Quick Commerce: Blinkit and the Future

Quick Commerce (Q-commerce) refers to ultra-fast delivery services, often promising delivery within 10-20 minutes. Companies like Blinkit, Zepto, and Instamart are reshaping the e-commerce landscape, challenging giants like Amazon and Flipkart in India.

Variable costs will change with the number of orders.

Now, if we go back to the contribution margin of 15 rupees per order, this margin considers only the variable costs and excludes the fixed costs. So, to calculate the actual profit margin, we need to account for the fixed costs as well.

According to the JM Financial report, Blinkit has fixed costs of around 100 crores (1 billion rupees) annually, which include rent, salaries, and other administrative expenses. If Blinkit processes around 150 million orders per year, the fixed cost per order comes to about 6.67 rupees.

Subtracting this from the contribution margin, we get:

Profit margin per order=Contribution margin per order−Fixed cost per oreder

Profit margin per order=15rupees−6.67rupees=8.33rupees

So, Blinkit has a profit margin of 8.33 rupees per order.

Key Points

Rapid Growth and Ambitious Plans:

• Blinkit, initially a food delivery service, has expanded its offerings and is now competing with giants like Amazon and Flipkart.
• The company has grown significantly and is now a major player in the Indian market.

Economic Shifts:

• Quick commerce faced challenges in 2022 due to high customer acquisition costs and delivery costs.
• However, recent developments have shown a substantial increase in average order value, making the business model more viable.

Market Potential:

• Blinkit, an Indian company, could surpass Amazon in the next 10 years.
• Zomato’s acquisition of Blinkit has shown significant potential, with Blinkit growing faster than Zomato itself.

Economic Viability:

• Historically, Q-commerce faced challenges like low average order values (AOV), high delivery costs, and slim margins.
• By increasing the AOV from ₹400 to ₹550, Q-commerce could turn profitable.

Current Success:

• Blinkit’s AOV has risen to ₹635.
• Quick Commerce companies now charge delivery fees, high-demand fees, and premium product prices.
• Examples: Milk costs ₹80 on Blinkit vs ₹70 on Amazon; Thumbs Up costs ₹45 on Blinkit vs ₹38 on Amazon.

Consumer Segmentation:

• India 1: Wealthy households prioritizing convenience over cost.
• India 2: Middle-class, balancing cost and catalog.
• India 3: Cost-focused, using local stores.

Strategic Changes:

• Q-commerce companies expanded their product range.
• Blinkit, Swiggy, and Zepto now sell everything from groceries to electronics.

Future Prospects:

• Increased catalog and high AOV ensure profitability.
• Blinkit’s growth indicates a shift from 600 orders per day in 2022 to 1,400 orders per day per dark store in 2024.

Business Insights

Scalability and Efficiency:

• Fixed costs (e.g., rent, salaries) remain constant, reducing per order cost as volume increases.
• Variable costs (e.g., inventory, packaging) scale with orders but can be managed for profitability.

Consumer Behavior:

• India 1’s preference for convenience allows Q-commerce to charge premiums.
• As Q-commerce gains traction, customer acquisition and retention will depend on maintaining high service standards.

Competition and Market Dynamics:

• Amazon and Flipkart may need to adapt their strategies to counter Q-commerce’s rapid delivery and convenience.

Conclusion

Q-commerce, led by companies like Blinkit, is poised to transform the Indian e-commerce landscape. By leveraging high AOV, premium pricing, and unparalleled convenience, these companies are not only challenging established players but also setting new benchmarks for the industry.