The FMCG industry has reacted with dispatch to regulatory concerns over food storage, handling and hygiene in 'dark stores' operated by quick commerce companies. India is expected to have 5,000-5,500 dark stores in over 100 cities by next year, and the industry is expecting the segment to drive growth as well as premiumisation. Renegotiated contracts for product handling are incorporating clauses for audit and indemnity, an additional cost for q-comm companies as they grow their business at a breakneck pace. The format is still in a cash-burn stage. So, increasing regulatory intensity is likely to push the profit frontier outward. But this is a healthy reset for sustaining high growth over the long term.
Last-mile delivery typically faces highest operating costs in qcomm, which are yet to be offset by order volumes. Price wars within the segment, as also with traditional retail, keep margins under pressure. Customer acquisition and retention costs are climbing. Improving operational efficiency is key to the business model. Among other things, this requires higher dark store efficiency, which should benefit from heightened oversight by regulators and brands. The user base for q-comm has to grow without compromising any aspect of the supply chain.
Investor interest in q-comm remains elevated despite low visibility around profits, because of changes it is driving in consumer behaviour. These changes will have to occur on a far bigger scale and become irreversible for the segment to turn profitable and provide investors their exit. Consolidation, and lessening competitive intensity, could speed up the process. But the experience of ecommerce in India would suggest fragmentation as a more distinct possibility. This calls for intensified oversight by the FMCG industry of a retail channel that is spurring sales. Food and personal care companies are tweaking their distribution models to incorporate quick commerce. They must remain invested in the segment for it to deliver on its promise.
Last-mile delivery typically faces highest operating costs in qcomm, which are yet to be offset by order volumes. Price wars within the segment, as also with traditional retail, keep margins under pressure. Customer acquisition and retention costs are climbing. Improving operational efficiency is key to the business model. Among other things, this requires higher dark store efficiency, which should benefit from heightened oversight by regulators and brands. The user base for q-comm has to grow without compromising any aspect of the supply chain.
Investor interest in q-comm remains elevated despite low visibility around profits, because of changes it is driving in consumer behaviour. These changes will have to occur on a far bigger scale and become irreversible for the segment to turn profitable and provide investors their exit. Consolidation, and lessening competitive intensity, could speed up the process. But the experience of ecommerce in India would suggest fragmentation as a more distinct possibility. This calls for intensified oversight by the FMCG industry of a retail channel that is spurring sales. Food and personal care companies are tweaking their distribution models to incorporate quick commerce. They must remain invested in the segment for it to deliver on its promise.
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