New Delhi: Makers of fast-moving consumer goods may double their share of business from quick commerce in the near term as more companies use platforms such as Blinkit, Swiggy Instamart and Zepto, according to a new report by Elara Securities.
“Share of quick commerce sales for larger FMCG brands currently stands at 1% to 2%, which may double over the near term. These larger brands tend to make better margins on quick-commerce platforms vs e-commerce due to lower discounts on the former,” analysts at Elara Securities wrote in the report dated 16 April. Quick-commerce platforms account for between 1-2% of the sales of major FMCG brands and 7-8% for smaller brands, it said.
Traditional trade yields the highest profitability for FMCG brands, followed by quick commerce. Several companies such as Nestle India, Parle Products and Godrej Consumer Products have acknowledged the salience of quick commerce to their packaged foods and home-care products.
“Among mid-sized FMCG brands, digital sales range between 15% and 20%, with none exceeding 20%. Currently, quick commerce accounts for roughly 40% of digital sales (for direct-to-consumer brands), a figure expected to rise to 60% in the near future with e-commerce and modern trade turning costlier for FMCG brands than quick-commerce,” the report added.
The popularity of quick commerce is also set to challenge the dominance of incumbent e-commerce platforms, especially in categories such as beauty and personal care, packaged foods and apparel. This has led to greater discounting by e-commerce platforms and offline retailers in recent quarters, according to the report.
“Per our checks, quick commerce may disrupt profitability of incumbents such as Nykaa (which may resort to discounting in beauty and personal care, given its likely inability to match the convenience of quick-commerce platforms). Companies such as DMart too may be slightly hit on growth, as some part (3-6% per our checks) of the monthly grocery-FMCG purchases may move to quick-commerce, led by convenience,” the report added. The shift of advertising to quick-commerce platforms has [also] hit the profitability of e-commerce platforms, straining margins, it said.
However, the impact of quick commerce may be limited to metros for now, the report added. “Quick-commerce is primarily operational in metros and tier 1 markets, which is impacting the sales of traditional and e-commerce companies in these areas. However, if quick-commerce players were to extend their operations to tier 2 and tier 3, it would challenge companies such as DMart and Nykaa, and would pare sales and profitability,” it said.
Traditional and e-commerce companies must therefore innovate to enable faster ordering and deliveries to compete with quick-commerce platforms, the report added.
