Is Quick Commerce a Boon or a Bane?

While q commerce poses a serious threat to kiranas, it offers a myriad benefits, writes retail veteran J. Suresh

Quick commerce (Q com) has caught the headlines recently for its rapid growth and high valuations. As it whizzes past the Indian retail landscape, what is overlooked is its impact on the livelihood of traditional Kirana stores and the livelihoods of those employed in such stores. As one watches the growth of Q com with awe, I am reminded of the advocacy some of us undertook on behalf of the retail industry requesting Government approval for FDI in multi-brand retail.

The background

To put things in perspective, modern retail in India began to take shape in the late ’90s-early 2000s with the emergence of supermarkets and a few hypermarkets. However, growth was slow, as India, being a capital-constrained country, companies struggled to get finance to fund expansion.

The retail industry began advocating for Foreign Direct Investment FDI and Foreign Institutional Investment FII during this period but was always faced with a firm ‘No’ from the Government. The reasons cited were the potential impact modern retail would have on kirana stores. Additionally, there were several lobby groups exerting pressure to prevent foreign investment in retail.

Adequate capital would have allowed modern retail to expand more efficiently, incorporating benefits such as direct procurement of farm produce, state-of-the-art warehousing facilities with cold storage to minimize wastages and optimized inventory management.

Vendors would have enjoyed benefits from assured markets and fair pricing. Consumers could have enjoyed lower prices with the elimination of multiple layers of transaction and storage costs. In fact, modern retail’s supply chain efficiencies were viewed as a hedge against inflation.

From 2000 to 2010, brick-and-mortar modern retail huffed and puffed at a slow pace, operating way below its potential. Meantime, the Government continued to dilly-dally on FDI/FII in retail.

Then came the big announcement in 2012—100% FDI was permitted in single-brand retail, and 51% in multi-brand retail, with multiple conditions that rendered the scheme a non-starter. Also, FII investment was allowed only in listed companies which were few at that time.

In 2013 came the Tsunami of e-commerce (e-comm) with no capital constraints. As e-comm companies are just platforms that connect buyers and sellers, they were not categorized as multi-brand retail. This allowed them to expand without facing any regulatory hurdles and constraints on capital.

We restarted our advocacy. We met ministers, secretaries and members of Niti Aayog, with the plea: “Give us a level playing field with e-commerce; we need FDI in retail without conditions to provide growth capital”.

Despite receiving sympathetic hearings from government officials, the reality is that 10 years later, the FDI policy remains unchanged. As a result, strapped for cash, modern retail has become the game of just a handful of players. Modern retail’s expected contribution to the economy—job creation, efficient supply chains that curb inflation, and assured markets for farmers—all remain largely unfulfilled.

Current scenario

Contrast this to Q com, the new kid on the block; there is no shortage of capital, no FDI conditions or regulatory constraints. Companies can expand freely, guided by market potential and not based on the availability of capital. The very reasons cited for restricting FDI in modern retail, namely, the potential harm to the livelihood of kirana and small stores, are just as relevant to Q com, yet overlooked.

Q com companies have around 1,500 dark stores located in the neighbourhoods of kiranas and have big plans for dark store expansion. Given the success of the concept, new players are likely to jump in. It would be naive to assume that this expansion will not affect kiranas.

However, to the credit of Q com, it does offer myriad benefits. For consumers, it offers the unbelievable convenience of getting products delivered in minutes, whilst placing orders from the comfort of their drawing rooms.

Over time, this could shift consumer behaviour from stocking up on items to buying only as needed, reducing wastage and potentially lowering storage requirements at home. It is conceivable that in the future, apartment kitchens may shrink in size, with the assumption that Q com will provide frequent, just-in-time grocery deliveries, allowing for more living space.

For companies supplying to Q com, advantages could accrue with the free flow of data, thus enabling suppliers to optimise their product assortment for dark stores, reducing dead stock and returns. Cost savings from such efficiencies could even lead to price concessions on products.

Q com also offers a low-cost opportunity for sampling and testing products in specific catchment areas.

Given these advantages, Q com is poised to grow exponentially. Furthermore, Q com should be able to absorb some of the job losses from Kiranas, offering employment opportunities in its dark stores and delivery networks.

The growth of Q com compelled me to dwell on the futility of our efforts from 2012 to 2017. The Q com model has managed to bypass many capital hurdles that hindered modern retail. Given the large size of the Indian retail market, currently valued at $ 1.3 trillion and expected to reach $4.3 trillion by the end of the decade, one hopes that all retail formats—traditional retail, modern retail, e-commerce and Q com grow, albeit at different growth rates.

The views expressed in the article are the writer’s and do not reflect those of the organisations he is associated with or IndiaRetailing and IMAGES Group.

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