Beginning of the End of Fulfillment Centers?

Rise of Quick Commerce

Quick commerce (Qcom) has rapidly gained traction, particularly accelerated by the COVID-19 pandemic. The shift in consumer behavior during lockdowns, coupled with a busy urban population that has little time to spare, has fueled the demand for faster delivery options. People are increasingly expecting their online orders to arrive almost immediately, driven by a growing impatience and the "want it now" mentality. This rising expectation has pushed e-commerce companies to innovate and offer quicker, more efficient delivery services, making quick commerce an essential part of modern urban life.

I always had this feeling while ordering daily use products like Soap bar online and waiting for days for it to arrive. This exact soap was available in a store in my neighborhood. But still at cost of my convenience it travelled 100s of KM and days if not weeks to reach me. Felt weird, but now I see Qcom has solved this problem at least in my mind. That Soap bar now travels only few KM in few minutes to reach me. Of course it already travelled 100s of KM to reach a dark store nearest to me. But now it arrived with many more soaps together and not alone, brining economies of scale in picture.

Qcom is now breaking the perception of just being grocery commerce and providing array of products to customer, from sportswear, electronics to toys. It is estimated that ~15 to 20% of the revenue of Qcom companies are now contributed by non grocery stuff and it continues to rise since electronics and apparel already contribute 70% of revenue in traditional Ecommerce.

As of now Qcom is flourishing in metro cities and slowly expanding in tier-2 cities, on other hand traditional Ecommerce companies enjoy ~40% of their revenue from metro cities and are also moving in Qcom business.

How does it affect warehousing?

1. No need of Fulfilment centers

With Qcom there is no need to handle individual product in a centralized warehouse and fulfilling end customer. Warehouses now need to replenish dark stores. This brings immense economies of scale. As we discussed in an example above, no need to handle one Soap bar, pick them in bulk, deliver them to limited stores with proper plan to pick, pack and ship with better forecasting. This necessitates the need of Distribution centers which are much more lean and efficient in operations than Fulfilment centers.

2. Distribution centers need to adapt to act as Fulfillment centers.

Traditional OEM distribution centers which shipped bulk items only may need to prepack and ship items based on assortment listed on Qcom. Essentially some aspects of Fulfillment centers may be required to be handled by Distribution centers.

3. Lower customer returns

One of the biggest problems which fulfilment centers face is the customer returns. It can be as high as 20%. This returned stuff is waste in direct material form, and indirect form in terms of manpower and effort to pick, ship and take it back to fulfillment centers.

But why returns are lesser in Qcom? aren't both the same principally? The answer lies in consumer mindset and rationale thinking.

Quick commerce caters to the modern consumer's mindset by focusing on smaller, more frequent purchases that are often driven by immediate needs. These impulse-driven purchases typically have lower return rates because they address a tangible, immediate desire, leaving little room for second-guessing. The promise of delivery within 10 to 30 minutes reinforces this behavior, as the near-instant gratification reduces the likelihood of buyer's remorse. Unlike larger, pre-planned orders that allow time for reconsideration, quick commerce aligns with the consumer's preference for speed and convenience, making returns less common and enhancing the overall shopping experience.

In conclusion

Quick commerce is not just a trend but a significant shift in the way products are ordered, stored, and delivered. As consumer expectations continue to evolve towards immediacy and convenience, the traditional fulfillment center model is becoming increasingly outdated. The efficiency and scale of distribution centers focused on replenishing dark stores rather than fulfilling individual orders signal a new era in warehousing. This shift is likely to reduce the reliance on large, centralized fulfillment centers, potentially marking the beginning of their decline. As Qcom expands its reach and product offerings, we may witness a complete transformation in the logistics landscape.

Published on 27 August 2024

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