Understanding the engine behind India’s quick commerce boom

This article summarizes an episode of Vertex Ventures’ video series featuring its managing partner, Ben Mathias.

Managing partner of Vertex Ventures Ben Mathias / Photo credit: Vertex Ventures

Managing partner at Vertex Ventures Southeast Asia & India Ben Mathias believes older companies often misunderstand shoppers in India, and the country’s built-in advantages create a perfect setup for new kinds of retail businesses.

These conditions are changing the country’s fast-growing market, leading to new companies worth investing in that break the old rules about how to succeed in a developing nation.

India’s brand vacuum creates a digital-first opening

Unlike Western markets crowded with long-established companies, Mathias thinks India has relatively few major brands. This gives new companies a chance to get the attention of younger shoppers who are looking for something new and prefer to find and buy things online.

A brand-starved market offers an advantage
For Mathias, the key difference is that India’s market is “brand starved. We have relatively few brands. If you take beauty and cosmetics for example, until about 10 years ago you had the same 10 to 15 brands that had been around for 30 years. So naturally these new brands get the attention of the younger generation because they’re looking for something new.”

Digitally native brands have an advantage
“There may have been brands that I grew up with that had been around for 20-30 years,” Mathias says. “But those brands are not digitally native. They’re primarily offline. And the millennial and the Gen Z generation like to do their shopping and discovery online. So, we’ve seen the opportunity for new brands to emerge that are digital first and they target the younger generation.”

The new economics of brand building

This opening in the market is made bigger by the lower cost of building a “digital-first” brand, one that starts and mainly operates online. The money once required for physical stores and traditional ads has been replaced by cheaper online marketing.

Digital-first brand building is an order of magnitude cheaper
The main driver of these savings is online advertising. Mathias confirms, “much cheaper to build a brand digital-first compared to traditionally building a brand offline. In the past, it has cost about 10 to 15 million [dollars] to build a brand through the traditional ways… Today, you can build a brand for between US$1 and US$3 million because your advertising happens on Meta or on YouTube.”

High gross margins make digital brands venture-backable
This financial model is attractive to venture capital firms because, as Mathias explains, these companies can be very profitable.

“We’ve seen gross margins of 60% to 70%. As long as you engage your customer base, you have high repeat rates. So [these brands] tend to be pretty good venture capital investments.”

Quick commerce as a scaling channel

It’s also cheaper for new brands to get started thanks to a powerful way of getting products to customers. Quick commerce, the practice of delivering goods within minutes of an online order, is now so common that it gives new companies a way to grow big on their own, without having to rely on major online marketplaces.

Quick commerce offers a direct path to a million dollars a month
This channel allows new brands in the country to scale with incredible speed. Mathias argues, “quick commerce has become so penetrated in India that a new brand can actually build its revenue exclusively on quick commerce and get to about a million dollars a month… And this is very unique to India.”

Initial skepticism gave way to rapid consumer adoption
Even Mathias was not initially convinced. He admits, “I was a skeptic when quick commerce first came out, and I kept asking myself, ‘why would you need something in 10 minutes?’ But it’s amazing how quickly you get used to getting that craving for potato chips satisfied in 10 minutes.”

Legacy brands risk irrelevance by ignoring quick commerce

India’s specific conditions make 10-minute delivery viable