Q-commerce – A bubble in the Quest.
A philosophical interpretation
A Bubble in the Quest
Whatever be the idea, concept and way of doing business but the quest to reach the consumer is never ending. Startups are inventing new terminology to lure investors to their full potential and there is no doubt that they are succeeding and getting good funding. There are many examples of turning this idea around and mixing it with technology and the names are eB2B, social commerce, dynamic commerce and now Quick commerce. During last 10 years I have seen the advent of technology driven b2b, b2c, social commerce and adjoining it with hyperlocal facilitation etc. etc.
One thing is very clear that despite the huge funding, coverage and overall market penetration of these startups, there are still doubts as to when will they become profitable and how long will it take to recover the customer loyalty and the duration of the customer life cycle. Will you (investors) burn more money? or as a marketer still around the typical market fundamental that burning is earning?
Startups are raising funds and even they are getting it at inflated valuations. This suggests that in future either the number of customers or their preferences will improve and some will remain in business. Yes, it is market funda’s and usually we expect the same, but in the present scenario where every six months’ new ideas come with huge investor money, who are burning money to test the scenario of their business strategies. Is it?. Will they be like "frogs"? What is not? It will be discussing in later articles.
I am very positive that something new must come in the market and that new must be disruptive enough to lead to a profitable & sustainable business. For a year now we have been talking about Quick Commerce or Q-b2C, the imitation of the West being tested in the Indian retail ecosystem. Some startups received funding of millions of dollars. Wonderful! Yes, those same investors are testing their luck with the Q-commerce startup. Incredible 10-15 minute delivery services are factually based dear. It is not a dream or a thought inside the nerves of the brain. Already, four startups have received substantial funding from investors and have started operations in some cities. I would not have mentioned their names as it would not be wise to evaluate them or compare them with each other at this initial stage.
I have a slightly different level of positive thinking about these kinds of ideas and how they work. I use business environment fundamentals and ground realities first and accordingly dare to share my views.
only concerned about the longevity i.e. sustainable business life cycle, because that comes through making good profit and making it sustainable for a long time. But do you think that startups who are testing their luck in the startup ecosystem are making money? or is there any possibility that they will be profitable even after ten years of operations? have doubt because of the fundamental which they are not applying.
Take the example of grocery retail. There are over 55 startups operating in the Indian grocery retail ecosystem. All are tech driven platforms. More or less they are connecting the supply chain. Let us examine the margin spreads of FMCG and Staples. 15-18% is the average margin spread of FMCG products nationally. Leave 10% off for retailers. Those working on DTR (Direct to Retail) are burning 7-10% i.e. 8% on average as supply chain cost (this cost is inclusive of reverse logistics cost). 5% on average they are burning on promotions, deals and offers. Overall it comes out to 10% Retailer + 8% Operation Chunk + 5% Marketing = 23%.
Similarly B2C players are burning 15-20% of their money in promotions, bringing in new customers, maintaining their loyalty and worrying about the CLC of the consumers. Take an example, if a startup from eB2B or B2C or Q-B2C takes a minimum of five years to reach a unicorn level or some takes 2 or 3 years. It is 99% possibility, that during the said period they will burn money to build bigger and bigger market share and make top line. If you take the example of existing startups in the same ecosystem, you will find that they have lost millions of dollars. If it takes five years for a business to reach and generate a level. Take an example that Rs. 1000 crores accumulated loss, then think that when they are on the positive side of business operations. It will take another five or ten years to payback the loss and capex. My statement in this regard is that no one will make money even after 10 years of operation in the said segment.
This is a common man's calculation. Around 5-8% of the revenue by the b2b startups gets burnt for some reason or the other and 15-20% in the B2C. The only concern is to win the top line. This will lead to higher valuation which will be the benchmark for raising more funds.
Now, let's take a look at where Q-commerce is going to disrupt the retail ecosystem in a big way. Some of the existing B2C companies have changed their names and are now swimming in the same tunnel but they forget to analyze the basic and ground reality and even their vision. Well, leave them to their fate.
Quick Commerce a new way of e-commerce
Positive aspects of the concept: Q-Commerce is time bound and time count third generation e-commerce concept. Here we must say that technology made it happening. New capabilities built in technology to drive the operations smooth in a TAT.
Characteristics of Q-Commerce:
1. Technology driven ubiquity
2. Consumer centric as on demand fulfilment
3. Turnaround Time specific
4. Convenient in terms of need.
The positive aspects of the concept really pertain to the retail ecosystem. It is best suited for the impulsive and thirsty needs of grocery, medicine and services. The consumer is thinking of cooking something about a new recipe. Previously they had to plan the event and make purchases, but technology brings new features with the promise of quick delivery, so things happen on click. Whatever you plan to eat, try and fry, the consumer is ready to eat in 10 or 15 minutes. It is indeed a huge force of technology and developed operational capabilities of companies providing anything on click within the promised time.
Who's on top? No doubt it is the consumer, the cycle of events is around the consumer and is very focused towards specific needs.
There is no doubt that startups came up with the idea that they will make profits in the short term and will be at the top of valuations. Similarly, early investors will have multi X as ROI in the next two or three years.
As a retailer and a retail expert, I congratulate the minds behind the Q-Commerce idea and lead for their execution.
Take a look at the operations matrix and feasibility:
Macro level - cost of serving an orders comes Rs. 45-50/- including cost of picker, packer and riders. It means 12-15% cost element. Micro level this cost can be minimize to Rs. 25/- per order. Now rest calculation is for you and evaluate and please revert to me.
Flip of the event: There is another side of the store which is destructive to the Kirana /or other Retailers or Small retailers ecossytem.
Anything that gives value for money to the consumer is my cup of tea, but my concern is about the backbone of this retail ecosystem, i.e. the “The Retailer” /or "Grocer" / or the “ Kiranawala” who is most likely to suffer.
Why the Retailer will suffer the most? 70% of the Retail shop's over the counter sales are from the immediate needs of the consumers. Consumer visit the nearest store and buy Rs. 100-150/- bucket and disappear. Many consumers also visit these shops many times. Some visit for milk, biscuits, bread, butter, sugar or any other impulsive needs of their kitchen. The journey takes 10 minutes or 15 minutes. Eighty percent of consumers consider it a burden to go out from for shopping, and twenty percent want it as an opportunity to walk on the street. Think about the eight percent of consumers who are going to get impulsive goods in 10-15 minutes’ time just by clicking on their mobile. In this way, Q-commerce will fix the match in their mind and will definitely swap the earnings of smaller 2 retailers.
Roughly estimated 30% of small grocery stores will be on death beds in the next one year or two. The arrival of Q-commerce or likewise will be a negative news for their livelihood.
Any thoughts on this? There are organizations like CAIT, local retailer’s associations, he Federation of Retail Traders Welfare Association (FRTWA), Retailers Association of India (RAI) and 35 other retail associations in India who said to be advocate of retailer’s welfare as such has no influence. This is true that they are not able to raise their voice and accordingly not able to present the lobby.
It is true that the consumer needs convenience which they should have. It is also true that market is so kind and pertinent which gives opportunity to every businesses and every business have their own market share, but here we are talking about Retailers i.e. the Mom & POP stores the backbone of retail. As a developing country we have to think that a community of more than 14 million micro entrepreneurs, who Creates 8% employment in the country, contributing their 11% to India’s GDP, still there is no promise from policy makers as to safe guard the interest of Retailers.
Skill India , Make in India is good for the country and a good initiative but we cannot leave everything to the open economy policies. As a policy maker, India Govt should patiently think that whether India retail need such disruption in the name of Startup India or we should think to empower and safe guard the business of small retailers.
My topic here is "Q-commerce is in the bubble of quest". It shows how unsusceptible we are in the ecosystem to assess business dynamics or how inconsumable we (investors) are to invest our money. Is technology driving the business Q-Commerce is the best example of this? A next level of search is on the way.
Bubble is not good for anything. Startup founders are working restlessly and want to make it a unicorn, similarly investors are burning their money in the hope that someone will give them 10x returns but what if such things take the shape of a bubble in the ecosystem.
This article is a way of mixing philosophical and psychological way of interpreting my thoughts that will take anyone either way. You may think positive till the middle of reading this and find it negative in the end.
The truth has never worked out as would like it to be, sometimes it appears unexpectedly and then "the policy makers i.e. retail policy makers will open their eyes and the bubble will burst with huge noise.
Best way is Empower the Existing Ecosystem whether they are Small Retailers, Distributors and Wholesaler. Create opportunities for them and take them with your journey.
The best way is the best of luck!
written by Balwant Singh Rana on : 09.01.2022