Assuming quick commerce penetrates deeper into non-metros, tier II and tier III towns, we will see emergence of new “buy local sell local” (BLSL) business models in food aggregation and processing
In qcom formats, the convergence of food with multiple non-food supply chain will happen at least at the dark store level and going forward in the bigger and larger mother warehouses
Here are my set of ten trends triggered by qcom, as it makes further strides into the Indian market
The quick commerce (“qcom”) industry has shown a lot of promise over the last few months and years. I must confess that a couple of years back, I had little hopes of growth of qcom in India given the fact that for majority of Indians, shopping is one of the few excuses to adventure out of home. Also, the omnipresence, deep customer connects and capital efficiency of our next-door kirana (mom and pop) stores, intuitively creates doubt about the raw qcom appeal, to kirana-entrenched shoppers.
Despite scepticism, qcom has proven that there is a large segment of consumers who prioritise convenience over anything else when it comes to shopping. This segment of consumers is not necessarily ditching kirana or supermarkets but for sure are falling in love with qcom models, who deliver within minutes with a click of a button.
The spiral growth of qcom B.I.Z (Blinkit, Instamart and Zepto) trinity has made me convert with scepticism replaced by optimism about the prospects of qcom. Between three of them, B.I.Z owns about 1300 dark stores and all of them are aggressively targeting to increase their store count.
The qcom model has for sure added another twist to the cut-throat competition among multiple distribution channels including kiranas, modern trade, ecommerce (“ecom”) and D2C channels vying for the share of consumer mindspace and wallet.
The imminent and much anticipated entry of the likes of Amazon, Flipkart and maybe Jio can make the space fiercely competitive. The dil-maange-more (the heart wants more) consumers are bound to be spoiled further with the choice of products, discounts, sharper turnaround times and what not.
The big daddies of ecom have to think through their merchandise and product mix on one more dimension – what is qcom-able and what is not? Here are a few things one need to ponder on:
- Supply chains will have to be aligned accordingly.
- Revenue and margins metrics will become more complicated depending on the channel mix.
- It will require data analytics stacked with a few layers of AI to figure out the opportunity and share of qcom channels – category by category and territory by territory.
Assuming food and grocery remains the anchor category for qcom, it will be interesting to see what non-food categories can be tagged into upsell and cross-sell.
This article is not to predict the impact of qcom on ecommerce nor is it about who is going to win the qcom race (err war) which anyway is hard to fathom. This article is about the impact qcom is likely to have on the food supply chain; ranging from consumer to processors to SMEs to startups operating in the supply chain; all the way to farmers.
Here are my set of ten trends triggered by qcom, as it makes further strides into the Indian market.
Qcom-led Decentralised Distribution To Trigger Decentralised Aggregation And Micro-processing In Food Supply Chain
The qcom’s 10–15 minute delivery promise is possible on the foundation of its chain of decentralised dark stores, typically within a few kilometres away from the end consumer. If we move backwards into the food supply chain, the aggregation of farm produce continue to be centralised, dominated by thousands of mandis (in villages as well as cities) and food processing is led by lakhs of SMEs doing milling, grinding, oil extraction, drying, cooling, sorting, grading, packing etc.
Assuming qcom penetrates deeper into non-metros, tier II and tier III towns; which is bound to happen as the aspirations of the consumers in these towns are no different than the ones living in metros; we will see emergence of new “buy local sell local” (BLSL) business models in food aggregation and processing, to optimise the logistics cost and catering to consumer need for fresh food (freshly harvested to freshly processed).
The micro-aggregation, micro-storage and micro-processing will get a leg up, opening opportunities for micro-entrepreneurs (especially the ones in rural and semi urban areas) to sell their proprietary products and brands with the ability to list on the readily available qcom platforms.
One of the reasons that these micro models in the B2C segment have not flourished so far is primarily on account of the disproportionately high cost and efforts required to crack multi-tiered distribution (from distributors to wholesalers to retailers).
The qcom formats allow for geo-tagged listing of these hyperlocal brands, depending on their availability and appeal to customers in the respective catchment areas. This flexibility has not been demonstrated at scale by other channels, especially when it comes to food distribution.
Farmer Brands To Be A Reality
Almost all farmers in India don’t envisage their role beyond production of food and in that process, they leave too much margins for someone else in the supply chain to make money.
With qcom’s ability to promote and list multiple brands in a hyperlocal environment, it’s a matter of time that farmers can forward integrate beyond production to process and distribute their own food brands.
The farm-to-fork brands will move beyond theory and a dream, to become a reality with qcom as the catalyst and bridge. The trend of collectivisation of farmers through FPOs (farmer producer organisation) along with the government’s effort to build farm level assets (through schemes like Agri Infra Fund) will complement this trend.
The farmer’s share in consumer price which for most categories is less than one third can inch towards 50% or more, as qcom scales.
Alignment Of Non-Food And Food Supply Chains
How many times, as consumers, have we bought a bunch of bananas with a mobile phone charger (to make it sound, even more contrasting – a basket of apples with an Apple phone). It is very rare and unlikely, right?
For the first time in the history of Indian retail, qcom will align and converge the multiple non-foods with food supply chains at scale never seen before, including categories like electronics, fashion, stationery, home accessories, appliances with the likes of flour, rice, spices, milk, fresh fruits and vegetables.
One can argue that ecommerce has already demonstrated it but the fact is the share of food remains under single digit for most ecom players. Even in ecom, the fresh and perishable categories of food supply chain like vegetables, fruits, dairy and animal protein (almost 50 to 60% of food consumption) has never been in the mix.
Half-hearted attempts made to distribute fresh categories did not yield positive results. Fresh food category remained isolated and divorced, not just with non-food but also with the non-perishable staple food categories for most distribution formats
In qcom formats, the convergence of food with multiple non-food supply chain will happen at least at the dark store level and going forward in the bigger and larger mother warehouses. In some ways, the dark stores are a misnomer, as they for sure need to be well lit up and well-managed to accommodate so-far-non-compatible categories under one roof, who never ever lived together.
What it means for startups and investors; plenty of warehousing and logistical innovations – multiple chambers to handle all forms, shapes and sizes of products – solid/liquids, ambient/ chilled/ frozen; temp-differential cold rooms; new types of conveyor belts; new models of space optimisation including use of robotics and computer vision; specialised qcom centric-trucks etc. The qcom industry throws open opportunities for many more innovations at dark stores and mother warehouses.
Foodstack To Come Alive
In the last few years, there is considerable progress on agristack (the digital public good for the agricultural sector – with three foundational identities – farmer id, farm id and crop id), led by the central as well as many state governments. The agristack has the potential to bring the kind of disruption for farmers and value chain players that UPI brought to financial services.
While Agristack captures the production related parameters, a foodstack or consumption stack at pan India level has remained a distant dream. It’s hard to capture food consumption data at a certain granularity and frequency. The consumer and retail research on a sample basis can do it but building Foodstack is prohibitively expensive at the population scale.
Assuming qcom get democratised to majority of towns in India next few years and decades, it can lead to building a foodstack at pan India level – answering four of the five most important “Ws” of the food consumption behaviour:
– Who is the consumer?
– When is she/he buying?
– What is she/he buying? and
– Where is she/he buying?
The only “W” which remains unanswered through the foodstack is “why” is she/he buying? which can be captured on a sample basis. Even the first four “Ws” are a goldmine for brands, marketers, distributors and even the government.
Such nuanced food demand visibility is hard and expensive to capture through other means which qcom can capture with relative ease. Even if the qcom share crosses 5-10% of retail sales, it’s a fairly robust sample to lay the foundation of Foodstack.
Whether the qcom players collaborate to make this data more rich and open-source is a question mark. It looks unlikely in the short term given the intensity of competition but possible in the long term if they decide to share foodstack data for larger good.
Needless to say, the foodstack needs to honour data privacy and sharing protocols. But even an aggregated level of data for example food demand/consumption data aggregated to a pincode; to a day of the week; to a category of goods etc could be super helpful in understanding and estimating consumer demand.
It will help food companies plan their communication, promotion, product mix, SKU mix and help even policymakers to better predict and prepare for food inflationary pressures through correlation and intersections of agristack and foodstack.
Qcoms To Drive Sustainability In The Food Value Chain
There are many dimensions of making food supply chains sustainable. Three such dimension where the qcom can positively impact the sustainability aspects of the food supply chain are: packaging, reduction in food waste and use of EVs
- Sustainable food packaging
One good thing which the qcom players have institutionalised is the use of paper bags instead of single use plastic bags for delivery. Single-use plastic continues to dominate the food retail sales from kirana stores largely because of consumer lethargy to carry their own bags or unwillingness to pay for non-plastic bags to retailers.
Hopefully, the sustainable packaging and many innovative packaging solutions that qcom can experiment with, will become mainstream reducing the use of plastics in food packaging and delivery.
- Food waste to go down in the qcom format
In categories like fruits and vegetables, there is significant post-harvest wastage (estimated at one third of production value) because of poor storage and transportation. Hopefully with the qcom driving and building a demand-led, tech-enabled supply chain with dark stores just a few km away from the end consumer, it should have a positive impact on the reduction of food losses especially for perishable food categories.
The qcom also have the uncanny power of tagging multiple product options to drive consumer choices, sometimes incentivised through discounts and sometimes even sold free, which helps in reducing the food waste (for example many qcom players give 100 grams of dhaniya (coriander) free at certain times, with the rest of the goods ordered; I guess they have learnt this trick from the neighbourhood pushcart vendors).
The creative bundling and smart juggling of food products in qcom formats not just increases average order value (AOV) but also helps in minimising food waste.
- Use of electrical vehicles
Another important dimension of sustainability in qcom led models is the use of electrical vehicles (EVs) by delivery boys. The last mile delivery in qcom with EVs (as opposed to petrol/diesel run vehicles) is key to driving unit economics and making this format work at scale. We are likely to see use of EVS in the backed supply chain of the qcoms. The qcom can become an important segment for most two and four-wheeler EV companies.
Food Companies To Partner And Tailor-make Solutions For Q-commerce Players
Food companies, whether they like it or not, have to deal with one more channel and figure out relationship metrics with the qcom players such as extent of tech integration, service levels, margin and cost sharing etc.
Food companies are likely to appoint or have already appointed dedicated account and territory managers as the point of contact to deal with qcom players as they have done earlier with the modern trade and the ecom players.
The ERPs and tech of food companies need to be integrated and upgraded to meet the more-than-normal frequency requirement of inventory replenishment. In bargain for sharing margins and extra effort to serve qcom, food companies can ask the qcom players for more nuanced consumer behavioural data and competitive data.
The food companies in partnership with qcoms will also have the option of planning more localised communication and promotions.
White Labels/Private Labels To Make A Splash
Many large food categories such as wheat flour, rice, spices, dry fruits, edible oils, snack foods, fruits, eggs remain commoditised, with the presence of a few national and handful of regional brands.
The qcom opens up a large head room to accelerate branding of commodities. The mass distribution has always been a challenge for new-age food brands. Most of them have listed brands on ecom but offtake is not necessarily commensurate with efforts and resources deployed.
The qcom channels open up an ocean of opportunities for white labelling of products for SMEs as well as startups, giving them a platform to differentiate themselves with the commodities on one end and mainstream brands on another end.
We are already seeing this trend picking in categories like coffee, spices, dry fruit, dosa batter etc. We are likely to see the emergence of many new food entrepreneurs with growth of the qcom doing while labelling or own brand.
Kiranas To Up The Ante
Millions of kirana stores remain at the heart of food distribution. There are estimated to be over 10 Mn kirana stores selling food in India. They have inherent advantages including relationship/proximity with customers, low cost of operations and negative working capital cycles. Kiranas played an important role in keeping our food supply chain fluid and unbroken during pandemic times.
However, every time a new channel arrives and gains significance such as supermarkets, D2C, ecommerce and now qcom; obituaries of kirana format get written. Kiranas have defied all such predictions time and again. This time also, kiranas will remodel themselves to fight qcom boom through better product mix and merchandise; tech adoption as well as improving on home deliveries to keep qcoms at bay.
More Power To Food Gig Economy
The food supply chain in general, is dominated by gig workers through the supply chain, starting from share cropper at the production end (which account for at least 30 to 40% of farm labour) to labour employed in the mid-stream part – collection centres, storage, trading, processing and transportation, all the way to distribution.
The delivery boys employed by the qcoms as well as by the food delivery players (like Zomato and Swiggy) add more gig workforce in the food supply chain.
The proliferation of the food gig economy means higher employment intensity, not just in villages and remote areas but also in cities, creating livelihood for thousands (and hopefully millions) of delivery boys, dark store owners, managers and staff. The qcom-induced gig economy is good news for much needed job creation for skilled, semi-skilled and unskilled workers.
Is There A Blinkit-Like Model For Rural India?
With an average village population of about 1000 people, low residential density and high last mile delivery cost, it’s unlikely that villages make an attractive segment for qcoms.
Having said that there are many categories in rural markets which have high degree of time sensitivity especially the likes of seeds which need to be sown in a certain time window, otherwise you lose the entire crop cycle; agrochemicals needed on almost real time basis to avoid or treat pest attacks; fertilisers to some extent; many veterinary products for animal healthcare etc. All these categories put together, is billions of dollars of market, which is hard to ignore.
Forget 15 minutes, even if farmers get these products within 24 hours of ordering; it’s a huge value proposition. It’s safe to say that in the current environment; one can classify 24-hour delivery models as rural qcom. It’s a huge opportunity waiting. There are many agritechs who have built strong direct-to-farmer models (like Behtar Zindagi, Bighaat and Hesa). It’s a matter of time, with fast growing digitisation and strengthening of farmer focussed supply chains, we are going to see rural qcom at play.
The above ten trends only partially capture the impact of qcom on the food supply chain. I am sure that we are going to see a lot of unprecedented and unseen in the food supply chain, as qcom evolves.
The qcom phenomenon, no doubt is an interesting twist in the food distribution saga; which is bound to have a ripple effect on the entire food value chain benefitting the two most important stakeholders – the consumers and hopefully the farmers.
As our food economy inches towards the $1 Tn mark in next few years; and gallops towards $5 Tn in next 25 years; the channel plays like qcom will drive innovations as well as resilience in the food supply chain from production to consumption.
The channel innovations will lead to tech, product and service innovations, creating opportunities for budding food entrepreneurs and in that process positively impacting the entire value chain in terms of how food is grown, stored, transported, distributed and consumed.
