Whalesbook
Inflation's Upside for Quick Commerce
While many delivery businesses struggle with inflation, a closer look at India's quick commerce giants reveals a more complex picture. The key factor is their ability to pass increased costs onto consumers. As fuel and delivery expenses rise, platforms are expected to see their contribution margins grow by 50 to 60 basis points. This projection hinges on demand for essentials remaining strong, as these platforms mainly sell daily necessities. Even as average order values increase with rising prices, transaction volumes are likely to stay steady, helping commission revenue keep pace and protect profits from moderate inflation.
Different Business Models Face Different Risks
The differences between grocery delivery and broader e-commerce are becoming clearer. Companies like Zomato's Blinkit and Swiggy's Instamart, focused on frequent grocery purchases, seem better protected. However, fashion and beauty retailers such as Nykaa and Lenskart are more vulnerable. Inflation often leads consumers to cut back on non-essential items or postpone purchases. Additionally, businesses like Lenskart, which depend on imported materials, face dual challenges: higher logistics costs and potential currency devaluation, affecting their operational stability.
The Cost of Speed
Investors should consider the inherent difficulties in last-mile delivery. The need for fast, local delivery networks makes these companies highly sensitive to rising wages for workers and volatile fuel prices. Commission increases rarely cover these costs entirely. Historically, the pursuit of rapid market share growth has led to deep discounting, erasing any margin gains. Moreover, potential new regulations on gig worker benefits could significantly alter costs, regardless of general inflation trends.
Looking Ahead: Growth vs. Profitability
The market is currently favoring companies with frequent customer interactions. While analysts generally hold neutral to bullish views, the focus is shifting to whether Net Merchandise Value growth is sustainable. The question is whether companies can achieve profitability on each order without compromising the speed that defines their service. Projections for the fiscal year 2027 depend on continued consumer spending. Any slowdown in urban consumption could force a rapid revision of growth targets, potentially making current valuations unsustainable.