Quick commerce platforms are renowned for their constant experimentation and adaptability, which keeps them relevant in a fast-evolving market. As these platforms solidify their presence in metropolitan areas, they are now setting their sights on Tier 2 cities to capture a broader consumer base.
Blinkit Leads the Way
Blinkit, led by Zomato, has recently expanded its footprint into Kochi. As announced by Albinder Dhindsa on LinkedIn, the first store in Kochi, located in Kaloor, will cater to areas including Kaloor Stadium, Palarivattom, and Jawahar Nagar. This launch, just before the Onam festival, marks a significant step in Blinkit’s strategy to penetrate new markets. The company has also onboarded local brands like Milma Milk and Eastern Masalas to cater to regional preferences. Additionally, Blinkit has launched a store in Bathinda, serving areas such as Chandsar Basti and Model Town. Recent expansions also include Vijayawada and Haridwar, with plans for further stores in the near future.
Why Tier 2 Cities?
The growing interest in Tier 2 and Tier 3 cities is driven by several factors:
- Increased Disposable Income: With rising incomes, consumers in these cities are spending more online. According to a report by Pahle India Foundation, consumers in Tier 2 cities spend about three hours online shopping, compared to 30% in Tier 1 cities. Furthermore, a CyberMedia Research report from July 2024 reveals that Tier 2 city residents spend 16% of their income online, compared to 8% in Tier 1 cities.
- Affordable Operational Costs: Lower rent and operational costs make Tier 2 cities attractive for businesses. PropEquity’s report indicates an 11% increase in residential property sales in these cities, reflecting their growing economic significance.
- Talent and Infrastructure: EY’s report highlights that affordable talent and infrastructure are drawing companies to Tier 2 cities. This trend is further supported by favourable state government policies.
Challenges on the Horizon
Despite the promising opportunities, expanding into Tier 2 cities presents several challenges:
- Supply Chain Issues: Efficient supply chain management is crucial for success in these new markets.
- Consumer Trust: Many consumers in Tier 2 cities prefer local kirana stores for their shopping needs due to the tactile experience and established trust. According to Redseer Strategy Consultants, 80% of digital non-natives are satisfied with local grocery options, emphasising the challenge of competing with well-entrenched local businesses.
- Low E-Grocery Penetration: E-grocery services in Tier 2 cities are still in their infancy, with only about 11% of the population being annual transacting users as of FY23.
- Higher Acquisition Costs: Quick commerce platforms face higher customer acquisition costs in Tier 2 cities. JM Financial notes that lower population density, smaller ticket sizes, and infrequent orders contribute to this challenge. Platforms may need to invest more in last-mile delivery and customer retention strategies.
Instamart’s Approach
Instamart, the first quick commerce platform to enter Tier 2 cities, benefits from being integrated within Swiggy, which helps reduce acquisition costs and build a loyal customer base. In contrast, Blinkit must navigate competition from local kirana stores and focus on optimising its supply chain and service delivery.
Looking Ahead
As these platforms continue to expand into Tier 2 cities, it will be crucial to monitor how they address these challenges and establish a significant presence in these emerging markets.
