HUL, ITC, Dabur ride the quick commerce boom for higher margins and rapid growth

As per IBEF, the emergence of various players in the quick commerce space, including Zomato-owned Blinkit, Swiggy Instamart, Dunzo Daily, Country Delight, and Zepto, the Indian quick commerce industry is projected to grow at a compound annual growth rate (CAGR) of 27.9 percent between FY22 and FY27.

As more consumers prefer instant deliveries, Quick-commerce (Qcommerce) has emerged as a major distribution channel for Indian FMCG majors ITC, Hindustan Unilever and Dabur India, growing faster than the overall e-commerce channel and delivering better margins, according to management commentaries in Q1 FY25 earnings.

"Qcommerce is a more profitable channel, delivering higher margins for us as compared to other e-commerce platforms. So given its growth, it is actually benefiting us in terms of profitability for the business," Ramanpreet Sohi, CFO of Mamaearth's parent company Honasa Consumer, told Moneycontrol.

He said that Qcommerce is growing 3-4 times faster than other e-commerce platforms.

"Given our market leading positions across categories, our presence in Qcommerce is helping us continue to have a higher share of the consumers who are coming onto quick commerce platforms, and at an average has reached almost eight to 10 percent of e-commerce scale already," Sohi said.

Dabur India, which expects a 70 percent year-on-year growth in Qcommerce, said that convenience preference was fuelling quick commerce. Mohit Malhotra, CEO of Dabur, said in the investor call on August 1, “Quick commerce margins are better than e-commerce. Amazon's rate and all is higher as compared to Zepto and Blinkit and Instamart, etc.”

“…we've got a structure and a playbook in place, which has kind of put this business on a good high growth track and we are working along with all the major players in the quick commerce and devising mixes and portfolio so that our growth is driven along with their growth and it's a very high-growth channel for us. Today, quick commerce is almost 30 percent to 35 percent of our overall e-commerce and doing exceedingly well,” he said.

Besides grocery, Dabur also sees categories such as juices, toothpaste, and Odomos doing exceedingly well on Qcommerce.

Malhotra said, “So quick commerce players, besides just carrying grocery, have started carrying personal care also and the new product bundles are going on personal care and doing well. Even our Badshah Masala has now been geared to our quick commerce business. And I think it will do well. Odomos also is doing exceedingly well in Quick commerce for us,” he said.

Cigarette-to-soap maker ITC witnessed six to eight percent growth in e-commerce, with quick commerce contributing two percent to this rise, Chairman and MD Sanjiv Puri told Moneycontol in a media conference after the company’s annual general meeting on July 26.

Additionally, HUL told Moneycontrol that it is now seeing one-sixth of its e-commerce trade, which is at 7 percent, coming from Qcommerce.

Uptick in Qcommerce

Qcommerce is growing faster than traditional e-commerce, at about 31 percent impacting the FMCG sector by increasing the penetration of premium products and average pack sizes. Quick commerce grew 77 percent in 2023 and 5x of e-commerce growth, as per the survey titled 'Consumer Connection, 2024' by market research firm Kantar.

This rapid expansion is significantly reshaping the FMCG landscape, increasing the penetration of premium products in the market, the Kantar survey said.

According to research firm Elara Capital’s April 2024 report, Qcommerce contributes around one to two percent to the sales of major FMCG brands, while for smaller brands it ranges between seven and eight percent.

Typically, sales for an FMCG brand are dominated by general trade (70 percent), modern trade (20 percent) and 10 percent from digital channels (including Qcommerce and e-commerce).

As per IBEF, the emergence of various players in the quick commerce space, including Zomato-owned Blinkit, Swiggy Instamart, Dunzo Daily, Country Delight, and Zepto, the Indian quick commerce industry is projected to grow at a compound annual growth rate (CAGR) of 27.9 percent between FY22 and FY27. This growth is expected to offer significant convenience and efficiency to consumers while challenging traditional retail models.

Blinkit

Zomato's Q1FY25 results showed an impressive 130 percent year-on-year growth in gross order value (GOV) for quick commerce, a 22 percent increase from the previous quarter, the management said in an investor call on August 1.

Decoding this trend, Blinkit co-founder Albinder Dhindsa said, “The advent of quick commerce has made people want things faster than they would have otherwise got from e-commerce. This has led to a direct share shift of a number of non-grocery use cases to quick commerce where customers were primarily reliant on e-commerce for buying these products. For instance, the demand we are able to generate for online first brands like Perfora in the oral care space fits well with how customers consume the product and therefore their growth and adoption on quick commerce is much faster than on e-commerce.”

Since the pandemic, India's quick commerce industry has experienced rapid growth, projected to reach $5.5 billion by 2025, according to RedSeer. IBEF expects the contribution of quick commerce platforms to the online grocery market to rise from 10 percent to approximately 45 percent in the coming years.

Convenience, yes. Discounts, no.

Quick commerce is convenience-led growth; however, it is moving away from discounts. Qcommerce platforms charge higher commissions from direct-to-consumer (D2C) brands, even though these brands sell lower volumes compared to established ones. The main differences among Qcommerce companies lie in technology and user interface, not in pricing or discounts, according to Elara Capital.

Qcommerce is driving growth by emphasising convenience, and encouraging customers to order as needed rather than in bulk. Unlike traditional models, Qcommerce platforms avoid offering product discounts to establish their presence in the fast delivery market, despite higher logistics costs.

According to Elara Capital’s report, currently, Qcommerce firms’ operations are mainly in metro areas, with plans to expand into tier II and III cities. This will grow the penetration into the market even further, however, beyond large cities, the size of the market is “undiscovered”.

On Blinkit’s plans to expand, Dhindsa said, “As of now, we see a line of sight of getting to about 2,000 stores for our current business. Most of these stores would be in the top 10 cities in India. Beyond the large cities, the size of the market is still undiscovered.”