Swiggy’s Instamart, Zepto wants to use private labels to improve margins

Swiggy’s Instamart and Mumbai-based Zepto may soon introduce private label items amid growing interest in the quick-delivery category, according to those who are aware of the situation. 

Goods sold by retailers under their own brands are known as private label products. Private labels offer a fatter margin than third-party brands for brick-and-mortar retailers and e-commerce companies. For instance, Amazon sells many products under its Amazon Basics brand.

Aadit Palicha, the cofounder of Zepto, stated that the ultrafast delivery firm would most likely begin selling its private labels in the second or third quarter of 2022. Swiggy is expected to start private labels as soon as next month, according to a source.

According to reports, the initial batch of products for Swiggy’s Instamart would most likely be non-food items. These include cleaning instruments, toilet cleaners, trash cans, etc.

The move comes as rivalry in India’s quick-commerce market heats up. Zomato, which invested $100 million in BlinkIt (previously Grofers) last year, underlined its commitment to the quick-commerce market on February 10 by investing an additional $400 million in the space over the next two years. On November 18, Zomato was considering a $500 million stake on BlinkIt. Swiggy has set aside $700 million to expand its Instamart service, while Zepto raised $160 million last year.

Why are private labels so important?

It is also said that the majority of the catalog stored by these quick-commerce stores is made up of name-brand items (Coke, Pepsi, Tide, etc.) with extremely low margins and a fixed market price.

The quick commerce platform, for example, cannot change the price of a bottle of Coke. As a result, they identify certain areas in which they may provide their own private-label goods and eliminate all middlemen and distributors who receive a commission.

According to Palicha, private labels will benefit the firm in two ways: they will add 3% to the operational earnings margin and may become a competitive advantage.

Zepto and Swiggy are hardly the first participants in the quick-commerce space to establish private labels. Dunzo, located in Bengaluru, has been selling its private label brand, Dunzo Essentials, for over a year. that the firm discontinued selling private labels, which had accounted for 50% of the company’s gross merchandise value.

Challenges along the way

Multiple investors expressed reservations about the industry’s intention to enter private labels, citing the market’s infancy and the risk of private labels being an operationally demanding endeavor if the companies decide to get into production themselves.

Some investors feel that because the catalog percentage that they can fully white-label is limited, and because of expensive headquarters and technology expenses, as well as potentially underutilized fleets, many quick-commerce businesses are failing to achieve profitability.

Delivery Hero, the owner of the online food ordering platform Talabat, will offer rapid commerce in the Middle East in March 2020.

The initial frenzy over fast trade in the United States has also begun to cool. The Information, a Silicon Valley-based technology newspaper, claimed in January that instant-delivery firm Jokr was in discussions to sell its New York operations, which account for the majority of its US business, after suffering large losses in the city due to increased competition. Kitopi, a Middle Eastern cloud kitchen company, briefly experimented with quick-commerce delivery from its cloud kitchens before abandoning the project.