Quick commerce is identified by short delivery times, typically about 10 minutes. It is also most prevalent in the grocery delivery business and generally has limited order sizes and values since customers generally order their grocery requirements for the next 2-3 days.
While it has several conveniences and advantages for both e-commerce firms and consumers, there are several dangers, including its harmful impact on society, that remain unresolved for now.
10-minute delivery – will quick commerce catch on?
Although it has been around a while, “quick commerce” – also referred to as “q-commerce” -made a quantum leap during the pandemic, and is projected to reach sales of nearly $448 billion by 2030. As the decade of 2010-20 progressed, online firms continued to shorten delivery times – 24-hr, next-day, same-day. And now, as a result of forever increasing demands of consumers, groceries in 10 minutes!
With demand comes competition, and there is ample of it here, too! However, given that a company needs to reach a certain level of scale to achieve sustainable profitability, only the top few will survive…
Quick commerce – what is it?
Quick commerce (also called on-demand delivery, q-commerce) is for delivering primarily small orders, which are groceries mostly, to customers within the hour, although the ”10-minute delivery time” is now being touted as the next big thing by aggregators and online groceries.
This is a natural extension of eCommerce and has come about due to the ever-increasing demands of consumers. You see, we live in an age where everything has to keep getting better, faster, and bigger!
How has a “10-minute delivery” even become possible? : Modern technology such as cloud-based services, artificial intelligence, machine learning, GPS-enabled route-optimization software, and advanced techniques of inventory management via an elaborate network of fulfillment centers (of various sizes) has enabled firms to drastically reduce carrying costs as well as delivery times.
Business models in quick commerce
The grocery sector has always had to contend with thin profit margins, and so does quick commerce. Profit is earned via product margins and delivery fees. While delivery speed remains the most important winnable metric, quick commerce companies also compete on the type of product offerings.
- Delivery-only: Aggregators (delivery companies like Uber Eats) tie-up with retailers (supermarkets, pharmaceuticals, retailers). These delivery companies deliver orders received via their online platforms (apps and websites).
- Vertically integrated: In this case, companies own their own inventory and store it across their network of fulfillment centers or dark stores. The closer their inventory is to their customers, the more chance of success they have. These companies typically stock around 1,000+ SKUs by anticipating the demands of their customers. While this model needs much more resources (finances, management, tech deployment, employees) and has higher operating costs, the margins earned are higher as well.
What are the parameters of success?
As mentioned earlier, the grocery delivery business, especially the 10-minute delivery model, works on wafer-thin margins.
- Order volume vs. delivery rides: must be suitably matched. For this, predicting peaks and valleys in order of volumes, growth over time, etc., must be taken into consideration. Too many riders staying idle for prolonged periods would affect profitability, whereas too few would lead to a loss of business opportunity. Delivery riders are exposed to environmental hazards like traffic and weather and must be compensated accordingly.
- Labor turnover is an important factor for success: delivery workers tend to be independent contractors that work across several companies, and unless your pay scales match the industry standards, they’ll promptly jump ship.
- Increasing order value (“basket size”) is an important KPI since it increases profitability per order delivered. Cross-selling and upselling are key here. This is where your app or website design comes into play.
- Overall operating costs: key indicators here are CAC (customer-acquisition-cost) and customer churn/ retention. This industry is widely regarded as a “discount space” and unless your operating costs are optimized across all elements you’d be forced to shut shop
- Poor customer loyalty: The biggest issue here is building, and retaining, customer loyalty due to the discount-driven model. You need to keep advertising your offers and products but the best deal of the moment will likely win that day! Therefore, using Artificial Intelligence and Machine Learning is key to successfully managing this business. Predicting consumer behavior, order volumes, type of products, the timing of orders, using it for inventory management, and minimizing carrying costs (etc.)
Quick commerce – what are its benefits?
Let’s look at some benefits for both, suppliers and consumers, as it stands today:
- Local companies/businesses are able to supply a larger client base.
- With a 24/7 operation, it offers great convenience to consumers.
- Since consumers tend to order smaller orders that are consumed within a couple of days, there is less food wastage. This helps with environmental sustainability.
Quick commerce – future prospects.
Quick commerce has progressed gradually—even rapidly—since the 1990s. Fuelled by several critical elements that go into creating sustainable businesses, such as consumer demand, and an ever-improving supply-side aided by vast advances in technology, the business has many things going for it.
However, all isn’t as it appears. As mentioned above, the business is plagued by poor profitability. While most modern day App-led players in this space are still in relatively early stages and are currently looking to scale as quickly as possible, the big question is whether they will be able to survive?
The hope is that once these firms achieve a certain level of scale, they can consolidate and begin to look at profitability. However, as critics will tell you, achieving scale via a discounted pricing model is treacherous because once the discounts dry up, so will the orders. Your consumers will move on to the next competitor that is offering the best discount at the time…
What about social responsibility? And, herein lies the biggest issue of quick commerce. The question being raised by several sections of society – including consumer groups, social commentators, politicians, traffic authorities, worried parents, and responsible citizens themselves – is how important is it to have your groceries delivered within “10-minutes”? Delivery riders – already an increasing traffic hazard – will only be pressured further, causing traffic hazards and danger to life.
While the quick commerce industry would have you believe how “important” the convenience of 10-minute delivery is to your life, you need to ask yourself – is it really?
Summary: As is evident, quick commerce has many things going for it. However, there are an equal number of unsolved issues that could derail it. For quick commerce companies that are attempting to make a success of this 10-minute delivery model by deploying the latest tools like last mile delivery software, time will be the best judge.