"Thankfully, we were able to raise funds in May..." said Aadit Palicha, the 20-year-old co-founder of Zepto. At $900 million valuation — just short of the unicorn mark of $1 billion — the two-year-old quick commerce startup bagged $200 million just-in-time. That was the last round of investment secured by any Indian quick commerce player in 2022, besides Tata Digital helping out its subsidiary Big Basket.
Following the tech rout in April, when Nasdaq faced its worst monthly fall since the market crash in 2008, the VCs went cold. With that, what went cold was the red-hot pandemic love for Softbank-backed Gopuff, Tiger Global-backed Getir and others, who had quickly and conveniently raised a record $10 billion in funding last year, going all-in trying to deliver groceries in under 20-30 minutes.
Since mid-2022, as funds dried up, the cash-guzzling global instant delivery startups moved at speed. This time to downsize (at least 10,000 employees fired so far this year), exit markets, pause expansion and shutter dark stores. After zipping IPO talks, Sequoia-backed Instacart slashed its valuation from $39 billion in 2021 to $10 billion in 2022. In the biggest consolidation, Getir acquired Gorillas.
The chills were beginning to be felt in India too, with Zomato's acquisition of the cash-strapped Blinkit. "If you look at FY21-22, we decided to move into Quick Commerce business. As part of it, we opened more than 400 stores. This was the biggest reason behind our losses increasing. As you open more dark stores, there is significant underutilization," said Albinder Dhindsa, CEO, Blinkit.
"Since we started utilising these stores, in terms of unit economics, we reduced the burn to half," he added, explaining that the contribution margin is now at negative seven percent versus negative 17 percent earlier.
It is a high-burn category still in its growth stages. 'Category building' and intense competition amongst Swiggy Instamart, Zepto, Dunzo, Blinkit and BBNow, had resulted in a $15-20 million monthly-high burn rate for each player by May, as they rushed for IPL sponsorships, advertisements and match-time discounts.
With the markets turning, existing investors urged quick commerce companies to get on the street of profits, get off the pandemic high-horse and get frugal along with going fast. "All of them (VCs) are thinking about profitability," admitted Palicha, as the pressure mounted to make unit economics — the dollars earned or rather burned per order — sensible enough for further investment.
The first step was to curtail the burn in setting up newer dark stores to get within 2-3 km of a potential customer which ensures quicker deliveries. Earlier this year, Dunzo founder Kabeer Biswas told CNBC-TV18 that it takes about Rs 70 lakh to Rs 1 crore ($100,000 to $1,25,000) of investment per dark store over a period of four to five months for it to breakeven.
One of Swiggy's investors, Prosus said losses increased to $105 million in the first six months of the year, driven by investment in both the food delivery business and Instamart.
Naturally, with time and money not in favour at the moment, the current network of dark stores and presence across cities doesn't resemble the plans that were drawn up at the start of the year, coming off the buzz of 2021.
The most significant shutdown came with Flipkart deciding to end its 45-min grocery delivery service — Flipkart Quick. Earlier, Ola shuttered its instant delivery play — Ola Dash.
Zepto, which said it would use fresh funds to expand its superfast delivery service to 24 cities, is contending itself only in the metros. "We are expanding within the top-10 cities rapidly. We are focussing on getting a higher share within the geographies we are already in versus expanding into newer geographies," said Palicha.
Not just Zepto, Dunzo too is wary of stepping outside the eight cities where it offers 19-minute grocery deliveries. A reversal from the 15-city expansion plan that founder Kabeer Biswas laid out, after Reliance Retail picked up a 25 percent stake in exchange for $240 million.
Flush with funds, Dunzo opened a micro fulfillment center every 1.5 days between January and March. But, recently shuttered some of its dark stores across Delhi NCR and Hyderabad 'in peripheral areas with very low demand to drive operational efficiencies and optimize costs', which led to some lay offs as well.
"You need to be able to look at the pockets where you've been able to find density," said Kabeer Biswas, Co-Founder & CEO, Dunzo. "Even when we shut down about 10-15 dark stores, we reduced our serviceability by only 3 percent," he added.
While that addresses the question of calibrating dark store expansion, high delivery costs have been another pain point. Reports emerged of quick commerce players even reducing payouts to delivery partners and sending them on longer routes by batching orders. With some of these measures, the delivery costs are coming down, but delivery times, for some of the players, have gone up to 30 minutes from an average of about 15-20 minutes.
"We have dropped the fulfillment cost by 60 percent over the last three months. In some places, we have dropped our cost of deliveries to Rs 35-36," said Biswas.
Have these measures out the quick runners on the path to profitability? "At least 15 percent of our stores have turned profitable. We will replicate the model across India in 2023," added Biswas.
Explaining that the older stores have turned cash-flow positive, Zepto's Aadit Palicha said, "If we don't launch any new stores next year, the whole business will be positive."
"Quick commerce is the fastest growing consumer tech category in India. We will continue to double down on that. By next year, we aim to hit $1 billion in annual sales by Q3-Q4," he added.
Quick commerce in India could be a $5 billion market by 2025, as per RedSeer. But, before the quick runners get there, they have to walk the tight rope in 2023.
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