Blinkit's Challenges: A Costly Battle in India's Quick-Commerce Market

Blinkit's Rapid Expansion and Ongoing Losses in India's Quick-Commerce Sector

Zomato’s Blinkit, a prominent player in India’s quick-commerce landscape, is actively increasing its presence across the country. However, the company anticipates that financial losses will persist as competition within the instant delivery market escalates.

Accelerated Dark Store Deployment

Blinkit is now targeting the establishment of up to 2,000 dark stores – compact warehouses situated in residential areas dedicated to fulfilling online orders – a full year earlier than initially projected. As of the end of the most recent quarter, concluding in December, the company had already surpassed expectations with over 1,000 such facilities, achieving this milestone one quarter ahead of schedule.

Over the past two quarters, Blinkit has added 368 stores and expanded its warehousing capacity by 1.3 million square feet. This accelerated growth, however, resulted in losses amounting to ₹1.03 billion ($11.9 million) during the third quarter of the current fiscal year.

Industry-Wide "Land Grab"

Analysts at JPMorgan suggest that India’s quick-commerce sector has entered a phase of aggressive expansion, often referred to as a “land grab.” Companies are employing strategies focused on securing prime locations for stores, offering substantial product discounts, and implementing customer loyalty initiatives.

The bank’s research indicates that other key competitors, notably Zepto, the second-largest player in the market, are also significantly accelerating the deployment of their dark store networks, moving ahead of their original timelines.

Disrupting Traditional E-commerce

Quick-commerce businesses, specializing in the rapid delivery of groceries, household essentials, beauty products, and increasingly, electronics like smartphones and laptops – often within 10 to 15 minutes – are beginning to impact the traditional e-commerce market in India.

This rapid growth is prompting established e-commerce companies to reassess and optimize their supply chain operations to adapt to evolving consumer preferences.

Impact on Profitability

“As we prioritize the acceleration of store expansion, our network may temporarily include a higher proportion of underutilized stores, which will inevitably affect profitability in the short term – specifically, over the next one to two quarters,” explained Akshant Goyal, Zomato’s chief financial officer.

He further stated that these investments are expected to drive growth rates that will remain “meaningfully above 100%” throughout FY25 and FY26.

Increased Competition and Funding

This strategic shift is occurring amidst heightened competitive pressures. Zepto, supported by investors like Lightspeed, StepStone, and Glade Brook, secured over $1 billion in funding last year. Similarly, Zomato raised $1 billion in November through a qualified institutional placement.

Major Players Enter the Fray

Flipkart, Amazon’s primary competitor in India, also launched its own quick-commerce service last year, establishing over 100 dark stores. Amazon itself initiated a pilot program for its quick-commerce service in India last month, while Swiggy, the third-largest quick-commerce platform in India, completed a successful IPO late last year – marking the largest tech IPO of 2024.

Growing Customer Awareness

“The most significant consequence of the intensifying competition has been a rapid increase in customer awareness and adoption of quick-commerce services,” noted Albinder Dhindsa, the head of Blinkit.

He drew a parallel to the early stages of the food delivery industry, where increased competition led to greater investments in customer acquisition.

Loyalty and Margin Pressure

While Blinkit maintains a loyal customer base – accounting for one-third of the platform’s gross order value in December – the company acknowledges that competitive pressures are impacting its profit margins.

The company anticipates that its current investments in store network expansion will ultimately generate substantial returns as the business achieves greater economies of scale.

Shifting Growth Dynamics

This expansion is taking place as Zomato’s traditional food delivery business experiences a slowdown in growth. The food delivery segment grew by 17% in the third quarter compared to the previous year, while quick commerce experienced a substantial increase of 120%.