Daybreak - Quick commerce is helping brands thrive but can brands afford the success?

Episode Date: January 16, 2025

A couple years ago, quick commerce platforms were the place to be for up and coming brands across the country. Just a little sliver of real estate on a rapid delivery app was enough to put them on the map. But now, many of these brands are very quickly realising that success on a Blinkit or a Zepto is a double edged sword. With it comes high commissions, marketing fees, and the constant pressure to never run out of inventory. Some brands have now had enough. How did it get here? The Ken reporter Nuha Bubere explains.Tune in.  Daybreak is now on WhatsApp at [phone]. Text us and tell us what you thought of the episode!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. The earliest and the most direct beneficiaries of the quick commerce revolution were the brands. You've seen it yourself.

You know how the likes of Blinket and Swiggy Instremart and Zepto have given smaller, up-and-coming brands, a platform that they never had before. And thanks to QuickCommerce, these smaller brands have been able to take on FMC giants, the likes of Tata, Nestle and ITC. Not just that, it's often come to a point where even these giants have had to play catch-up with them. Something like this was practically inconceivable back in the day. It's pretty well documented by now how a tiny sliver of real estate on a QuickCommer platform can completely change the game for a brand.

It can help them acquire more customers and also amp up their revenue like never before. The story we know so far is that of a win-win. But lately, some of these brands are learning the hard way that success on a quick commerce platform is often a double-edged sword. Because with success comes demand, which you might think is a great thing at first. But listen to what the Ken reporter Noha Boberi. told us. When that happens, the challenge becomes to cater to that demand. If you are, say, an Amul or a Milky Mist or any of the larger brand, you already have the bandwidth because you

are supplying across India. If it is a smaller brand or like a brand, or like a brand which is like, like, four to five years into the business, they are yet to like build that capability. Like Noha says, a lot of brands that gave in to the charms of the quick commerce platforms realized soon enough that meeting rising demands on such a short notice can very quickly become a logistical nightmare. It becomes nearly impossible for a lot of them to keep up. And the ones who do manage to strengthen that logistical muscle end up almost bleeding themselves dry in the process. So much so that a lot of brands are now taking the conscious decision of delisting from these platforms.

So, the same brands that were once desperate to sell through quick commerce platforms are now choosing to say, no thanks, maybe not. How did it get here in what went wrong? Hello and welcome to yet another special episode of Daybreak. I'm Snigda. And I'm Rahel and every week we come together to talk about something in business and tech that interests the both of us. And it won't just be us.

Depending on what we're talking about, we'll bring some really interesting people onto the podcast. In this episode, we were joined by the Ken reporter Noha Boberi. So, Noha, let's start with a slightly fundamental question, you know. Tell us can an up-and-coming brand, a new brand, a smaller brand, survive without a presence on any quick commerce platform today. You can survive without getting on a quick commerce platform. It depends on the growth stage at your ad. So from my conversation with founders, with brands in this space,

if you are at a very low level of stage, you may not have the right funding. You're very new as a brand. Getting started right on QuickCommerce may be difficult for you for several reasons. First of all, it is very difficult right now to get enlisted on a platform because of the high barrier of entry. So we asked Noohar to tell us a little more about how these partnerships between brands and QuickCommerce platforms.

actually work. And like she said, first of all, getting on the platform is not easy. Smaller brands take anywhere between 8 to 11 months to actually make it to the platform. After that, they have a certain growth scale that they have to achieve. They have a certain kind of number given by their category managers or the platform themselves. And quarter on quarter, they have to establish those numbers. because after a point, like, say, they give them a six-month duration. If the brand or the SKU of the brand does not perform well, the brand is delisted. So it's a very tough thing going on there for these brands.

It's like to enlist or like the not end list, which one is better. But if you are a brand which has like, you know, VC funding, if you're backed by, say, investors in the space, and you do have support on the back end where you can burn some cash when you start. then QuickCommerce is a great marketing platform for you because the consumer knows the brand. If you're a new brand, they will get a recall and like, you know, they see you offline. They know this is the brand they saw on the platform. So it's different for different brands depending on the stage where they are at. For smaller regional brands that are not VC backed, being on a quick commerce platform can feel a lot like being in a pressure cooker.

And it's not just a constant pressure to perform. A lot of these brands pay a huge price for a little bit of real estate on a quick commerce platform. A price that in many cases is a lot more than they can afford. Right. Nuha, when you look at a quick commerce app, a lot of the choices that we make, right? Like the brand of rice that you're choosing or, you know, one brand of juice over the other. It's based on how visible it is, right? How many scrolls it takes to actually land on that product.

But being visible on quick commerce doesn't really come cheap, right? So how do the smaller brands manage? Yeah. So when you search for, say, any product, you might search for milk or bread. It's not necessary that the brands which pop up first when you type that out are the brands people are buying necessarily. It could just be the marketing fee that the brand has paid the platform to be shown first. So fee could range from like, you know, 5% to 30%. as like a marketing fee.

And on top of that, you also have to pay a margin to the platform to be present, which can also go up to like, you know, from 15% to 30 to also 50%. So after a point with the high margin, the brand is paying as well as the marketing fee, like, you know, which is the cost of the MRP. This is all like, you know, the margin and the marketing fee is a percentage of the MRP of the product. So at the end of all of this, the brand realizes that, you know, It's a margin neutral business. They are not, maybe they're not losing a lot of money,

but they're also not making any. That's the price you have to pay. Do you want to be profitable or do you want to be present as a brand on as many channels as possible? And because Quick Commerce is right now the fastest growing channel, brands feel that they have to be on the platform. Right. And Noah, just to put a number to it, what kind of money do these brands end up making?

So if it's like a brand which is not well known and like, you know, maybe they have just been in the business for, say, three to four years overall and then they join a quick commerce platform. Depending on the popularity, it could be like they could make a margin between 2 to 5%. If it is a brand which is well known and then they joined a platform, like, you know, maybe a minimalist, for example, their margins would be much higher than this because they don't have to technically pay any marketing fee. they're already well known among consumers who buys on the platform. While examples like minimalist are more of a one-off, other relatively unknown brands end up using most of the money they make through these platforms on marketing. So the money essentially goes back to whatever platform they are on to make themselves more visible.

Which means it isn't always the highest quality product that ends up winning. Very often, it's the brand with the deepest pockets for marketing. But once these brands taste success, their list of problems get considerably longer. Stay tuned. Hey, this is Harry, podcast producer for 2x2. I just wanted to take a moment to let daybreak listeners know about the latest 2 by 2 episode we released this Thursday. In the episode, host Rohin Dharma Kumar and Praveen Gopal Krishnan are joined by Professor Varun Nagaraj, dean and professor of information management and analytics at SPGN Institute of Management and Research.

the topic of discussion. If B schools were invented today, would students run placements? And as they were talking about how students are matched with jobs during placement season, Professor Nagarach shipped in with a very interesting example of how medical students in the US apply for their residency programs. Stay tuned to hear what he had to say. Okay, back to the episode. Once a brand is enlisted on a quick commerce platform, it can almost blow up overnight. So for brands which are very new and like, you know, they've checked.

been onboarded, they'll see like a 80% or even a 100% month on month growth on the platform. When that happens, so the demand is like higher for them. So, and especially if they have paid a marketing fee to be like onboarded to the platform or to like continue doing the business, then the demand is like even spiked further. Now I know what you're thinking. More demand has to be a good thing, right? It means that people like your products. But the problem is actually keeping up with that demand, especially

during festivals or sales when there is a sudden search. Now, this is a challenge that Hoo-W-W-Fresh faced firsthand. This is a brand that delivers fresh flowers via quick commerce. And when Nuha spoke to the company's founder, Ria Karuturi, she said orders can jump from 1,000 to 20,000 per day during festivals. And that's naturally a logistical nightmare for a brand handling perishable goods like flowers. They have six warehouses in the six cities that they are. currently, like, you know, functioning from. And for them, they have to get the supplies from

the farmers beforehand, and depending on the demand or like the projection from the platform. So if it is Ganesha, there's a particular kind of flower which is required during that festival. Similarly, if it is Diwali or Holi, there are different kinds of flowers which they need for different festivals and different periods. So they have to tell the, like, you know, tell the farmers that they are working with and, like, you know, keep their warehouses. are called to the demand that have been told to them. But during festivals, like during the morning of the festival, these platforms go out of stock, they would demand another PO.

And then it's very difficult for brands like these to come up that fast with like a 5x or even a 10x spike, which is like they have never ever catered to such kind of a demand before. Now, this is a problem that around 25 to 30% of brands in the fresh categories have to deal with. These are brands that sell fruits, vegetables and flowers, or those that deal in low-shelf-like categories like, you know, bread, eggs or dairy. And these are the most popular categories on quick commerce platforms, right? So when demand outpaces a brand supply, category managers have no choice but to hunt for other brands that

can deliver. So, Noha, can you explain what these brands do in a situation where they just aren't able to keep up with that demand, you know? So a certain brands are smaller in scale, a lot of D2C brands, when they are first, like, you know, launched or like when they are just trying to build the business, they use third-party manufacturers to make their product or like it. So when you have a third-party manufacturer,

you from your end provide them a certain projection and basis that the third-party manufacturer will buy the raw materials and like, you know, give you the exact estimate what you, what you have wanted. But for example, if it is peak season or if, like, you know, there's some holiday or event happening from the platform side where they are doing some kind of sale or like, you know, they are providing some pricing discount. Then the demand would peak.

And in that period, they would obviously go back to their vendors or the brands asking them to like, you know, give them more products. So they can raise a POSA in the middle of the day at 2pm, expecting the brand to provide it later the second half of the day. But if you have a third-party manufacturer or even if you are providing it from your own manufacturing end, you do not have the capability to suddenly like, you know, get the materials and the products manufactured at that scale to provide with the platform. A category manager that Nuha spoke to said that a lot of brands typically try to keep up with the demand. So if a brand usually does say 50 units and a platform asks for 100, they will.

will supply, but often quality will take a hit. And as a result, their growth will get affected. At the end of the day, a brand's working capital often forces it to cap supply somewhere, regardless of the market demand. So sky high demand does not guarantee a product's continuous availability or even success on a quick commerce platform. That's why these platforms always have to have multiple brands.

they cannot over index or like, you know, depend on one particular brand to supply, because at the end of the day, they want to be profitable. And they want that when the customer comes to their platform, the product should be available. If as a brand were consistently out of stock or if our SKU is not performing, they delist you. So right now, for example, there's a Gujarat-based bread brand called Kabiwi. So it is in the process of being delisted because they could not keep up with the sales, and like, you know, it's like basically taking up shelf lives in a dark store where some other brand maybe could come in and like do the work.

Right. But Noha, does that ever happen to, you know, a big established brand where, you know, they aren't able to keep up with demand? Do they also end up getting delisted? So this has happened for even legacy brand during the course of my reporting. I also spoke with someone from ITC and ITC. manager who mentioned that they have also seen that maybe they have kept the stock for the east region. They have provided it to the distributor and the platforms there. And then they see that there's a huge demand in the West region and one of their products has gone out of stock. So the platform will ask them if they can maybe take some products from the East region

and supply to the West region so that where they are seeing more demand, it can be catered to the public. But a larger brand or legacy brand can say no to these platforms because a platform like a blanket or an Instamart cannot go without having a card breaker item on their platform. Basically, a card breaker is an item. If you do not have it on the platform, the customer will jump to some other platform where you have it. So these brands know that the platform for their image cannot go without having a larger actual actual or an ITC brand on the platform. So they have the liberty to say no.

But this also does happen with a legacy brand. Now, generally, the decision to list a brand's products is taken by the category manager. And we've spoken extensively about this role here at the Ken. Category managers are kind of like the gatekeepers of quick commerce platforms. They are the ones who predict demand and also on-board brands. Noah has actually written a fantastic piece on them and you should read it, we'll link it to the show notes. So naturally, these category managers don't always get it right.

And a great example of that is Setafil, the skincare brand. So for Setafil, it was a different kind of thing where the demand or like the projection which was provided to them from the platform side itself was incorrect. So the platform had provided them a number and the demand was higher than that. So then Setafil, of course, basis the number they got from the platform. They provided them the supplies and the products. It was kept in the dark store and they provided the rest of the items to the distributors, as they always do. But platforms like Blinket and Instamart, the projections they provided were not accurate.

And so what happened was it went out of stuff very far. and they then ask CETAFL for more items. Senterfield does tend to say no because they do not want to over-intex on quick commerce. They would like to be present with their distributors as well and then offline. So even when the demand comes, they will sometimes say no and tell them to take a beat on the kind of numbers they are giving them. Now, a lot of non-legacy brands don't have the luxury of just saying no. But they end up facing a tough time with distribution,

which is why they need to get the right margins at every level, whether that's with the distributor or with the retailer. The assumption that the quick commerce company makes, meanwhile, is that after a short run on their platforms, any brand will very quickly be able to master the art of logistics. But it isn't really that black and white. And that brings us to another major pain point that these brands often face after listing on quick commerce platforms, credit cycles.

So technically, the credit cycles. So technically the credit cycle on which the brand and the platform work, it's like a three-month credit cycle. So you have to basically supply as per the POs, which is the purchase orders. The platform has asked from the brand. And after three months is when, like, you know, you get the credit or like the money from the platform. As opposed to retail, I mean, retail is a more relationship-based. channel where even though the time, the duration may be comparable in terms of the credit cycle, but because it is more relationship-based, you can have much more of a leeway.

With the platform, it is more about who brings me more business. And that's why the credit cycle can hurt a brand more on quick commerce, especially if they're burning a lot of money to supply these like, you know, POs or the purchase orders to the platform. So basically, this is where things stand right now. who has spoke to a senior executive of a four-year-old Bangalore-based beverage brand who decided to delist their product from all QuickCommerce platforms. Because after a point, it just wasn't sustainable. Today, the same brand is driving sales through its own website and offline stores in the city.

And that is after it managed to pull in over two and a half-crawl rupees in annual recurring revenue between 2023 and 2024 thanks to QuickCommerce. This particular brand just could not keep up with how fast it was growing. And this is exactly what we meant when we said that success on a quick commerce platform is turning out to be a double-edged sword for many brands. Yeah, I mean, we saw in 2020 for a rush for all brands, biggest mall to be onboarded to a platform and to basically grab eyeballs. Like, you know, it's like basically the more you are in front.

of the consumer, the more like the consumer will recall you and at some point they will also buy you. That is the thing which brands want the most. But are they getting that? At the end of the day, they have to also look at their numbers and see if like it justifies being on the platform. Are they burning a lot more than they are making? Then it's just unsustainable. But if it continues to be unsustainable to the level that it's out of your control and you know that it will just end up like, you know, affecting other aspects of the business. then that's when you take the call, maybe de-list,

like grow your brand organically through offline. And then later, when you want to enlist, you do not have to pay a marketing fee. You can have better negotiation with the platform because at that point, the platform knows the customer will come for you. So they have to have you on the platform. I'll share with you one, I think a wonderful matching algorithm that works.

You know, are you familiar with this high-stress day called match day that happens in the United States in February? So my daughter is in medical school, right? So when you're applying for a residency program, there are about 17,000 or 18,000 medical graduates every year from the American medical school. So they've finished their medical degree. Now they're applying for residency programs. And there are, you know, literally hundreds of residency programs by specialty, by hospital, etc., etc.

And the way the system works, you know, how do these 18,000 people eventually find their residencies. And the way it works is, you know, you essentially apply, you know, there's a written application, you know, to whichever of these programs you want. You get shortlisted. And you may have 15 interviews from 15 different companies that want to interview you. And then you interview with all of them, right? So there's no day zero, day one. There's a period of actually three months or four months sometimes that happens where in this case, my daughter has interviewed with, you know, nearly 14 schools. Out of the 20 that wanted to interview her, she chose to interview with 14. So they have assessed her. She has assessed them. Now, in February, both schools, the university

slash hospitals on one side and students like my daughter on the other side will put in their match preferences. So my daughter is going to rank off the 15 interviews that she did. Which of these institutions does she want to go to? And she's basing it post-interview on the vibes she picked up, what other information she did and so on and so forth. The institutions are then ranking their candidates in the preference that they want. And basically the magic algorithm runs at midnight. And the next day, 18,000 students know their match, where they're going to be going for their residency.

So this is one where the students are making a choice based on inform information. You know, the recruiters, in this case, the hospitals are making offers based on what they want. What you just listened to was a small part of the discussion. You can listen to the full episode with a premium subscription to the Ken or on Apple Podcasts with a standalone subscription to just 2x2. If you want to know what the episode is all about, we've released a short trailer episode on all podcast streaming platforms as well. Just search for 2 by 2 wherever you get your podcast.

Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample. of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the Ken website.

Today's episode was hosted and produced by Rahal Philipose and I, Sankh Dha Sharma, and it was edited by Rajiv Sien.