Quick Commerce Eyes Tier-2 Cities As Next Growth Driver Amid Competitive, Regulatory Headwinds, Notes Emkay

Emkay’s recent interactions with 11 stakeholders in the quick commerce space highlight a promising but complex growth trajectory, particularly in India’s tier-2 cities. While the segment continues to gain traction in metros, its next phase of expansion is likely to be shaped by deeper regional penetration, regulatory navigation, and strategic assortment shifts.

A key finding is that tier-2 cities are increasingly becoming economically viable for quick commerce due to lower rent and labour costs. Although order densities are lower than in tier-1 markets, breakeven thresholds are also reduced—approximately 800 orders per store versus 1,300 in metros. These favourable economics, combined with wider assortments (8,000 SKUs vs. 1,000 at local kirana stores), are driving growing adoption, despite higher mid-mile logistics costs.

Large organised retailers are also scaling their quick commerce presence using a hybrid model—fulfilling orders from existing store infrastructure. This approach has helped them reach significant order volumes quickly. However, challenges such as low average order values, reduced fill rates, and dependence on store timings could impact long-term viability. Promotional incentives like waived delivery charges and low minimum order values have supported initial traction, but sustainability remains uncertain.

E-commerce giants are now taking quick commerce seriously, the brokerage said in its note. After initially dismissing it as a grocery replacement, leading platforms are integrating quick commerce features within their existing apps.

While one global player is piloting quick commerce in Bengaluru with broader plans for 2025, another has already established hundreds of dark stores—though regulatory compliance and internal standards have slowed progress.

For FMCG companies, quick commerce presents both opportunity and disruption. While it enables access to affluent, urban consumers, platforms are pushing for premium offerings to boost margins. This is increasing the prominence of direct-to-consumer brands, which offer higher margins and better product-market fit. Traditional FMCG players that fail to adapt risk losing relevance, it added.

Quick commerce players, having optimised for asset turnover, are now shifting focus to profitability. They aim to increase AOV through high-margin categories like gourmet, durables, and general merchandise. Investments in larger dark stores (4,000 sq ft) and targeted bulk-buy occasions are supporting this transition.

While competition is rising, and execution challenges persist, Emkay remains optimistic about the long-term growth of quick commerce, particularly in tier-2 cities. Success will depend on scalability, regulatory agility, and the ability to meet evolving consumer expectations.