“Is instant delivery even a thing?” This question was relevant just two years ago. Many people didn’t take quick commerce or super-fast deliveries seriously. Some even argued that customers didn’t really need items delivered in 10-15 minutes.
Quick commerce is now gaining immense popularity, especially among millennials and Gen Z. Companies have expanded beyond just delivering groceries; they now bring everything from fans and T-shirts to jewelry and iPhones right to your doorstep in no time.
Today, Blinkit and Instamart present a similar revolutionary opportunity. Delving into the quick commerce industry’s evolution reveals fundamental changes that have turned what was once a landmine into a goldmine. Let’s get some insights into how Blinkit has outpaced giants like Zomato, the business strategies behind its rapid growth, and valuable business lessons from this case study.
Understanding the Quick Commerce Landscape
In 2022, we analyzed the unit economics of quick commerce companies and identified three major challenges that kept the industry in the red:
- Low Average Order Value (AOV): The AOV ranged from ₹350 to ₹400, making profitability elusive.
- Unrealistic Gross Margins: Companies targeted 20% gross margins, but even established players like D-Mart operated at 16%.
- High Delivery Costs: Free deliveries, irrespective of order size, eroded margins significantly.
Setting up a dark store costs between ₹25 to ₹40 lakhs, with an average order value of ₹350 to ₹400. Gross profit margins ranged between 15% and 20%. Despite seemingly good margins, the high fixed and variable costs, including delivery, made profitability challenging.
Turning the Tide: Increasing the Average Order Value
The breakthrough came with increasing the AOV. Here’s a look at how the math changed:
- Previous Scenario:
- AOV: ₹400
- Gross Margin (20%): ₹80
- Delivery Cost: ₹40
- Net Margin: ₹40 per order
- New Scenario:
- AOV: ₹550
- Gross Margin (20%): ₹110
- Delivery Cost: ₹40
- Net Margin: ₹70 per order
With 18,000 orders per month, the gross margin jumped from ₹7.2 lakhs to ₹12.6 lakhs, and after salaries and other expenses, the stores were no longer cash-draining entities.
The Surge in Average Order Value
Over the past year, the AOV for companies like Zepto, Instamart, and Blinkit has risen significantly, with Blinkit leading at ₹635. This increase is attributed to the three Cs of e-commerce: convenience, cost, and catalog.
The Three Cs of E-commerce
- Convenience: The new benchmark for convenience is not one-day delivery but 20-minute delivery. This shift has posed a significant threat to Amazon, which, along with Big Basket, used to set the standard with one-day delivery.
- Cost: While cost remains a critical factor, platforms like Blinkit have demonstrated that customers, especially among high disposable income (the top 30 million households), are willing to pay a premium for convenience.
- Catalog: Expanding the range of products available for quick delivery has been crucial. Blinkit now offers everything from groceries to electronics, increasing its AOV and order frequency.
The Indian market has 30 million households with high disposable income.
High disposable income, which consumes disproportionately high amounts of goods and services, drives the quick commerce industry. This segment values convenience over cost, leading to higher AOVs and willingness to pay delivery fees.
The Future of Quick Commerce
By addressing the key challenges and leveraging the three Cs, Blinkit and other quick commerce companies have transformed their business models. They charge delivery fees, price products at a premium, and offer a wide catalog, ensuring that their operations are profitable.
The quick commerce industry in India has not only reached its sweet spot but has also set the stage for further growth. As Blinkit continues to innovate and cater to the convenience-driven high disposable income segment, it stands poised to challenge even the mightiest e-commerce giants like Amazon in the coming decade.
Blinkit’s journey offers crucial business lessons in adapting to market dynamics, understanding customer segments, and leveraging technology to enhance convenience. As the quick commerce wave sweeps across India, those who recognize and act on these insights will find themselves at the forefront of a rapidly evolving market.
