Quick-commerce grocery delivery app Zepto’s microwarehouse in Mumbai’s Lower Parel is a hub of frantic activities on a busy Thursday morning. A bunch of delivery partners waited at the entrance to pick up orders while the employees inside scampered around the 1,800 square foot floor to gather items for an order they received.
A microwarehouse is a smaller version of a regular warehouse that stores essential goods for quick delivery apps like Zepto, Blinkit or Swiggy Instamart.
As an order was received, the employees collected the products from different shelves and scanned them through a mobile scanner before adding it to the bag.
The order barcode was then scanned to match the items collected for dispatch. The delivery partner then picked up the order and left for their destination.
The scanning was the only bit of technology used in the gathering process for the order. The rest was done manually by the employees on the floor, a process repeated multiple times daily to fulfil the hundreds of orders.
Microwarehouses have become an integral part of the quick commerce ecosystem that fulfils lakhs of orders a day. According to reports Zepto delivers between 3,00,000 and 4,00,000 orders daily across India and has an average order size ranging between Rs 400 and Rs 500. Blinkit delivers about 4,00,000 orders a day and Swiggy Instamart about 4,50,000.
While the pandemic was the trigger for the quick commerce business to succeed and was mostly limited to groceries, fruits and vegetables, the scope of quick commerce has grown significantly. Now one can order everything from a tennis ball to Diwali lights on quick commerce apps like Blinkit, Zepto and Swiggy Instamart.
Blinkit, a major player in the sector, saw a massive surge in operation value growing by 207% and reaching Rs 724 crore in 2023. Meanwhile, the total expenses for Zepto increased from Rs 533 crore in financial year (FY) 2022 to Rs 3,350 crore during FY23.
While these businesses run on the promise of quick deliveries, a lot goes behind completing each order. A key piece to the puzzle is microwarehouses, peppered throughout cities like Delhi, Mumbai, Kolkata, Chennai and Bengaluru, among others, that store the goods that get delivered within minutes.
A typical warehouse is much larger than the one The Core visited in Lower Parel, and is usually placed outside the city. “But if you require same-day delivery, then the economics will only work out when the distance between the pickup location and drop location is optimised, which requires the storage to be in the urban location and that's where the micro warehousing comes into picture,” Harsh Vaidya, the co-founder of WareiQ, a logistics company, told The Core. WareiQ, which specialises in managing warehousing and microwarehousing, focuses on consumer packaged goods (CPG) and personal care products.
The product you get delivered at home usually travels to the main warehouse from where it is taken to a microwarehouse. And then, upon your order request, a delivery partner picks it up to deliver it to your doorstep.
“Now people want quick deliveries and to fulfil their needs, you need to have more micro-fulfillment centres to be in the position to supply next day, same day or even 10 minutes delivery where required,” said Prodipto Roy, co-founder, QuickShift.
QuickShift majorly focuses on same-day and next-day delivery but the products they handle are from fast-fashion to protein bars, all stored under the same roof. Their clients include Society Tea, 24SEVEN, Mangalam Organics, Nutriburst, USPA, Arrow, Flying Machine, Koovs, Beco, etc. The business strategy is to not have the warehouses within the city, but to have it closer to the city.
In April 2023, Blinkit, owned by Zomato, had about 400 small warehouses in 20 cities across India. By October 2023, they expanded to more than 200 warehouses in seven cities, offering a variety of 6,000 products. Swiggy's Instamart is most popular in Mumbai, Bengaluru, and Kolkata. According to an October report, it provides over 5,000 products from 500 brands and is available in 29 Indian cities and plans to reach 43 cities in the coming years.
Planning Inventory Flow
Each of these quick delivery apps receives thousands of orders a day. A smooth flow of inventory from the main warehouse to the microwarehouse needs to happen to keep up with demand. Employees also need to have clear channels of communication to keep the flow going.
A walk through Zepto’s Lower Parel warehouse revealed rows and rows of neatly stacked products ranging from Hershey’s chocolates, bottles of Bisleri mineral water to cucumbers and carrots. The place has four sections with different temperatures for storing different things. Dry products stay at room temperature, fruits and veggies are kept between 20-25 degrees, dairy products chill at 15 degrees, and refrigerated items are stored at -10 degrees.
A Zepto employee from the Lower Parel microwarehouse told The Core, “Our shift timings are 7 am to 4 pm, 2 pm to 11 pm and 10:30 pm to 7:30 am.”
It is critical that the warehouse and microwarehouse are in sync to make sure the products do not go out of stock and that customers can order their required products hassle free. The ground staff, like the ones present at Lower Parel are trained to follow a system of what to keep in store and what to replenish.
Technology also helps make this process more efficient. This is where Roy’s QuickShift steps in. Orders are processed through various channels, such as marketplaces like Meesho and Ajio. An algorithm coordinates the flow of orders from the point of generation, ensuring seamless integration between the order management system (OMS) and warehouse management system (WMS). The product is then directed to the nearest fulfilment centre for processing. The structure is designed for efficient order fulfilment, with the closest centre handling order processing, package pickup, and preparation for dispatch.
The idea of a microwarehouse is that you pick the order, pack and dispatch. You do not hold the inventory because it is a small-scale unit for speed processing.
Zepto uses hourly demand reports at their main warehouses to refill products into their microwarehouses. Another Zepto employee from the higher management department on the condition of anonymity told The Core, “The person in charge in the main warehouse will look at the demand report, which includes an understanding of the demand for products and which store in the city needs refilling. Then comes ‘inbound’ and ‘outbound’. Inbound, the stock from the clients comes to the warehouse and the products are outbounded and distributed in the microwarehouses where required. There are different teams looking after the overall inventory flow.”
The ‘outbound’ process usually happens in the evening so products can be stocked at the microwarehouses at night.
Restocking main warehouses varies for each company. Zepto, for example, restocks their main warehouses every day. For WareiQ it is dependent on the lead time of the supply chain and daily order volumes. Usually their bigger warehouses are replenished in 15 days whereas dark stores are restocked every one or two days.
QuickShift’s restocking is based on the product category. For example, FMCG products are typically restocked two to three times a week and fast fashion and personal care once a month.
Location Is Key
Usually, microwarehouses are located in densely populated areas within the city to be closer to the consumers. There are other factors at play like the population density of an area, income threshold of the population and their digital presence.
The next step involves estimating the demand in that particular area and the real estate options for establishing a microwarehouse. Factors under consideration include whether the location cost aligns with the business model, whether there is convenient loading and unloading space for trucks, and whether operations can run smoothly in that setting.
Quick commerce players believe that being closer to the demanding consumers is more beneficial in the metro cities because it saves time and also fulfils the need for quick deliveries.
“In Bombay, for example, one will set up a warehouse in Dadar, which is densely populated for a micro market. In a 3000 to 5000 square feet warehouse, you store a bunch of high-demand products, which are replenished very quickly at the frequency of once or twice a day and that allows you to serve your customers at a very fast pace. So, if you are very close to the customer you can complete the service in less than 10 to 15 minutes,” the Zepto shift in charge from Mumbai added.
A single microwarehouse can only cover a short range of customers within a particular radius because of which multiple microwarehouses need to be set up to serve the quick commerce economy.
How Does The Business Model Work?
According to Statista, India's quick commerce market is expected to produce US $3,349.00 million in revenue by 2024. This market is estimated to increase at a compound annual growth rate (CAGR 2024-2028) of 27.42%, resulting in a projected market volume of US $8,828.00 million by 2028.
The report also states that by 2028, the quick commerce market in India is expected to have 56.4 million users. The current user penetration rate of 1.8% in 2024 is expected to climb to 3.8% by 2028.
Companies like Blinkit, Swiggy InstaMart and also Zepto run on a business model of serving from salt to shampoo and much more under the same platform. Are you out of washing powder? Get it to your doorstep within a few minutes. However, WareiQ does not want to compete with every category. They handle CPG and personal care products within their mico-warehouses.
“If somebody is looking for a jacket or a footwear, then there is an incremental cost of delivering the same day and there is an incremental revenue for certain categories if you are delivering it the same day. The logic is if the product was to be delivered the next day, you would lose the sale because the end customer would buy the product from the channel which is selling on the same day,” said Vaidya.
Vaidya believes that the same-day delivery model only works when the incremental revenue is higher than the incremental cost. “This equation works out for say CPG category such as if you need an ice cream, medicine, personal care products or you are out of certain critical supplies at home, you cannot wait until next day and that is when you need the channel to be delivering the same day and there is a revenue,” said Vaidya.
When QuickShift initially launched five years ago, it offered an eight-day delivery service. However, both the situation and their business strategy have evolved since then.
“What kind of products I can maintain, manage in my inventory flow to make sure that does not increase my inventory carrying costs and working capital. These are some of the things one needs to consider,” said Roy.
It is important for businesses to get sizing, assortment, merchandise right.
“What is ordered should be in inventory, in the right quantity so one does not have lost sales. Also more stocking of commodities can lead to higher risks of expiry. Inventory that one is carrying should have demand and there should be an outflow. Dark stores are meant for flows and not for storage,” said Roy.