Quick Commerce, IPO Investing, and is Silver the new Gold?
Personal finance, investment philosophies and fun facts - all without the jargon.
Welcome to the tenth edition of the Bodhi Newsletter! In today’s edition, we cover:
Understanding Quick Commerce: A Rapidly Growing Disruptor in Retail
Understanding IPOs: What, Why, and How
The Surge in Silver Prices: Is Silver the New Gold?
Understanding Quick Commerce: A Rapidly Growing Disruptor in Retail
By Mahir Shah
Quick commerce has emerged to be a form of delivery which promises rapid delivery times of less than 15 minutes for groceries and everyday items. It has gained popularity because of the convenience offered to users, 24/7 deliveries, urgent needs for small ticket purchases, discounts, and a much wider variety of stock-keeping units (SKUs) compared to traditional Kirana stores. These are some of the moats on which the space is building and gaining market share.
Mainly catering to metro and Tier-1 cities as of now, the major players currently in this space are Blinkit (46%), Zepto (29%), and Swiggy Instamart (25%) followed by other players. The Quick commerce space is currently in its growth stage, with increasing toplines and significant cash burns as these platforms try to scale and become profitable.
Quick commerce has fundamentally changed the traditional supply chain model, which previously relied on multiple intermediaries, longer transportation times, and higher costs at each step. By streamlining the logistics process, these platforms have created a much more efficient and cost-effective system.
How does Quick Commerce work:
QC platforms set up a network of dark stores in every city in which they operate to fulfill the retail customer demand.
A dark store is a retail facility that is located in a back alley or basement as there are no walk-in customers. A typical dark store has approximately an area of 3500 sq. ft. where it stores over 6000 SKUs and can service households within 2-3 km of radius. These dark stores are typically rented by the quick commerce players and the rent is very low since they are located in these areas and are able to achieve a much higher throughput. Quick commerce players have at least one mother warehouse supporting a network of 30-40 dark stores in a city.
A mother warehouse is located on the outskirts of a city and is the backbone of dark store operations. A mother warehouse can be as small as 20,000 sq. ft. or as large as 1,75,000 sq. ft. depending upon the number of dark stores it supports and the range of SKUs the platform offers. All items procured from brands/distributors first come to these mother warehouses and are then transported to the dark stores in the city (once or twice a day depending upon the demand).
How does a QC platform deliver your order within 15 minutes?
Once an order is placed, the delivery partner and the staff in the dark store are simultaneously notified. An average order of 6 items takes around 1.5 minutes for the staff at the dark store to collect, scan, and pack. By the time the packing is complete, the delivery partner has arrived at the dark store and delivers your order within 10 minutes as he only has to cover 2-3 km.
To understand the industry better, let’s calculate the current Total Addressable Market (TAM) of the industry as shown by the diagram below.
The non-grocery retail TAM excludes items like large appliances like TVs, refrigerators, and jewelry, etc. because these items cannot be currently serviced by quick commerce players.
As shown by the diagram, the current TAM of the industry is ~$150bn, which is the TAM restricted to the top 50 cities where the demand density can work out for the quick commerce players to be profitable. Currently, the industry size is ~$3.3bn indicating a long runway for growth of these quick commerce platforms.
Here is the revenue and cost segmentation for these players.
Revenues:
Marketplace Commissions: This is the percentage of each transaction that a brand/distributor makes on the platform. It is a commission that the platform takes for the sale of a product of a brand through its platform.
Ad income: The platform gets revenue from brands who put ads on the platform to gain customers.
Customer Fees: This consists of delivery fees, platform fees, transaction fees, etc.
Subscription/Loyalty programs: The companies may introduce loyalty programs on its platform for customers who use the platform for their needs regularly and give some discounts to them. It charges a monthly/annual fee for it. eg. Zepto Pass
Costs:
Last Mile Delivery Costs: This is the single-largest cost component for these platforms on a per-order basis. It is the salary given to the delivery partners.
Dark Store Costs: It consists of costs like rents, staff expenses, utility expenses, etc. which go into operating the dark store.
Mid-mile and warehousing costs: Mid-mile costs refer to the transportation costs which are undertaken when transporting items from the mother warehouse to the dark stores.
Customer Acquisition Costs: It refers to the various marketing and sales expenses which the platform undertakes to acquire new customers.
Other costs: This includes packaging, wastage, tech, and communication costs to ensure quality service to every customer.
Source: Swiggy DRHP
This is the contribution margin of Swiggy Instamart currently. It is currently negative, which means that the platform is making a loss of 3.18% of the Average order value (AOV) on every order it delivers. However, the loss margin has drastically decreased over the years as shown above. Here, the variable costs refer to all the costs mentioned above except last-mile delivery costs. Blinkit’s CM% has turned positive in the recent couple of quarters.
So what are some of the metrics which drive the revenues of these platforms and pave the path to profitability:
Average Order Value (AOV): It is the average amount spent by a customer on each order. A higher AOV drives the revenues of the business and improves profitability. Blinkit’s AOV has increased to Rs. 660 as they have been introducing a range of higher-value SKUs on their platforms.
Monthly Transacting Users (MTU): This is the number of users ordering on the platform over 30 days. Currently, Blinkit’s MTUs are 7.4 million. This means that, in a month, 74 lakh users order something from Blinkit.
Frequency: The number of times an average customer orders something from Blinkit. Blinkit’s customers, on average, order ~3.5 times a month from the platform. As the customer preferences change towards quick commerce, the frequency of orders will increase and will drive the topline for the platform.
Stock-keeping units: With an expanding range of items on the platform, customers will have more choices and their demand will increase. For example, Blinkit has started delivering items like earphones, iPhones, and PS5s which is directly responsible for the increasing average order values.
Price competitiveness: If a QC platform is offering the same groceries at a price lower than other players like Kirana stores, or Dmart, the customer preferences will change drastically and the platform will acquire a lot of new customers.
Trust: The trust of customers on a QC platform is a major aspect. If the users have a seamless experience while ordering from the platform, they are more likely to keep ordering frequently.
In conclusion, quick commerce has emerged as a major disruptor in the retail and grocery market in the last couple of years. According to a report, more than 2 lakh kirana stores have been shut down, with the majority located in metro and Tier-1 cities because of the rise of quick commerce platforms.
Even the management of Avenue Supermarts (Dmart), in its recent concall, has acknowledged the impact of quick commerce in its operations in large metro cities.
With major corporations like Tata (via BigBasket and Tata Neu), Reliance (JioMart), and Flipkart (Flipkart Minutes) entering the space, the competition is heating up. If quick commerce platforms can sustain their growth and deliver on customer convenience and urgency, they have the potential to reshape the retail sector and challenge traditional kirana stores and established retail giants alike.
Understanding IPOs: What, Why, and How
By Heet Dhawale
What are IPOs? How do they work?
An IPO is the process by which a private company offers its shares to the public for the first time, becoming a publicly traded entity. Companies go public to raise capital for expansion, repay debt, or increase visibility. This involves equity financing, where founders give up partial ownership in exchange for funds.
The process of launching an IPO begins with the appointment of an investment bank or underwriter, who helps the company strategize, determine pricing, and ensure regulatory compliance. Next, a Draft Red Herring Prospectus (DRHP) is prepared, outlining the company’s financials, operations, and risks, which is then submitted to SEBI for review. SEBI examines the document to ensure transparency and investor protection, and once approved, the IPO process moves forward.
The company and its underwriters determine the pricing, which can either be fixed or within a price band, allowing for investor bids. To generate interest, the company conducts marketing campaigns and roadshows, presenting growth potential to potential investors. The IPO is then opened for subscription, enabling retail and institutional investors to apply for shares, with demand influencing allotment and final pricing. Finally, after subscriptions close, shares are allotted as per regulatory guidelines, and the company’s stock is listed on stock exchanges, marking its transition to a publicly traded entity.
However, IPOs are not all that easy to invest in. The underwriters give the first option to institutions, large banks, and financial services firms that can offer the shares to their most prominent clients. While institutions often have the first opportunity to invest, shares are ultimately distributed among all investor categories based on demand, often on a pro-rata basis during oversubscription.
What are the benefits of investing in IPOs?
Investing in IPOs allows investors to participate in a company's growth early in its life cycle, potentially reaping significant rewards as the stock appreciates over time. IPOs offer opportunities to diversify portfolios by adding new sectors or industries. If the company performs well post-listing, early investors may benefit from substantial capital gains. However, not all IPOs succeed—some companies may be overvalued or fail to meet growth expectations, leading to stock prices falling below the IPO value. Thorough research and objective evaluation of a company’s fundamentals are crucial before investing in any IPO.
What are the risks associated with IPOs?
As with any investment, IPOs carry inherent risks. Stock prices can fluctuate significantly during early trading days due to market sentiment, demand, and economic conditions, making them volatile and unpredictable. Limited financial history makes it challenging to assess a company’s profitability and stability, increasing the risk of overvaluation. Oversubscription or underpricing may result in inflated premiums or missed opportunities for retail investors. Additionally, lock-up periods for insiders can lead to price drops once these restrictions expire. Industry-specific, business-specific, and financial risks outlined in the prospectus also demand careful analysis. While IPOs can be rewarding, investors must weigh these risks objectively and conduct thorough research before committing funds.
Investing in IPOs is a double-edged sword—it offers the promise of significant rewards but is accompanied by substantial risks. A careful, research-driven approach is key to making informed decisions and maximizing the potential of this high-stakes investment avenue.
The Surge in Silver Prices: Is Silver the New Gold?
By Dersh Savla
The silver market is witnessing a remarkable upheaval in 2024, with its pricing reaching levels like never before. It seems to have also caught the attention of investors and industry analysts; however this surge isn’t just a simple market speculation, it’s a storm driven by a perfect headwind of technological innovation, political uncertainty and cultural dynamics.
The Green Energy Revolution’s Silver Lining
At the heart of the silver’s price rally lies its role in the green energy transition. According to the Silver Institute’s latest report, the automotive sector’s demand for silver is expected to hit record levels as electrical vehicle production reaches new highs and accelerates. Each EV requires between 25-50 grams of silver in various components, from battery management systems to thermal controls.
The solar industry's appetite for silver is equally voracious. Silver stands as a cornerstone in solar photovoltaic (PV) technology, distinguished by three critical properties: exceptional electrical conductivity, superior thermal efficiency, and outstanding optical reflectivity; making it irreplaceable in the production of high-performance solar panels. The solar PV sector's dramatic growth underscores silver's strategic importance in the energy transition. With $80 billion invested in 2023 alone, solar manufacturing now commands approximately 40% of global energy transition manufacturing investment. This remarkable capital flow reflects the industry's rapid expansion and technological maturation.
Looking ahead, silver demand in the solar sector shows no signs of slowing. Projections indicate a potential surge of 170% by 2030, driven by ambitious renewable energy targets worldwide and continuous improvements in solar cell efficiency. This trajectory suggests silver's role in the green energy revolution will only become more crucial in the coming years.
Political Uncertainty as a Price Catalyst
The U.S. presidential election introduced a new layer of complexity to silver markets. Historical data from previous election cycles highlight that precious metals often experience increased volatility during these periods. JP Morgan’s commodities desk recently highlighted that the silver typically sees a 15-20% swing in the months around the U.S. presidential election as investors reach out and seek safe-haven assets amid the uncertainty.
India’s Festival Season: A Cultural Driver
The festive season and the Indian wedding season aren’t just a celebration - it is a powerful economic force shaping the silver market. Recent data from the Gems and Jewellery Export Promotion Council (GJEPC) provides clear evidence of this influence. Silver exports from India have increased by 22.47% to US$ 178.8 million in early 2024, reflecting the growing appetite for silver both domestically and internationally. This robust growth isn't occurring in isolation. As Vipul Shah, Chairman of GJEPC, notes, "India's gems and jewellery sector has shown remarkable resilience and adaptability... The growth witnessed in categories such as Silver Jewellery underscores the enduring appeal of Indian craftsmanship and design." This resilience is particularly evident during the festive season when cultural traditions drive increased demand for precious metals. This period typically sees a significant uptick in silver purchases. With Gold prices touching historic highs, many Indians are turning to silver as an alternative for both investment and adornment. This shift in consumer behaviour, combined with the 24.3% rise in rupee terms suggests that the silver’s role in festival celebrations is not just maintaining but strengthening its cultural significance. The data points to a broader trend: India's festival season isn't merely a temporary boost to silver demand – it's becoming an increasingly significant driver of global silver market dynamics, with ripple effects felt throughout the year.
Looking Ahead: Market Implications
Silver's path ahead appears decidedly bullish, driven by a perfect storm of market forces. But that might be just the beginning, as investment flows and seasonal buying patterns could push valuations even higher.
The silver market of 2024 bears little resemblance to its historical patterns, when prices largely swung on inflation concerns and jewellery demand. Instead, we're witnessing the emergence of a more nuanced market, where silver plays two crucial roles: as a vital industrial metal powering the green energy revolution, and as a trusted haven during uncertain times.
This transformation comes at a pivotal moment. As countries worldwide accelerate their renewable energy commitments and geopolitical tensions show no signs of easing, silver's strategic significance in the global economy continues to grow. Smart money is paying attention to both industrial demand signals and the political landscape – recognising that either could dramatically impact prices in this new era.
A word of caution, though: markets are inherently unpredictable. While the fundamentals point to continued strength in silver prices, investors should approach these projections as guideposts rather than guarantees. As with any market forecast, conditions can shift rapidly, and investment decisions should always align with individual risk tolerance and goals.