Quick commerce’s disruptive digital distribution

Quick commerce is highly disruptive and, with multiple triggers for strong growth over the medium to long term, it’s all set to impact India’s FMCG and retail ecosystem in a big way.

In FY24, India’s quick commerce market was pegged at $5 billion with a potential total addressable market (TAM) of $59 billion (50 per cent of India’s e-commerce market). It is expected to grow at 60 per cent, nearly three times the growth in the e-commerce segment (18 per cent). 

QC growth will be led by greater adoption in non-metro markets and store additions.

Quick commerce is currently about 0.5 per cent of India’s retail industry ($1,021 billion) and 4.1 per cent of its e-commerce market. 

Here are the ways in which it will impact retail trends:

Also read

Myntra’s mantra for wooing Gen Z

What’s new in pop culture

Why co-ord sets are still trending comfortably

Speedier deliveries by e-comm companies: Quick commerce puts e-commerce companies under pressure as the latter take two to three days for delivery. Quick commerce has added appeal in select verticals such as food and grocery, non-apparel categories, personal care and wellness; this, in turn, may force e-commerce platforms to invest more in fulfilment to reduce delivery time, which could hit profitability

FMCG companies will feel the pinch: The FMCG/staples vertical accounts for 70 per cent of India’s quick commerce market; this dominance will continue as these are high-frequency purchases. The advent of quick commerce has led to the emergence of many direct-to-consumer (D2C) players and higher offtake of newer brands, which, in turn, has had a mildly negative impact on the growth of select verticals within larger FMCG companies. The adoption of quick commerce could also dilute the margins for FMCG companies over the long term as they may charge higher take rates (transaction fee).

Heavy discounting: Quick commerce companies will face intense competition over the near term as many e-commerce companies like Amazon, Flipkart, and JioMart are jumping on the bandwagon. This may lead to heavy discounting in various categories like beauty, personal care, and FMCG, which will hurt profitability for vertical-based e-commerce platforms.

Modern trade and kiranas will be hit: Quick commerce is currently limited to metro cities; modern trade companies like DMart, Star Baazar, and Reliance Retail drive only 45-50 per cent of revenue from urban markets. However, quick commerce adoption in non-metros could pose a bigger risk for the modern trade and kirana segments. Quick commerce currently commands a tiny share of the consumer wallet in terms of staples and grocery shopping. As per our assessment in urban markets, only 10-12 per cent of groceries today are purchased via quick commerce, which may double to 25-30 per cent, due to the convenience factor. When quick commerce players scale up beyond metro cities, there could be a sharper negative impact on the growth rates of modern trade companies.

Further, the kirana store proposition is about impulse and top-up buying in certain cases; however, quick commerce platforms are offering the same products at a lower price and delivering within 20 minutes, threatening to hurt the growth prospects of the kirana outlets.

Scale-led higher bargaining power of platforms: With a potential adoption in non-metro markets, quick commerce may achieve a large scale on a pan-India basis. This will lead to higher negotiating power with a wide range of brands and premium take rates, resulting in higher margins and overall profitability of quick commerce players.

(Karan Taurani is SVP–Research Analyst — media, internet and consumer discretionary, Elara Capital)