The quick commerce companies in India are likely to report higher losses in the January-March quarter as compared to October-December quarter, owing to higher costs to tackle rising competition in the sector, according to analysts.
“Most investors expect Q4 quick commerce losses to be higher than Q3,” BofA Securities said in a recent note.
Analysts suggest that the sector has moved from being a 3-operator market to 7-operators one. In the past few quarters, it has seen the entry of new players like Flipkart, Amazon, BigBasket and Reliance. This has pushed the older players to invest heavily towards expanding their assortment, increasing the number of dark stores and spending towards marketing.
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BofA Securities also said that higher discounts may push high-end users to shift platforms for better prices. However, the incumbents would try to retain them by offering higher discounts.
On top of heightened spending, HDFC Securities predicts that the phase of rapid expansion may also go through a bout of over-supply of dark stores in top cities. This would potentially result in a splintering of orders, leading to lower than desirable fixed cost absorption.
While Blinkit aims to reach 2,000 dark stores by the end of the year, Zepto and Instamart have around 1,200 and 1,046 of these stores respectively. Instamart has also introduced larger dark stores, called megapods, to increase the number of available stock keeping units (SKUs) to around 50,000 from 20,000 earlier.
This weighed down on these firms’ financial results in October-December quarter. Zomato reported a sharp decline in its net profit by around 57%. Swiggy, which owns Instamart, saw its losses surge 39% year-on-year. Zepto, another older player, has continued to burn around Rs 350-400 crore per month.
“Amazon is still piloting its service. If it decides to enter the space fully, it has deep pockets and a network of warehouses which may cause problems for the current leaders,” an analyst at one of the domestic brokerages said.
Currently, the quick commerce arm of another e-commerce firm Flipkart – Minutes – is offering the highest discounts in the largest categories like daily essentials and groceries.
According to Jefferies,
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