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Will Blinkit SURVIVE the Quick Commerce WAR ?

Grofers Merger with Zomato Amid Unit Economics Struggles

Grofers, a startup launched in 2013, was set to go public in 2021 but instead merged with Zomato in a deal worth $700 million. While competitors like Swiggy and Zepto continue to soar, Grofers is on the verge of shutting down. The reason for this is unit economics, which refers to a company's profitability or loss per order. It includes many aspects that aren't visible on the surface and can be responsible for the failure of startups.

What are Unit Economics?

Unit economics is the profitability or loss of a company per order. If a company is not making a profit per order, it is a failure. To be successful, a company must be profitable per order. Grofers changed its working model to deliver groceries to homes within 11.5 hours. They closed their operations in many cities and focused only on metro cities. Grofers delisted all perishable items from its list and only kept items that could be stored for long. They got good margins because there were no middlemen involved, and they also got higher margins on private label and branded products.

Quick Commerce Operational Model

Zepto, a startup made by two 19-year-olds, shook Grofers to its core when it entered the grocery delivery market. To understand what happened to Zepto after rebranding, we need to consider two things: quick commerce operational model and society's behavioral design. Any quick commerce model has three backbones: the places where inventory is stored, dark stores, and highly paid delivery boys. As quick commerce delivers in 10 minutes, the delivery boys always have to be available. Efficient delivery and distribution management systems are also essential for delivery within 10 minutes.

Quick Commerce and the Startup Ecosystem

Zepto, Instamart, and Blinkit are aiming to change society's behavior by promoting 10-minute deliveries. The target customers for Quick Commerce are millennials, who have a smaller order size but with urgency. Families are more profitable due to their large order size, but millennials are the real customers from whom these companies can profit. All of them live in urban cities. In India, it is cheaper to hire a maid than to buy a dishwasher, which also applies to grocery delivery. The real customers for Quick Commerce are urban dwellers.

Swiggy and Zomato provide hyperlocal deliveries, but they do not offer 10- minute deliveries, so they do not have a time constraint. Zepto started with Quick Commerce, which is highly dependent on funding. Without funding, it is tough to sustain the model. However, the funding will end someday, and people will shift to better alternatives when the companies raise their prices. The higher the revenue, the higher the valuation, and the IPO will be formed based on that valuation. Many people end up losing their money by investing in these IPOs.