Markets
Competition’s heating up but Blinkit’s got the edge
Summary
- A significant market share and healthy finances will help Blinkit navigate the challenges of the quick commerce market
The quick commerce sector is buzzing, as consumers increasingly seek immediate satisfaction, making it a rapidly expanding market with a vast potential audience. For entities like Zepto, Swiggy Instamart, and Blinkit, their gross order value growth is expected to sustain at over 50% in the short-to-medium term, according to a report by Elara Securities (India) dated 7 March.
Not surprising then that e-commerce companies are vying for a share of the pie, with reports indicating Flipkart, too, is targeting this sector.
Meanwhile, Zepto's recent membership programme, the Zepto Pass, which offers free deliveries and substantial discounts, has gained impressive traction. Zepto claims that subscribers increased their monthly spend on the app by more than 30% during the pilot phase, indicating the market's growing appeal.
As such, Zomato Ltd, which operates in the quick commerce market through Blinkit, anticipates future growth to be driven by this segment.
But competition is intensifying, and the path ahead for Blinkit may not be all that smooth, although its strong market presence and healthy balance sheet may help it stand against peers. For perspective, 90% of Blinkit’s gross order value comes from its top eight cities, which points to a high level of acceptance. Moreover, at the end of the December quarter (Q3), the consolidated business of Zomato had a closing cash balance of about ₹12,000 crore.
According to JM Financial Institutional Securities, Blinkit held a 45% share of the quick commerce market in Q3, followed by Swiggy’s Instamart with 27%, Zepto with 21%, and Bigbasket-owned BB Now with 7%.
True, Blinkit is running in losses currently, but it is inching towards profitability. In the three months to December, Blinkit clocked an adjusted Ebitda (earnings before interest, tax, depreciation and amortization) loss of ₹89 crore, compared to a loss of ₹125 crore in Q2. Adjusted Ebitda is Ebitda adjusted for share-based payment expenses and rental payments.
Investors, however, should exercise caution. Flipkart's entry could intensify competition, potentially leading to increased discounts and delaying Blinkit's path to profitability. “E-commerce companies have predominantly been marketplace models, whereas quick commerce is inventory led, which too may require a lot of time, effort and investments to scale up," said Karan Taurani, an analyst at Elara Securities (India). Thus, investors will closely track Flipkart’s execution strategy in the quick commerce segment.
Moreover, unlike Blinkit and Instamart, Flipkart reportedly plans to partner with entrepreneurs and kiranas for delivery instead of operating dark stores—warehouses dedicated exclusively to fulfilling online orders.
“Historically, it has been seen that e-commerce companies, which do not control their inventory have not been successful as user experience gets compromised. Complete dependence on third parties raises concerns on reliability," said Nikhil Choudhary, assistant vice president - equity research, Nuvama Institutional Equities. Additionally, shifting from a minimum one-day delivery model to a 15-minute delivery model is tough, as it demands a different technological and supply chain approach, added Choudhary.
Zomato’s investors are nervous. Shares of the company have been under pressure this week, falling 7% till Wednesday, but bouncing back on Thursday, with a 3% rise. In any case, investors are sitting on handsome gains. Strong earnings delivery in the past few quarters has meant Zomato’s shares are up by as much as 200% in the last one year. To a good extent, the stock’s trajectory now depends on Blinkit turning profitable.
