India’s fast-delivery apps take bite out of mom-and-pop stores

BENGALURU — Sohail Abbas calls his convenience store a cockroach, a tech industry term for profit-driven startups that survive challenging times. But lately, he’s worried that unicorns — startups valued at more than $1 billion — will eat his lunch.

Sales at his neighborhood shop in a swanky part of southern tech hub Bengaluru, not far from the sprawling offices of Microsoft and Morgan Stanley, have slumped 15% in the year through March. The 45-year-old shopkeeper blames his store’s woes on a handful of domestic startups including Blinkit, Zepto and Swiggy, which are wooing upwardly mobile urban Indians with deliveries in less than 20 minutes, a speed Abbas finds hard to match.

The fast-delivery model, backed by heavyweight investors like Netherlands-based Prosus and Airbnb-backer Glade Brook Capital Partners, is barely three years old in India. But it has hit ubiquitous neighbourhood stores harder than next-day grocery deliveries started by Tata Group’s BigBasket more than a decade ago, with Amazon and Walmart’s Flipkart following suit. BigBasket has since moved into fast deliveries.

The quick model’s soaring popularity is raising questions about the future of local shops in India’s big cities, which have long dominated a retail grocery sector whose sales topped $590 billion in the fiscal year ending March 2024, with relatively few large supermarkets. Retailers like Abbas, who typically take delivery orders over the phone, have yet to find an answer.

“Most people come to my store for unplanned and impulse purchases and that’s the segment that quick commerce is targeting,” said Abbas, who picked up startup parlance like “unicorn” and “cockroach” from a nephew who works at a technology company. “In order to count these startups, I will have to hire at least two people for home deliveries to keep my current volumes going, which will squeeze my profits.”

A shopkeeper at a neighborhood grocery store in Kolkata, India. Small shops are feeling the pinch from apps that deliver customer orders in minutes.   © EPA/Jiji

Kirana Club, a networking community for neighborhood stores, conducted a survey across nine cities in April that found about one-third of 900 respondents were losing 10% to 30% of their sales to fast-delivery startups.

“Online grocery impacted modern trade outlets and neighborhood stores, but I would say fast delivery is the biggest disruptor because it gives instant gratification,” said Anshul Gupta, founder of Kirana Club. “The brick-and-mortar stores always addressed that aspect: you go out and get it now, which is not the case with BigBasket, Amazon or Flipkart.”

With fast-delivery startups prospering, aided by a pandemic-driven surge in digital services uptake, India is bucking a global trend.

Startups like Buyk, Fridge No More and Zero Grocery shut down in the U.S. as funding dried up, while Europe witnessed a string of acquisitions. The most notable was the buyout of Germany’s Gorillas, which raised $1.3 billion, by Istanbul-headquartered rival Getir. Along with U.S.-based GoPuff, Getir is among the few quick commerce startups to survive after investors turned against money-losing ventures.

“In the West, organized players like Walmart, Costco, Carrefour, etc. account for a bulk of grocery retail,” said Kushal Bhatnagar, associate partner at Bengaluru-based consultancy firm Redseer. “So, the proposition of quick commerce was relatively weak there because people already had a good shopping experience, unlike India where unorganized retail dominates and the experience is poorer than the U.S. or Europe.”

Fast delivery is better suited operationally to densely populated countries like India. With 473 people per square kilometer in 2021, India had 13 times the population density of the U.S., according to World Bank estimates.

Fast-delivery firms operate nondescript warehouses not much bigger than a typical three-bedroom apartment in India’s bustling neighborhoods. These so-called dark stores ensure that armies of motorbike-delivery workers will pick up orders from a site no more than 3 km from a customer’s location.

“Dark stores are viable only if there are significant number of people living around it, or else the cost of operations increases,” Bhatnagar said.

Once-skeptical venture capital investors have started to take note. Zepto was one of the only two Indian startups to have breached the $1 billion valuation mark in 2023 amid a sharp fall in private investments, according to private market tracker Venture Intelligence. The startup raised $665 million in June from a clutch of investors including Glade Brook and Nexus Venture Partners, with its valuation more than doubling to $3.6 billion.

Vaibhav Domkundwar, founder of Better Capital, initially doubted fast delivery would be a big draw for consumers. “A majority of us [investors] thought that only a small percentage of the population cares about fast delivery as the neighborhood stores are round the corner, so it was a waste of time and money,” he said.

But he has been proven wrong. Cumulative gross sales of fast-delivery platforms in the last fiscal year totaled $3.3 billion, against just $500 million two years earlier, according to estimates by Redseer. That was 42% of total online grocery sales. Investment firm JM Financial said in a February report that annual fast-delivery sales could breach $40 billion by 2030.

Domkundwar is now convinced that there is a business case for new platforms that remove friction associated with offline shopping, particularly an unpredictable assortment of goods, despite the dominance of Amazon and Flipkart.

At $7.8 billion, online operators accounted for a paltry 1.3% of total grocery sales in the country, Redseer estimated, but the proportion is likely to surge with the rapid adoption of online shopping beyond large Indian cities.

“What these [fast-delivery] apps are actually fixing is our current broken offline retail experience,” he said.

Better Capital has backed a fashion-focused fast-delivery startup that will launch in a month, Domkundwar added, but he declined to divulge details.

As fast-delivery startups launch into new ventures like fashion, electronics or beauty products, a pitched battle with Amazon and Flipkart is inevitable, industry observers said.

About 80% of online sales at pet-care supplier Dogsee come from such startups, with Amazon and Flipkart accounting for the rest.

“The share of fast-delivery apps two years ago was zero,” said Dogsee founder Bhupendra Khanal. “Anybody who is not on those apps will lose revenue because customers have changed their shopping habits. It’s akin to the instant messaging revolution.

“I think e-commerce companies will have to ensure next-day delivery in almost everything that they do,” he added

Workers sorting customer orders at a BigBasket warehouse in Noida, a city in India’s northern Uttar Pradesh state.    © Getty Images

But fast-delivery startups also have their limitations. Small warehouses limit their ability to stock up, which translates into a long queue of brands waiting to be listed and a limited choice for buyers. The fight for shelf space is only going to intensify as they move into new categories, a problem also faced by the brick-and-mortar retailers that these startups set out to disrupt.

“By default, the business model does not support a large assortment, so they will become hyper-curated platforms” said Bala Sarda, chief executive at tea brand Vahdam, which lists only two of its top-selling green teas on Blinkit.

There are also questions about whether the new shopping habits of urban Indians will be replicated in smaller cities, where orders are smaller in value and neighborhood stores still dominate. Lower population density could also arrest the growth of fast delivery in smaller communities, said Redseer’s Bhatnagar.

“We will see significant growth in the next couple of years, but it could taper thereafter because they may run out of users in large cities and the model is not replicable in smaller cities,” he said. “But I am not ruling out a surprise.”

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