Should you pursue Quick Commerce?

If you are thinking of joining the club, how do you decide whether it is the right thing for your business? Let's take a look.

Quick commerce is all the rave today. From Gorillas to Flynk, companies are redefining the customer experience in getting their day to day deliveries. This has made a majority of large and small players to jump into the band wagon to pursue a similar business model.

If you are thinking of joining the club, how do you decide whether it is the right thing for your business? Let's take a look.

What is Quick Commerce?

Quick commerce (or Q-Commerce) is typically characterised by a product delivery within 2 hours of a customer placing an order. It's been around for a while and has been influential in the setup of certain large businesses (like Dominos Pizza).

Some strategic fundamentals

Taking the golden words of Jeff Bezos, a customer will never say no to a faster delivery (considering similar costs). So, as long as there is value creation, providing a faster delivery is always a better experience for the customer. There are exceptions of course like Birthday cakes. No one wants you to deliver their Bday cakes 2 days ahead. But they would definitely appreciate an option to order the cake 2 hours before and get it immediately.

But you as a business need to think whether Q-Commerce will make you money. There are a lot of moving parts and understanding this clearly is essential. So we ask,

What factors influence Q-Commerce?

If you want to deliver to a customer within 60 mins, a few things need to be in place.

  • Have a clear idea of what products are available so the customer only orders the right products
  • The time to pick these products should be very less
  • The travel time for the runners from the warehouse (or a different pickup location is very less)
  • The delivery time is less
  • The overall utilisation of the runners is high so they don't spend time idling.

Your Margin = Revenue - Cost
                       = (No of orders * Price per order) - (Product cost + inventory holding cost + delivery charges)

Let's keep product pricing, cost and no of orders out of scope for now. The key factors that determine whether you can succeed are, Inventory holding cost and delivery charges.

Inventory Holding Cost

If you are promising a delivery time of 60 mins, the distance from source to destination cannot be more than 2 miles (depends on traffic, road conditions, preparation times also). Meaning, the inventory you are selling should be available in every 4 km diameter circle geofence.

The more stores you have, the higher the inventory replication and higher the inventory holding cost. This gets worse as your delivery time reduces.

The second aspect is also the variety of products available for delivery. The more inventory types you hold, higher the cost and vice versa. So, companies with a lot of long tail products may not be suitable for Q-Commerce deliveries.

This is why Food deliveries work great coz the inventory holding cost is outsourced.

Delivery Charges

The delivery charges is mainly influenced by the labor cost of delivery. Every runner you onboard is going to be a fixed cost. The efficiency comes in when this fixed cost is broken down by increasing the no of deliveries and decreasing the time taken for each delivery.

This again is influenced by

  • Demand Predictability - If there are no predictable demand for a business, it would be hard to estimate the capacity of runners needed and would result in wastage due to idling.
  • Time taken for delivery - This is directly impacted by the delivery radius.

Better Process Control

Limited time for delivery means, the margin for error is really low. This means, at every step of the process, Inventory stacking, audit, pickup, delivery, the process needs to be clearly defined and executed to the T.

This is where having a robust technology platform that can accommodate the nuances you have as a business comes into play.

If you're exploring such a platform to optimize your Deskless Operations, do checkout Zorp.

Zorp is built to help every business take control of their operations and run it efficiently without the need to build all the tools internally. We want to let businesses focus on the things that are unique to their business instead of building the same operational tools.