The superior margins come from higher sales of premium products, lower cost of distribution and shorter credit period in quick commerce, spurring consumer goods makers to bypass distributors and sell products directly to quick commerce firms, they said. “While quick commerce is growing eight times as fast as the rest of the company, the channel is also more profitable,” Prabha Narasimhan, managing director at oral care firm Colgate-Palmolive India, told ET. “Quick commerce is margin accretive with higher premiumisation.”
Lower Cost of Servicing
“This is because it sells large packs, premium products and has low distribution cost,” said Narasimhan of Colgate-Palmolive India. The country’s largest packaged edible oil seller, Adani Wilmar, said it sends truckloads of edible oil directly from its warehouse to quick commerce warehouses every three to four days. This allows it to save on distributor margins, which it passes on in part to quick commerce for promotions.
In the process, the company avoids any cash crunch on the part of distributors that would delay supplies. Besides, quick commerce operators have lower credit periods of one to two weeks, as compared to those for traditional distributors, which can stretch to 30 days.
“The cost of servicing goes down with direct supplies. We are able to compete well, whereby we have almost 50% market share in edible oil in quick commerce,” said Angshu Mallick, managing director at Adani Wilmar. “For categories like edible oil, higher volume sales improve margins, which is happening in quick commerce.” Quick commerce offsets traditional retail’s high channel costs by removing layers and substituting them with delivery costs. Manufacturers offer a 25% margin to the trade, which is shared between the distributor, wholesaler and retailer in traditional trade, industry executives said. Until recently, the quick commerce channel was served by general trade distributors.
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Dabur has started direct supplies to warehouses of Swiggy Instamart, Blinkit and Zepto, from where they send the goods to their dark stores. The company is also doing a pilot with quick commerce companies to directly connect its internal supply chain of warehouses to their dark stores. Dabur India chief executive Mohit Malhotra said quick commerce dark stores keep an inventory of not more than three days. Distributors can’t fill this; only a direct connection can, on a replenishment basis.
“It’s not possible for them (distributors) to supply the entire assortment that may be required by quick commerce players,” he told analysts this month. Malhotra said the company’s margins are 100-200 basis points (1-2 percentage points) higher in quick commerce as compared to ecommerce marketplaces. “And, moreover, compared to general trade also, our margins are higher because we sell larger packs to them. Terms of trade are (also) better compared to modern trade,” he said.
