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The trend of 10-minute delivery in India was started by Zomato and Swiggy. Now e-commerce giants Amazon.com Inc. And Walmart Inc. That Flipkart is also preparing to enter this market. Shares of Zomato, whose service ‘Blinkit’ delivers goods ranging from eggs to electronics to homes within minutes, have fallen 28 per cent from their all-time high in October by Thursday’s close. At the same time, shares of Swiggy, which owns its rival company Swiggy’s service ‘Instamart’, have fallen by about 47 percent from their recent peak in September. Due to investors becoming nervous due to increasing competition, the market value of these two companies has declined by more than 15 billion dollars (Rs 1.41 lakh crore).
ever increasing challenge
Amazon and Flipkart are focusing on India’s fast-growing $11 billion rapid-commerce segment. They are building a network of ‘dark stores’ (last-mile warehouses) to expand their reach in small towns. Meanwhile, Zepto Ltd. It is planning to raise up to $1 billion through IPO so that it can raise funds to compete with market leaders Blinkit and Swiggy Instamart. Franklin Templeton fund manager Yi Ping Liao, who holds shares in Zomato, said in an interview that the challenge right now is that competition is very high, so profits are low in the short-term. The risk is how long this intense competition will last. Seattle-based Amazon, which introduced ultra-fast delivery last year, is compensating for its late entry. The company last week announced plans to expand its ‘Amazon Now’ service from the current 15 cities and towns to more than 300 cities and towns. Additionally, it has promised to invest another $13 billion to build its AI and cloud infrastructure in the country.
Companies are continuously expanding stores
According to a report by ET, Flipkart Minutes has created a network of 1,000 dark stores to extend its service to 130 cities in less than two years. The report says that Flipkart is planning to open 1,500 stores in more than 180 cities in the next few months. Rashi Talwar Bhatia, Chief Investment Officer, Ashmore Investment Management India LLP, said in an ET report that due to expanding stores and offering heavy discounts, we think Amazon will snatch some market share from existing companies.
According to a May 15 report by Macquarie Equity Research, BlinkIt had 2,243 dark stores in the year ended March 31, while Swiggy had 1,143 stores. Billionaire Mukesh Ambani’s company is using Reliance Retail Limited’s large physical store network to forge ahead in quick commerce across categories through its JioMart platform. In the annual general meeting held earlier this month, Reliance shareholders were told that the company’s network of more than 3,100 stores provides service in more than 1,200 cities.
Competition is going to last for years
Macquarie analysts Aditya Suresh and Baiju Joshi wrote in a May report that we are facing fierce competition on many fronts – such as horizontal e-commerce platforms like Amazon Now and Flipkart Minutes and omni-channel retail, not for a few months but for many years. The brokerage firm reduced the target prices of Eternal and Swiggy and downgraded Swiggy’s rating to ‘underperform’. Eternal already has an ‘Underperform’ rating.
Due to reduced scope of competition between the two big existing companies of quick commerce, the enthusiasm regarding the listing of Zepto has also reduced a bit, which is expected to happen next month. Zepto, started in 2021 by two Stanford dropouts, brought the concept of delivery in 10 minutes to the local market.
But the company is entering the local equity market at a time when deep-pocketed rivals are trying to carve out a place for themselves in the world’s hottest experiment in fast delivery. According to data from UnlistedZone.com, since February, Zepto shares have fallen by more than 32 percent in the unlisted market from Rs 58 to Rs 39.
price war
While Blinkit managed to show EBITDA-level profit in the December quarter, Swiggy’s quick commerce operations lost about $460 million and Zepto’s lost more than $600 million year-on-year. The head of Blinkit believes that even if there are any major changes or layoffs in this sector, the company can still perform well.
At the same time, Swiggy has promised to stay away from this price war. Franklin’s Liao hopes Blinkit’s better unit economics and efficiency will help it face the competition.
But competition is not decreasing. Rather, in this fierce battle to gain market share, companies are putting in all their strength by giving huge discounts. Emkay analysts led by Pranab Kshatriya said in their report on June 14 that the good thing is that the increase in demand has not been limited to metro cities only, but has also spread to tier-2 and tier-3 cities.
This shows that the quick-commerce model is being liked all over India. However, despite this trend, tough competition continues in the rapid delivery segment. MK’s report states that this sector is still going through a landgrab phase, and with the arrival of Amazon and Flipkart, competition will become even more intense.
