Consumer goods companies are bagging higher profits from quick commerce than other channels, according to top executives of companies like Colgate-Palmolive India, Godrej Consumer Products, Dabur, and Adani Wilmar.
Premiumization and lower distribution costs fuel FMCG growth
The higher margins come from increased sales of premium products, lower distribution costs, and shorter credit periods in quick commerce.
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“While quick commerce is growing eight times as fast as the rest of the company, the channel is also more profitable,” said Prabha Narasimhan, managing director at Colgate-Palmolive India to ET. “Quick commerce is margin accretive with higher premiumisation. This is because it sells large packs, premium products and has low distribution cost,” she added.
Meanwhile, Adani Wilmar, the country’s largest packaged edible oil seller, sends truckloads of edible oil directly from its warehouse to quick commerce warehouses every three to four days. This allows the company to save on distributor margins, which it passes on in part to quick commerce for promotions. Angshu Mallick, managing director at Adani Wilmar, said, “The cost of servicing goes down with direct supplies. We are able to compete well, whereby we have almost 50% market share in edible oil in quick commerce.”
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Q-comm lower credit periods drives higher profit
Interestingly, Quick commerce operators have lower credit periods of one to two weeks, compared to traditional distributors, which can stretch to 30 days. This helps manufacturers avoid cash crunches and delays in supplies. Mohit Malhotra, chief executive of Dabur India told, “It’s not possible for them (distributors) to supply the entire assortment that may be required by quick commerce players.” Dabur has started direct supplies to warehouses of Swiggy Instamart, Blinkit, and Zepto.
Further, Malhotra added that the company’s margins are 100-200 basis points (1-2 percentage points) higher in quick commerce compared to ecommerce marketplaces. “And, moreover, compared to general trade also, our margins are higher because we sell larger packs to them. Terms of trade are (also) better compared to modern trade,” he concluded.
