Small Towns, Big Potential
Is tier 2 (and beyond) the next phase of qCommerce in India?
COVID-19 was a ‘once-in-a-lifetime’ event. For some, it was the end, and for others, a start afresh. Unlike a file, smoothing out rough edges over time, it was a blunt force impact that changed the course of the future, akin to a hammer.
Consumer expectations around speed and convenience changed as well. Once the sole proprietors of commerce, markets were forced to shut down, forcing consumers online to fulfill their desires and needs. Sure, the level of adoption was shaky, with engagement skewing more towards the younger echelon (18-35); however, consumers soon caught on to the idea of Quick Commerce (or simply, q-commerce).
An entire year of effortless shopping and on-demand deliveries was a great enabler of qCommerce to push through and continue the post-COVID era. Now, consumers are relying on it for its convenience, with Business Wire reporting that around 65% don’t mind paying extra for faster deliveries.
qCommerce is here to stay
India has been at the forefront of this trend. The sector is dominated by groceries right now - serving primarily dual-income, middle-class, urban households - but 2025 will see qCommerce expand into new industries, resulting in an estimated valuation of around $9.95bn for the entire sector by 2029.
The double-edged sword that is tier-1
qCommerce was a great fit for India’s tier-1 cities because the factors were perfect – high population density, established infrastructure, and a digitally literate consumer base. But as Nelly Furtado put it in her 2006 hit, All Good Things Come To An End. Limited space, coupled with intense competition and market saturation, has caused panic in the qCommerce boom.
So now what?
After burning some cash and ironing out logistics within tier-1, players in the qCommerce game are setting their eyes on tier-2 and beyond.
But it’s easier said than done
As with every market, expanding into tier 2 possesses its own set of unique challenges.
qCommerce operates on razor-thin margins. The entire business model is dependent on high order frequencies and high average order volume. Take Zomato’s example; they shut their doors in 225 small cities because it contributed a mere 0.3% to their gross order value.
That still doesn’t put off the experts despite a seemingly grim picture beyond tier 1. ‘The enthusiastic demand from smaller towns and cities has been incredibly encouraging’, said Instamart’s CEO.
It’s all about the execution
The issue isn’t with demand, but with how you satisfy it. It requires a reimagined approach tailored to the unique dynamics of tier 2.
1. Delivery blueprint
Unlike metro cities, where high density legitimizes the need for larger dark stores with a plethora of SKUs, tier 2 requires a decentralized approach. Micro-dark stores closer to high-demand settlements are the way to go to reduce delivery times and costs.
Invest in precise geo-selection and network design, as well as a mindful approach towards stocking, or integrating existing retail networks (i.e., kirana stores) as local dark stores.
2. Cut costs, not corners
The pitch of 10-15 minute deliveries, which lured in tier-1 customers, might not be a viable approach in tier 2.
Look into AI-driven stocking models, a tool that gives you a hand in anticipating demand patterns, in addition to dynamic pricing to make the model sustainable.
3. Go hyperlocal
In addition to being more convenient, qCommerce’s pricing wasn’t THAT far off from the local vendors in tier-1 cities, which helped in leveling the playing field. But when it comes to tier-2, vendors are much cheaper.
qCommerce businesses need to focus on regionally preferred products – the way Instamart did in Mangalore with Tarans and BlinkIt with Eastern Masalas in Kochi – to build a stronger connection with local consumers and drive higher adoption rates. Instamart’s CEO.
The last mile
Here’s a bold take; the challenge of hyperlocal deliveries in Tier 1 is SOLVED. Its next frontier lies in tier 2 and beyond.
However, it won’t just be about speed. It would require a cocktail of hyper-local strategies and cheap-yet-bulletproof logistics, and the brands that have just that right mix will go on to redefine convenience for the next billion consumers.
Insight
About 65% of people are willing to pay extra if they can get their stuff delivered faster
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and new opportunities in the retail world.