IGI Logo

Media reports suggest Amazon has formally launched its quick commerce (QC) service, Amazon Now, after piloting it for ~6 months. Though the service is currently limited to just three pincodes in Bengaluru, the development suggests that the QC market will now be a contest among at least seven large players. While expanding competition is concerning for early adopters in our coverage (namely Eternal-owned Blinkit and Swiggy-owned Instamart), we reiterate that their medium-term growth ambitions are unlikely to be affected. This is because the QC market continues to expand exponentially due to channel shift in consumer spends, scope for newer/deeper category penetration and expansion in lower tier cities. The recent entrants will also take time to build a large network of dark stores, mother warehouses and other logistics infrastructure essential for QC. Moreover, we strongly believe recent entrants will have to launch a dedicated QC app in order to make meaningful inroads in the market. They will also have to heavily spend on building the brand, customer acquisition/retention, and differentiate basis service quality for consumers to consider switching platforms. Separately, our recent checks suggest significant easing of competitive intensity (i.e., product discounting has reduced while there has been an increase in service fees charged to customers). This makes us believe Adj. EBITDA losses may have peaked for both Blinkit and Instamart in 4QFY25, which can lead to rerating of these businesses in the run-up to their 1QFY26 results. We maintain our BUY rating on Eternal and Swiggy.

* QC market likely to continue to grow exponentially in the medium term: As per our estimates, the QC channel penetration in India’s broader retail market (sized at ~USD 1trln in CY22) is barely ~1%, despite growing ~130% YoY in FY25. Compared to that eretail penetration stands at ~5-6%. Going ahead, we expect the market to continue to grow exponentially on account of, (1) conspicuous shift in consumer purchases from traditional e-commerce (or scheduled delivery), unorganised retail and modern retail channels; (2) continued ramp-up of retail categories and product/SKU depth on the channel; and (3) aggressive expansion of dark store network by early adopters in lower tier cities. This means that even if we conservatively estimate that the QC channel penetration will reach only 2.4-2.5% over the next 5 years, the market can expand to ~USD 48bn expanding at ~44% CAGR (refer Exhibit 1). This should ensure exponential GOV (gross order value) growth for early adopters despite the recent entry of large ecommerce/scheduled delivery players.

* QC is execution-heavy, which means immediate inroads are unlikely for new entrants: QC is essentially a retail business, which means it is structurally execution-heavy. There are multiple facets spread across sourcing, distribution, warehousing, inventory management, logistics, demand forecasting, dark store operations and customer experience, amongst others that need to work in sync for the model to be viable. Early adopters, in our opinion, currently have a first mover advantage when it comes to understanding categories that work on the channel, knowledge of demand patterns across several cities/ micro markets, infrastructure and logistics tech that is optimised for quick deliveries, access to prime real estate locations (can be a huge advantage in some Tier 1 city micro markets), platform recall/stickiness amongst customers, and multi-year experience of doing last mile deliveries. This leads us to believe that recent entrants may find it to difficult to make immediate inroads in the market, especially in the face of the strong supply chain network built by early adopters across 100+ cities and dependence on the same set of delivery riders and/or other contractual workers pool that is available to incumbents. In fact, we are of the strong opinion that recent entrants will have to launch a dedicated QC app in order to make meaningful inroads in the market. They will also have to heavily spend on building the platform brand, customer acquisition/retention, and differentiate basis service quality for consumers to consider switching platforms. In the long term, we strongly believe competition in the space will narrow to only 3-4 relevant players as the segment will go through the process of natural selection and possible M&As. Players that are more likely to survive will be those who are more agile, data & technology driven, deliver superior customer experience, build strong brand/supplier relationships and invest in strengthening logistics and supply chain.

* Adj. EBITDA losses may have peaked for Blinkit as well as Instamart: Our recent checks suggests QC platforms such as Instamart and Zepto are increasingly encouraging customers to order high value SKUs by offering higher discounts vs. low value SKUs. In fact, product discounting on low value SKUs has meaningfully reduced across platforms. Moreover, we are also noticing platforms consistently collecting a mix of various charges from customers such as delivery, convenience, handling, platform and rain fees. Minimum order value restrictions for free deliveries have also increased across platforms as per our checks. These trends suggest that most QC platforms are increasingly focussing on improving their profitability. Moreover, new dark store and warehousing capacity addition trends are also expected to moderate for early adopters in our coverage, giving us the confidence to suggest that incumbents would start deriving significant store level operating leverage henceforth. This makes us believe that Adj. EBITDA losses may have peaked for both Blinkit and Instamart in 4QFY25 itself, which can lead to rerating of these businesses in the run-up to their 1QFY26 results. We maintain our BUY rating on Eternal and Swiggy.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361