Q-Commerce, or quick commerce, is the next generation of e-commerce that’s all about instant gratification – delivering small items as fast as possible at your doorstep.
Grab a coffee while we tell you more about it. If not, order one, and a q-commerce start-up will likely get it for you before you’re done reading this article.
Satisfying consumers’ need of the hour, within the hour
Q-commerce companies accomplish this by storing inventory in small strategically located dark stores, in dense areas around the city.
Each store covers an area within a 2-3 km radius, enabling delivery within the hour. Moreover, tie ups with local stores in the same area add to the selection, giving consumers a vast array of products to choose from. Logistics is typically managed by a two-wheeler fleet, with some companies experimenting with drones and self-driven vehicles.
Lack of a store front helps them save cost, while bringing the convenience of a 7-11 to your doorstep.
According to a study by Deloitte, four major trends are driving the demand for Q-commerce – busy lifestyles, smaller households, urbanization and aging populations.
Add a raging pandemic to keep people indoors and you’ve got a recipe for success.
The idea of ordering items online and having them delivered in under an hour isn’t novel.
Back in the dot com boom, a company named Kozmo.com raised more than 250 million with the same value proposition. Since then, several companies have tried their hands at this business model with limited success. Their failure is largely attributable to spoilage, high inventory costs and low internet adoption.
In its recent iteration, companies are attempting to circumvent these problems by refining their inventory list to a bare minimum – groceries, staples, and non-perishable household items that are an immediate need for consumers.
In each continent, a different player has led the foray into this field.
Gorillas, a German on-demand grocery service timed its entry perfectly, with a launch in May 2020 right before countries went into lockdown. Since then, it has expanded operations to nine countries in EU and has become a household name in Europe with its catchy tagline, ‘faster than you’.
In March 2021, it raised a $290 million series B, becoming the fastest Unicorn in Europe.
Similarly, JOKR, started by the founder of foodpanda, raised nearly $100 million right after incorporation in Q1 2021, to bring this model to locations in America.
Moreover, companies in the food delivery space have also started foraying into this segment. Notable amongst them include Delivery Hero, with its Dmart dark stores in Europe and DoorDash in US.
Not just earning a quick buck
VCs believe that q-commerce is here to stay.
The unit economics of this model banks on three key points: repeat purchases of regular household groceries, the customer’s willingness to pay a premium for the added convenience and the retail margin that companies can appropriate by selling groceries through dark stores.
According to a report by Delivery Hero, the steady state unit economics are positive, as shown below:
Moreover, network effects could drastically reduce the logistics costs – increased adoption could lead to a high density of orders from the same area, leading to savings from the low incremental costs required for delivery.
Introduction of private label products and advertising slots could improve the margin further.
With such a positive outlook, it’s not a surprise that VCs are lining up with generous cheques at Q-commerce company doorsteps faster than their promise to us consumers.
Quick commerce models are offered premium valuations compared to the traditional e-commerce model
For example Zepto, an 18-month old start-up in India, got valued at US$ 500 Mn. valuation despite their modest order volume compared to older players like Dunzo and Grofers, which were offered a valuation of US$ 900-1,000 Mn. in their latest rounds.
Due to these eye-popping valuations, players are ready to bite the bullet and are joining the bandwagon of quick commerce.
Why now in SEA
It makes immense sense for players to penetrate in this segment in SEA for two key reasons.
Firstly, SEA’s consumer base is the best placed to adopt q-commerce – a young, urban population, rising income levels and increasing digital penetration.
Secondly, Online groceries are highly under penetrated in SEA at only 2% share, as compared to other categories like personal care and electronics which have breached healthy double-digit numbers.
Lastly, in comparison, developed markets like the US and China have a 10% penetration rate which makes grocery the last frontier in Southeast Asia’s e-commerce space.
Leading players in SEA
Foodpanda is the market leader in Q-Commerce segment and has a head-start as compared to other players.
The Singapore-headquartered company has been laser-focused on food delivery since its founding in 2012 but was playing as a second fiddle to super app Grab in food delivery for years.
But over the last couple of years, things have changed. With the pandemic forcing people to order not just food but even groceries online, quick commerce is now a key growth driver.
Now, foodpanda has a first-mover advantage in instant grocery deliveries.
Foodpanda wants to become SEA’s quick commerce leader and it currently promises to deliver groceries in under 30 minutes.
This is done in two ways: one, by partnering with over 45,000 retailers like 7-Eleven for its foodpanda shops service; and two, by setting up its own dark stores called pandamarts.
Foodpanda aims to double the number of pandamart stores and expand foodpanda shops partnerships across SEA in the next year as Q-commerce would be the centre of their growth strategy.
Considering the traction in Q-commerce segment, Grab also entered into this segment and launched its dark stores, called GrabSupermarket, in December 2020.
In December 2021, it surprised the market by acquiring Malaysian premium grocery chain Jaya Grocer for reportedly up to RM1.8 billion (US$430 million) and experts believe that it will not trail for long and the gap with Food panda is expected to reduce.
Indonesia-based HappyFresh, too, quietly got into this dark store play in Malaysia in October; it promises to deliver groceries within an hour.
There are other new-age startups such as Astro that are also promising further reduction in delivery times, more akin to the 10 minute delivery model seen elsewhere.
There’s also a looming threat from other players like Shopee and it could only be a matter of time before it enters the space.
Too breakneck a speed or worth it?
It’s still early days for all players planning a quick commerce assault in Southeast Asia. As an under-penetrated space, grocery delivery is far from hitting its saturation point.
With the growing number of players operating in this space, competition is fierce and numerous companies are fighting to win the speediest delivery times and it’s inevitable that we will begin to see some consolidation of the food delivery market share.
Players who find ways to track customer behaviour, control quality and accurately predict demand in the e-grocery and online food delivery space will be the ones who come out on top and will drive consolidation.
All in all, in the increasingly cut-throat delivery e-commerce industry, customer is the king and q-commerce certainly seems here to stay.