Swiggy’s big bet on Instamart, and the power of Q-commerce

Amid multi-million and billion-dollar deals in the e-commerce space, food delivery aggregator Swiggy made news by investing $700 million in its own arm. Instamart, its quick commerce (q-commerce) business, enables customers to order groceries and fresh fruits and vegetables and have them delivered roughly within 30 minutes.

The service competes directly with Dunzo and other start-ups in the space. What is more interesting is the fresh investment comes even as corporate giants such as Reliance and the Tata Group are stepping up their presence in the q-commerce space. The segment is estimated to reach over $5 billion in gross merchandise value (GMV) in four years, against $300 million at present.

Q-commerce refers to the delivery of goods — typically small quantities — to retail customers almost instantly. It doesn’t replace weekly or monthly grocery purchases, but complements them. It helps customers with spontaneous buys, as well as with purchase of fresh vegetable and fruit, milk and other dairy items as well as meat.

How is q-commerce carried out?

A q-commerce company banks on its ‘dark stores’, which are micro-warehouses that store a variety of goods. These are set up across the city to minimise the delivery time. Usually, the dark stores are outsourced to third-party players, who often cater to multiple q-commerce firms. Some of the products are procured from seller-run dark stores, too.

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The dark store inventory is linked to the company’s enterprise software, which keeps its informed on the movement of goods. This helps the company with handling refills, and helps it shape the algorithm related to supply and demand. The company’s personnel handle the last-mile delivery of the goods at the customer’s doorstep.

Each company in the space tries to increase the number of dark stores in every city so that the commute time of the delivery person is brought down. In the highly competitive space, the target delivery time is often 15 minutes, though peak hour traffic, rains and other circumstances tend to put up speed-breakers.

While some companies offer almost round-the-clock delivery, most close for a few hours at night. This means customers have access to food and household goods almost anytime, anywhere.

What explains Swiggy’s big investment?

While the world has been speeding along the e-commerce lane for more than a decade now, the pandemic has pushed the button further. The lockdowns and social distancing norms have made online buying — particularly food and groceries — a huge business.

It is to tap this giant opportunity that Swiggy launched Instamart last year in Gurugram and Bengaluru, and subsequently expanded it to 18 cities. The q-commerce service is part of the Swiggy app, and handles 1 million orders a week. According to the company, over the past few months, it has onboarded at least one seller-run dark store a day.

By next month, Instamart aims to bring down its delivery time to 15 minutes. For this, it needs to make its dark store network even denser. It is to support this expenditure, among others, that Swiggy is putting in another $700 million in its arm.

What are Swiggy’s rivals up to?

Existing start-ups in the online grocery space, such as Dunzo and Grofers, are expanding their q-commerce play. A new player, Mumbai-based Zepto, offers 10-minute deliveries. Several other start-ups are mushrooming across the country, including in tier 2 cities.

Among the big players, Amazon and BigBazaar are offering 2-hour deliveries. Reliance, via JioMart, is sharpening its focus on the segment. The Tatas, which already have an app, StarQuik, operating in this segment, are also banking on recently acquired BigBasket to immediately expand their presence in it.