Blinkit To Zepto's Quest For Profit Runs Into Flipkart, Irks Buyers

Walmart-backed Flipkart's re-entry will set the stage for renewed competition to deliver soaps to staples in 10 minutes. Just when the likes of Blinkit, Instamart, Zepto and BigBasket have been consistently increasing fees and streamlining operations, after having burnt cash to lure customers initially.

Quick commerce is a tiny part of India's $60 billion online retail market. But this market for rapid delivery of groceries is expected to expand to $40 billion by 2030, implying an annualised growth of 45% over the next seven years, according to Deloitte. The business is hard though, and Flipkart will make it harder. Any aggressive push to charge more will only push away consumers.

E-commerce giants stayed away from quick commerce as the unit economics is not viable and the size of the market is too small, according to Sachin Salgaonkar, research analyst at BofA Securities. But Blinkit's success has attracted Flipkart and he sees risks of competitive intensity picking up.

Walmart-backed Flipkart's re-entry will set the stage for renewed competition to deliver soaps to staples in 10 minutes. Just when the likes of Blinkit, Instamart, Zepto and BigBasket have been consistently increasing fees and streamlining operations, after having burnt cash to lure customers initially.

Quick commerce is a tiny part of India's $60 billion online retail market. But this market for rapid delivery of groceries is expected to expand to $40 billion by 2030, implying an annualised growth of 45% over the next seven years, according to Deloitte. The business is hard though, and Flipkart will make it harder. Any aggressive push to charge more will only push away consumers.

E-commerce giants stayed away from quick commerce as the unit economics is not viable and the size of the market is too small, according to Sachin Salgaonkar, research analyst at BofA Securities. But Blinkit's success has attracted Flipkart and he sees risks of competitive intensity picking up.

Revenue growth of quick commerce platforms has exceeded expectations, riding on increasing coverage, improving average order value and advertising income.

At least three players—Zepto, Blinkit and Instamart—are currently operating at an annualised gross merchandise value run rate of more than $1 billion. That's actual revenue with the gross order value at about $3 billion in 2023, growing 75% annually, according to JM Financial. Growth, the brokerage said, is substantially higher than e-commerce and other grocery segments.

But it's still early days with Blinkit, the market leader, accounting for around 5 million monthly transacting users.

Quick commerce platforms have started focusing beyond speedy deliveries to profitability by optimising operations, improving efficiency and charging fees.

Tata Group’s BigBasket renamed its slotted delivery to 'BB supersaver', promising customers 'bigger savings' and 'lower prices'. Its strategy to incentivise group deliveries could make money on each transaction.

Others adopted differential and surge pricing for different times of the day.

Zepto has borrowed from food-delivery services Swiggy and Zomato to float a loyalty programme. Zepto Pass allows incremental discounts and delivery charge waivers on paying a nominal fee. While the service is priced at Rs 299 per month, the company is currently offering it for Re 1. Its latest addition is a platform fee of Rs 2 per order.

The companies expect results as early as this year. Zepto’s co-founder Aadit Palicha, in a social media post, said the company was on track to turn Ebitda positive in 2024, suggesting a break-even within 36 months of launch. IPO-bound Swiggy, too, had indicated that its peak investments in Instamart were over, and it was on its way towards profitability.

Zomato-backed Blinkit’s quarterly operating losses are narrowing at a pace that suggests it should break even by the quarter ending June 2025, in line with its guidance.

Still, business is confined to delivering biscuits and staples to shampoos within minutes in large cities. India's top eight metros contribute almost all quick commerce gross sales, with the bulk of it coming from the top five.

"The journey from where we are now today to maybe the next 1,000 stores will be largely within the top eight cities," Blinkit's Chief Executive Officer Albinder Dhindsa said in a post-earnings call.

But for sustained growth, analysts say demand will have to come from the top 20-25 cities in the next few years and categories with higher selling price such as fashion and electronics.

The larger opportunity lies in how quick commerce can possibly disrupt the healthcare market by exploring 10-minute delivery in diagnostics in rural and semi-urban areas, life-saving drugs, education and so many other things, said Ankur Bisen, senior partner and head-consumer, food and retail at Technopak Advisors.

Even then, companies aspiring to become "10-minute Amazon" could hit a growth bump amid tight competition.

Swapnil Potdukhe, internet analyst at JM Financial Institutional Securities, cited no global precedence to suggest that meaningful scale with profitability is achievable in quick commerce.

Ten years ago, even online retail was touted as a big disruptor. It, however, still accounts for 5-6% of total retail spending in India, Technopak's Bisen said, quoting data from Bain and Co. "Will your life change if a toaster is delivered in two days versus 10 minutes?" said Bisen. "The future of quick commerce isn't about how many Maggi you can deliver in 10 minutes."

The market is now broadly an oligopoly of four platforms, and this has helped the survivors to focus on profitable growth by driving higher average order value, creating new revenue streams and lowering last-mile delivery costs, according to Potdukhe.

But the economics could change with Flipkart revisiting the booming market after two previous failed attempts between 2015 and 2020.

Flipkart is expected to put its mammoth supply chain muscle behind the launch. It now has a relatively strong local distribution network given its penetration in last-mile logistics over the years through EKart, its delivery arm. The e-commerce giant is building a chain of dark stores in Bengaluru, Delhi-National Capital Region and Hyderabad, among others, and will focus on FMCG and grocery segments, apart from its traditional stronghold categories such as electronics and fashion.

The online retail giant has reportedly held discussions over potentially acquiring the cash-strapped hyperlocal delivery Dunzo.

Flipkart is expecting additional funding of $1 billion from parent Walmart, which may add firepower to its quick commerce ambitions.

Potdukhe said Flipkart ’s re-entry won't be a cakewalk. While theoretically, it can disrupt the existing quick commerce industry structure, he said, growth could be a challenge as quick commerce is a execution-heavy business and most incumbents have already built a decent scale.

Already, the profitability push has started putting off buyers.