, convenience, and discounts.

Q-commerce: A boon for fast-paced lifestyle

Quick commerce is reshaping shopping habits across India. Initially fuelled by health concerns during the pandemic, home delivery has now become a cornerstone of urban life. Consumers across age groups and genders prioritize speed and convenience, making q-commerce a natural fit for today’s fast-paced society.

Beyond rapid delivery, q-commerce attracts consumers with competitive pricing. Q-commerce companies reportedly offer products at 10–15% lower prices than local stores. This is achieved by purchasing goods in bulk directly from manufacturers, bypassing traditional supply chain costs. These savings are passed on to consumers, making q-commerce a compelling choice.

While q-commerce initially gained traction in major cities, it has steadily expanded into smaller towns like Haridwar and Bathinda, unlocking untapped opportunities in tier-1 and tier-3 markets. This expansion benefits not only consumers and companies but also the broader economy.

Job creation: The sector has generated millions of jobs for semi-skilled and unskilled workers, including gig workers, offering employment in a country grappling with high unemployment.

Support for local businesses: Q-commerce companies procure products from local suppliers, fostering the growth of small and medium enterprises (SMEs).

Boost to logistics and transport: Increased demand for last-mile delivery enhances earnings for logistics providers, driving local economic growth.

Additionally, the sector has attracted significant foreign direct investment (FDI), with approximately ₹540 billion already poured into q-commerce, according to the Confederation of All India Traders (CAIT).

Despite its rapid growth and economic contributions, q-commerce faces challenges. Concerns over disruptive pricing practices and potential violations of FDI regulations persist. The sector’s aggressive pricing strategies have sparked debates among trade unions and regulatory bodies.

A bigger question looms: Can q-commerce sustain its hypergrowth? Comparisons with the recent collapse of the edtech bubble, epitomized by Byju’s downfall, highlight the risks of overexpansion and profitability challenges.

Is the q-commerce boom a bubble waiting to burst?

The q-commerce sector faces mounting challenges and criticisms from various stakeholders, including the government and consumers. Operational issues such as rising competition and persistent lack of profitability add to the uncertainty surrounding its sustainability.

Operational hurdles: Q-commerce operates on a high-cost model, requiring significant investment in dark stores, logistics, and maintaining stock-keeping units (SKUs). Compounding these challenges, the average order value remains low—typically between ₹300 and ₹700—leading to slim margins. This cash-intensive model leaves companies vulnerable to financial strain, forcing them to burn through capital to sustain operations.

To address this, q-commerce firms are diversifying into higher-margin categories such as medicines, electronics, and merchandise. While this strategy aims to mitigate risks and improve profitability, it brings them into direct competition with established e-commerce giants, escalating the stakes.

Intensifying competition: Initially, q-commerce players enjoyed a relatively niche market. However, as the sector grew, major e-commerce players like Amazon and Flipkart began entering the space. Flipkart’s "Minutes" service and Amazon’s "Tez," both launched in 2024, mark a shift toward faster deliveries. These services, initially rolled out in Bangalore, are expected to scale nationwide, leveraging their extensive delivery networks.

Other heavyweights, including Tata’s New Flash, Reliance Retail, Nykaa, and Myntra, have also joined the race. This influx of well-funded competitors has triggered intense price wars, potentially leading to predatory pricing that could erode already thin margins and disrupt revenue streams.

However, existing players retain a first-mover advantage, enjoying customer loyalty and robust infrastructure. To maintain this edge, companies like Zomato ( ₹193 billion war chest) and Zepto ($1 billion cash reserves) are doubling down on expanding their dark store networks.

Impact on kirana stores and regulatory concerns: The rapid growth of q-commerce has significantly impacted traditional kirana stores. According to news reports, q-commerce platforms have diverted approximately $1.28 billion ( ₹108.7 billion) in sales from these stores, representing 21% of the combined gross sales of Zepto, Blinkit, Instamart, and Big Basket. Many consumers now prefer q-commerce for its speed and discounts, leaving kiranas struggling to compete.

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Distributors are also feeling the strain. Elara Securities notes that subdued sales have made it difficult for them to recover dues from kirana stores. Trade unions and organizations such as the CAIT have raised concerns about predatory pricing, deep discounts, and exclusive seller deals, alleging violations of the Competition Act.

Despite these concerns, the government has so far resisted calls for stringent regulations. In August 2024, Commerce minister Piyush Goyal acknowledged the benefits of online commerce, emphasizing fair play and honesty over intervention. However, he also urged q-commerce players to collaborate with kirana stores for last-mile delivery to ensure long-term sustainability.

Conclusion

Q-commerce stands at a crossroads, balancing innovation with uncertainty. Its rapid growth and widespread customer acceptance have reshaped India’s retail landscape, but rising operational costs, intense competition, and its disruptive impact on kirana stores cast doubts on its long-term sustainability.

The coming years will be pivotal in determining whether q-commerce players can overcome these challenges, achieve profitability, and adapt to potential regulatory pressures—or if the sector will falter under mounting competition and scrutiny.

One thing remains certain: q-commerce is set to redefine the future of retail in India, leaving an indelible mark on consumer behaviour and industry dynamics.

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com