Small retailers feel the pinch as Indians’ preference shifts to 10-min grocery apps

The rapid shift towards grocery apps is posing a threat to millions of traditional grocery stores that have long dominated the grocery trade in a country where large supermarkets are relatively few and often not easily accessible.

In several cities, workers at Swiggy’s grocery warehouses, backed by SoftBank, are racing against time to ensure orders are delivered within 10 minutes. Their performance is meticulously tracked by the second, with a screen displaying red warnings for any delay.

Outside, in the scorching heat, Swiggy’s delivery bikers, easily identifiable by their bright orange T-shirts, hurriedly collect packed grocery orders to deliver them nearby. After each delivery, they quickly return to pick up another shipment assigned via their app.

“Ideally, one needs to complete the entire (pickup) process in 1 minute 30 seconds,” said the warehouse manager.

Swiggy’s warehouses are proliferating across India, delivering everything from milk and bananas to condoms and roses within minutes—a business model that is transforming Indian shopping habits.

This shift is jeopardizing millions of traditional grocery stores that have long dominated the grocery trade in a country where large supermarkets are few and far between, primarily located in more affluent neighborhoods or malls.

Indians have traditionally relied on small neighborhood shops for groceries, often receiving free deliveries from these shops via phone orders. However, the rise of e-commerce, driven by giants like Amazon and Walmart’s Flipkart over the past decade, has changed the landscape.

Yet, these US giants, offering location-dependent same-day or next-day delivery, are not as swift with groceries as Swiggy and its competitors Zepto and Zomato’s Blinkit, which are driving a “quick commerce” revolution.

According to Goldman Sachs, quick deliveries currently account for $5 billion, or 45 percent, of India’s $11 billion online grocery market. As convenience and speed become paramount for shoppers, quick commerce is projected to constitute 70 percent of the online grocery market, which is expected to reach $60 billion by 2030.

Swiggy, initially a restaurant food delivery service founded in 2014 and valued at $10 billion, is now pivoting towards the “last-minute” grocery business in India, the world’s third-largest retail market after China and the United States.

“We are training our guns to focus on a market much larger than food,” stated a December 2023 confidential Swiggy strategy document viewed by Reuters, referring to its Instamart service.

Their target demographic? “21-35 year old, time-starved urban consumers who value convenience,” the document highlighted.

The company doubled its warehouse count to 500 in 25 cities last year and plans to increase it to 750 by April 2025, according to an executive at one of Swiggy’s financial backers, which include Prosus, Qatar Investment Authority, and Singapore’s GIC.

Globally, COVID-19 lockdowns spurred the growth of fast-delivery startups, with companies like Turkey’s Getir expanding significantly, only to see interest wane as shoppers returned to physical stores post-pandemic. Luxembourg-based Jokr scaled back its operations in the US market in 2022.

In contrast, India is experiencing a different trend.

A partner at consultancy Kearney noted that quick commerce firms benefit from the availability of cost-effective warehousing space and the long-standing habit of Indian consumers ordering just a few items from neighborhood stores by phone.

Swiggy will even accept an order for a single mango, though it may cost about twice as much as buying it from a nearby shop.

Many consumers are willing to pay extra for the convenience of saving time.

A Mumbai lawyer, who has a hectic daily schedule, uses quick delivery apps like Swiggy and Zepto to order apples and bread. She mentioned that getting juice packs delivered within minutes just before a party was a game-changer.

“This is too convenient.”

However, the quick commerce boom is putting significant pressure on smaller retail stores.

A suburban Mumbai grocer, whose business had thrived in recent years, enabling him to refurbish his store and install air conditioning, now sees his daily sales halved to about 25,000 rupees ($300).

“No one buys milk from malls and supermarkets. That was our uniqueness. But these apps have changed the game,” he lamented.

Four retailer associations across four Indian states, representing 90,000 grocery shops of the country’s estimated 13 million, told Reuters that monthly sales have been dropping by 10 percent to 60 percent for some due to the rise of quick commerce apps.

Some traditional stores are adapting by becoming more tech-savvy.

A retail association chairman in Gujarat state has encouraged members to create WhatsApp groups to take orders and deliver goods quickly within a 6.4-km (4-mile) radius.

“Around 500 stores have taken steps to innovate and sustain their business,” he said.

Despite high revenues, Swiggy’s Instamart quick commerce division remains unprofitable, according to an executive at Swiggy’s investor.

Swiggy’s main rival, Zomato, India’s largest food delivery business, acquired quick commerce company Blinkit in 2022. Goldman Sachs predicts that Blinkit will generate orders worth $2.7 billion this year, nearly 60 percent higher than last year.

In a May regulatory disclosure, Zomato reported that Blinkit had broken even for the first time, but anticipated its operating profit to “hover around zero for the next few quarters”. Zomato did not respond to a request for further comment.

Analysts warn that reliance solely on large urban areas to attract customers and high spending on promotional discounts and marketing, which keep profits low, could pose risks for quick commerce firms in the low-margin grocery business.

However, Swiggy and Blinkit are already diversifying beyond groceries into higher-margin products.

On Swiggy’s app, shoppers can order fitness products and electronics, such as a $132 Xiaomi air purifier, while Blinkit reported a record number of roses, bouquets, and teddy bears sold on Valentine’s Day in February.

Swiggy’s Instamart was launched as an “Indian version of 7 Eleven (on the cloud)”, according to its internal document, but it is now shifting its positioning to an “online Supermarket”.