How BLINKIT master strategy that can beat Amazon - BLINKIT case study

Would you believe me if I told you that there is a chance that in the next 10 years blinkit which is an Indian company it could become bigger than the legendary Amazon itself. After tasting success in food delivery and later in pit Commerce through blinket, zomato is now planning something more ambitious. Blinkit 40% to 50% of the size of Zomato and right now blinket would drive more value for shareholders in the next 10 years than Zomato. So I think it's a matter of some number of months before blinket becomes bigger than Zomato and as we speak there is a tectonic shift in the Indian market that is making it possible.

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In 2022 there were many speculations about the 10 minute food delivery like whether it's even possible or is it simply a marketing gimmick as we've seen with all the d2c players post pandemic CAC or customer acquisition cost has increased as well so then how does it

make sense for someone to be in business like this and be profitable. These questions were valid but in 2022 but two months ago I saw this LinkedIn post by Shantanu deshpande who runs a company called The Bombay shaving company and he said that they saw a day when they sold more products through blinkit than they sold via Amazon and it is so stunning to know this because two years back blinkit sales were at 0% of Amazon for Bombay shaving company a year back it was at 10% of Amazon and now blinkit sales are crossing 100% of Amazon and the reason why this is a very big deal is because today if you have your brand on Amazon it's no big deal at all because it's too crowded today but 10 years back if your

brand was on Amazon you had the golden opportunity to drive insane sales and this is where we saw the rise of giant d2c companies like like boat, Mama Earth, and noise. So in this article we are going to get a sneak peek into one of the most valuable reports in the

history of Indian consumer market and this report will tell you how on Earth did a struggling unit like blinket start growing faster than zomato and how did quick Commerce go from being a land mine to a gold mine in Just 2 years and why does it look like blinket could beat a giant like Amazon in the next 10 years in India what exactly is their business strategy that is making it possible and most importantly what are the business lessons that we need to learn from this blinket versus Amazon case study.

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Let's start from the basics. There are three? major challenges with the quick Commerce industry and because of these problems all the companies in this industry were in losses so the question is what exactly were these problems well to understand that you'll have to

understand some math. According to this Economic Times article it costed anywhere between 25 to 40 laks to set up a dark store and a typical dark store is about 2,000 to

2,500 ft large it has a total of 34 staff at the store who are mostly Packers the average order value was 350 to 400 rupees for the industry in 2022 and the gross profit margins of the

companies were between 15% and 20% now what is gross margin it is your total revenue minus the cost of goods and services divided by Revenue. So if you shop for 400 rupees which includes bread milk and vegetables then the gross margin is revenue which is 400 rupees minus the cost price of the products divided by Revenue. So here if the company is getting a 20% margin then the cost of products to the company is 320 rupees and the gross margin is 80 rupees. So this is pretty amazing, 80 rupees profit per order and there are hundreds of orders that are going out well not really because this is not net profit but gross margin so this 80 rupees margin does not include the indirect fixed cost like office expenses rent administrative cost or even delivery cost because back then delivery was made free no matter how less you ordered because back then most of these quick Commerce companies they were giving out free deliveries regardless of how less your order value was and this last mile delivery cost was one of the most expensive cost variables in the chain because if you do the math a delivery boy gets a salary of at least 25 to 35k and on an average a rider clogged 20 to 30 deliveries a day. Back then I 2022 report the average of 30,000? salary

with 25 deliveries a day so now we have 750 deliveries a month and the cost per

delivery was 40 rupees and sometimes this cost could even go up to 60 rupees per order because of inefficiencies but right now let's not get there and let's consider this cost to be 40 rupees now. If you take out 40 rupees delivery charge from a gross margin of 80 rupees, we only have 40 rupees margin left per order now and ?according to money control

research this dark store in Mumbai touched 600 orders a day back then so assuming 600 orders per day they would have 18,000 orders per month so with 18,000 orders in a month with a 40 rupees margin excluding delivery that leaves the store with 7.2 lakh rupees

per month but this store also has 34 employees with a salary ranging between 18 to 20 thousand. So even if we take the lower limit of 18,000 rupes the salary cost itself amounts to 6.12 lakh rupees now add up rent or installment for the place electricity bills software

marketing and maintenance and this clearly looks like a cash training store.

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So in summary from this case study we could figure out that there were three major challenges in the Quick Commerce industry

number one the average order value of quick Commerce companies was dwindling between 350 and 400 rupees and with such a small amount it was very difficult to make a profit

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number two gross margins of 20% were highly unlikely because even back then dmart

was operating at a 16% gross margin and thirdly the delivery cost was eating into the gross margin of these companies because if their gross margin was 80 rupees and 40 to 60 rupees was going into just delivery then you could imagine it was practically a cash burning machine.

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So the question is what could be the solution to this problem. Well if you remember back then in this case study we stated that if we only increase the average order value from

400 to 550 rupees then suddenly the same dark store will become a cash machine. Well this is how the math will change if you increase the average order value from 400 to 550 rupees. So now let's consider the average order value as 550 rupees and now if you do the math with 600 orders a day and 18,000 orders a month the equation looks completely different.

A 20% gross margin would be 110 rupees deducting delivery cost of 40 rupees we have 70 rupees per order multiply that by 18,000 and we suddenly have 12.6 lakh rupees in gross margin excluding the delivery charge and now if you take out salaries we would still have a

comfortable 6.84 lakh rupes in margins to pay for maintenance marketing rent software and other expenses per dark store and when it comes to software Services. If you have 100 to 200 profitable dark stores then the cost incurred per store decreases by a large extent so it's basically a game of skill and you know what this is what we had stated back then where we said that if the average order value goes from 400 rupees to 550 rupees then quick Commerce will become a gold mine industry and do you know what, this is exactly what has

happened in the past 1 year. As per the reports, The average order value of zepto stands at 450 to 500 rupees for instamart it stands at 500 to 550 rupees for BB now it stands at 500

rupees but for blinket it stands at 635 rupees which means the quick Commerce wave of India has officially crossed its sweet spot of 550 rupees average order value.

So now the question here is how on Earth did the average order value of these quick Commerce companies shoot up from 350 to 400 rupees all the way up to 635 rupees. Well this is where the three C of e-commerce come in. The e-commerce Market there are three

factors that determine the success of an e-commerce company and those are convenience, cost and catalog and every major e-commerce player tries to capitalize on one or two

of these 3c's. For example Misho is majorly focused on cost, big basket is majorly focused on cost and catalog but back then they were also focused on convenience with their definition of convenience being 2 hours or one day delivery similarly Amazon and Flipkart were focused on cost, catalog and convenience with their definition of convenience back then being one day delivery so if you see big basket and Amazon's Benchmark of convenience is no longer The Benchmark in the market because now The Benchmark of convenience

is not one day, it is 20 minutes and this is the reason why there is a big big threat to Amazon and here's why you may ask me that if I have to buy 1 kg of potatoes and dmart sells it at 30 rupees and blinket sells it at 40 rupees that is a 30% increase in cost, so of course I'll go to

dmart and I am willing to wait longer to save cost so this quick Commerce it's just a marketing gimmick well guess what this is exactly what my mom told me but when you speak to hundreds of other people from a different income level the answer was very different

And ?this whole angle got me to read the blume indus valley annual report 2024 which says that India is not one market it has three different markets for those who don't know India can be categorized as India 1 which is 30 million households with an average income of $155,000, India two which has 300 million people with an average income of $3,000 per person and India 3 which has 1 billion people with an average income of $1,000 per person and you can see these three categories of people in India as three different countries which are Mexico Indonesia and a subsaharan African country and this is based on their consumption levels because if you look at the consumption of India 1 it is so disproportionately high as compared to India 2 and India 3 that it is absolutely mind-blowing because if you look at the report chart India 1 alone consumes 89% of the entire beauty products in India, 70% of dining in India and 79% of the entire food and beverage consumption in India so 120 million people as in less than 10% of the Indian population is consuming three times more than the rest of the 1.3 billion people combined and this is a drastic difference in consumption and not just that look at this graph India 1 is the one that actually buys an iPhone and India 2 and India 3 combined by actual products on a daily basis which includes all of your products like surf Excel, whim and axe type products but even then the revenue from iPhone alone is set to surpass the revenue of the entire H umbrella in 2024. So iPhone alone will generate more Revenue than Ren, Dove, life boy, kissan and a dozen other brands combined. So do you realize India 1 is a mammoth and now if you want

to place the Indian e-commerce Market in these segments you will see the magic of quick Commerce. Also in the report’s chart you will see that India 3 rather than buying online and it prefers a Kira store or a local shop because India 3 is only focused on cost, India 2 buys from misho Flipkart or Amazon because they're focused on both cost and catalog and India 1 is so focused on catalog and convenience that it doesn't really care about cost at all.

So whichever platform offers them the right product in the quickest possible time they will go ahead and buy the product from that platform.

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So to put that straight, the customer in India 1 is giving the e-commerce Market of India three incredible superpowers, number one because the customer doesn't bother so much about cost automatically the average order value increases number two because the customer doesn't bother so much about cost and cares more about convenience in exchange for this convenience you can increase your margins and charge them a premium and lastly when it comes to catalog because this segment of the customer consumes more than the rest of the population it gives you the golden opportunity to increase your catalog along with cost and if you notice the evolution of blinkit, swiggy and zepto this is exactly what they have done in the past 1 and a half years. Firstly instead of making delivery free they started charging the customers a delivery fee in addition to the order value and they sometimes even charge a high demand fee. Secondly their products are priced at a premium as compared to other marketplaces. For example a bottle of Thumbs Up cost 38 rupees on Amazon but 45 rupees on blinket now if you know the fmcg market you will know that fmcg is such a Cutthroat industry that even a one rupee increase in price is a very big deal for the company because India is a very very price sensitive Market but here blinket is charging you 7 rupees extra as in an 18% Premium Plus delivery fee simply because of the convenience that it offers you which is 10 or 20 minutes delivery and when it comes to electronics it's even crazier. While Amazon sells a car charger for 377 rupees on blinket it costs 449 rupees which is again a 19% premium on such a high price product and by the way this 377 rupees includes the margin of Amazon also so blinket gets the margin of Amazon Plus 9 % premium plus a delivery fee and if these products are still selling you do realize how quick Commerce companies have an extraordinary advantage of escaping the price war and they can command more margins because India 1 is not price sensitive at all, India 1 is convenience sensitive and what is convenience for them it is saving of time. As a result 10 or 20 minutes delivery is a very big deal for India 1 as a result that premium makes it worth it and thirdly while in 2022 blinket and swiggy only sold groceries today blinkit sells everything from groceries to meat to electronics to shirts to even a PlayStation 5 so with such a drastic increase in catalog as more and more people got habituated to the convenience of quick Commerce. The average order value and the number of orders per dark stores they have shot up drastically this is the reason why the average order value of blinket has touched 635 rupees and this 635 rupees does not include the delivery fee platform fee or the high traffic fee or the high demand fee whatever you would like to call it is a Cherry on the cake.

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When I told how the ground sources told that even a basic low performing dark store today gets a minimum of 1,00 to 1,200 orders a day so do you realize from 2022 to 2024 we have

gone from 600 orders per day to 1,200 orders per per day per dark store and for blinket today the average orders per day stand at 1,400 orders per day per dark store and this is what gives rise to something absolutely magical in fact as the industry is evolved the dark stores now have a mother store which also comes with its own cost of handling so this

time instead of making my assumptions and giving you a crude calculation we looked at a financial report from JM financial.

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Let's start with Revenue. In Revenue we have warehousing services plus Marketplace commissions which gets them 44.4 CR rupees which translates to 74 rupees per order and income comes to 124 CR at 22 rupees per order customer fees which includes delivery fees handling fees and other fees it comes out to 105.6 CR rupees or 19 rupees per order so total revenue is 644 CR which is a revenue of 115 rupe per order.Now Let's come to direct cost here the platform discounts and incentives come out to be 11.2 CR rupees which comes to 2 rupes per order dark store operation cost comes to 120 CR or 22 rupes per per order mid mile delivery as in the cost of delivery from the mother Warehouse to the dark store cost 106 CR rupees or 19 rupees per order last mile delivery as in the delivery to the final customer cost 2 45.5 Gres or 44 rupes per order packaging cost plus wastage plus communication Cost Plus support services including the payment. Gateway cost about 75 CR rupes or 13 rupees per aut so the total estimated cost comes out to be 558 CR or 100 rupees per order so here the contribution margin comes out to be 15 rupees per order.

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Now the question over here is is this contribution margin the same as profit margin of blinket well? not at all. There is a slight difference between contribution margin and profit. For example see in a business operation like blinkit there are two types of costs involved fixed cost and variable cost what is the difference between both these costs variable cost will increase with orders and fixed cost will remain constant even if the number of orders increases. So let's say there is a blinket dark store in fixed cost we will have cost like rent of the dark store salaries of the Packers and electricity bills so if you look at these expenses regardless of whether I process 100 ERS per day or 1000 orders per day the cost of my rent salaries of Packers and electricity bills all of them will not change at all but when you look at variable cost like purchase of inventory packaging and delivery cost these are the costs that will change with the number of orders so if I process 100 orders a day then my inventory coming in will be worth 60,000 Rupees but tomorrow if my store starts processing 10,000

orders a day then I will have to order inventory worth 60 lakh rupees similarly today if I pack 100 orders at 2 rupees per order it will cost me 200 rupes for packaging but tomorrow if I process 1,000 orders it will cost me 2 into 1,000 which is 2,000 Rupees so while fixed costs will not change with scale while the variable cost will change with scale which is why when we did the unit economics we did not include rent or electricity bill at all because with scale the fixed cost per order will actually decrease.

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Now after understanding if you look at profit margin it is revenue minus fixed cost plus variable cost so if a store does 1 lakh rupees in Revenue at and has a variable cost of 70,000 rupees then the contribution margin is 1 lakh rupees minus 70,000 rupees equal to 30,000 rupes as in 30,000 rupees is now left with me to cover my fixed cost.

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Coming back to Blinkit, here we saw that their average order value just shot up to 635 rupees because of which their contribution margin is coming to 2.4% so with scale blinket can ?net profitability very very soon and as the order value increases the contribution margin will increase even more to help blinket achieve more profitability why because as the scale increases the fixed cost will go down as a result the profit margin will increase this is the story of the evolution of quick Commerce in India.

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And after all this story it brings us to the last part that are the business lessons that we need to learn from the rise of quick Commerce and the opportunities that an entrepreneurs of the 21st century in the Indian consumer Market can learn.

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Lesson number one India one is this rare segment of customers in this population of 1.4 billion that cares more about time and convenience and the rest of India is price sensitive so if you're a premium brand and you do not sell on instamart or blinket or zepto you are making a big bigmistake because now the volumes are surging the average order values are going up and the discovery is easier as compared to what it will be 2 years later so spend money on ads and get yourself listed in all these platforms as soon as possible.

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Lesson number two as an investor these types of information needs studied by you and your team on a yearly basis and then invest in businesses because this will give you a far better idea about a gold mine way before everybody else.

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