Quick commerce firms are eyeing profitability and expansion in Tier II cities of India in 2023

Quick commerce firms are eyeing profitability and expansion in Tier II cities of India in 2023

Quick commerce firms are eyeing profitability and expansion in Tier II cities of India in 2023

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Amid the era of instant gratification, well-funded quick commerce players recorded strong growth in 2022. Over the next few quarters, these firms are expected to experience further volume growth compared to the conventional business model. Driven by convenience, the segment is poised for accelerated growth over the next three to four years, especially as more and more Gen Z consumers enter the formal market in India.

In anticipation of a high-growth period for the quick commerce industry in India in 2023 and beyond, players in the category have increased their focus on achieving profitability and expanding their presence in Tier II cities of India.

  • Dunzo, for instance, is planning to employ innovative solutions that are aimed at improving the efficiencies of its dark stores. Furthermore, the firm is also focused on enhancing supply chains in 2023. Alongside the grocery space, the firm is also building a presence in the books category with the launch of book delivery services in India.
  • Zepto, another player in the category, is seeking to engage its customers with newer categories in the quick commerce space. Expanding presence into different product categories is part of the firm's strategy to drive order frequency and ticket size. With its expanding business ecosystem, Zepto also announced that the firm is focused on achieving profitability going forward in 2023.

To accelerate its growth in the Indian market, Zepto is also planning to expand its instant food delivery service. Notably, the firm is exploring alternative forms of financing for expanding its cloud café kitchens, which would include strategic partnerships and venture funding. As it turns out, Zepto is not keen to dilute its equity shares to fund the expansion in the instant food delivery space.

The firm initially piloted Zepto Café in 2022 in select regions of Mumbai. Notably, this is the first instance when a delivery startup is getting into the instant food delivery space. That said, the expansion in the new category does not necessarily puts Zepto in competition with Zomato or Swiggy. The firm had announced previously that it will only focus on food items such as coffee, tea, and buns, among other snacking items.

As the quick commerce space continues to grow, the foray into the instant food delivery space will aid the revenue growth for Zepto, therefore allowing the firm to capture a growing market share in the rapidly expanding quick commerce space.

While players in the segment, such as Zepto, Dunzo, BBNow, and Instamart, are well-positioned to capitalize on the high-growth potential of the market in India from the short to medium-term perspective, the slowdown in venture capital and private equity funding means that consolidation in the sector will continue in 2023. Smaller players such as Fraazo have closed their operations owing to the funding winter.

Earlier in 2022, Ola also announced the closure of its grocery delivery service. In 2023, more such trends are expected to emerge along with mergers and acquisition deals in the space. Last year, Zomato announced the acquisition of Blinkit, which is part of its strategy to enter the quick commerce segment.

While these firms are focused on expanding revenue growth and driving profitability, one major concern is the offering of huge discounts to attract new and existing customers to their platforms. Blinkit, Zepto, Instamart, and JioMart are all offering huge discounts to their shoppers to boost customer acquisition and reduce the churn rate. These large discount offerings are expected to have a significant impact on their bottom line from the short to medium-term perspective.

Consequently, to support their bottom lines, while offering significant discounts to lure shoppers to their platforms, PayNXT360 expects these firms to enter into the private-label category over the next three to four years. Reliance Retail, which operates JioMart, has a widespread private label portfolio across different product categories, except dairy. The higher margins in the private label space will aid the revenue and margin growth for these firms, while also allowing them to offer products at a discounted rate to attract new and potential shoppers from Tier II cities of India.

To know more and gain a deeper understanding of the B2C E-Commerce market in India, click here.

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