Unmasking the Pain Points: Brazil’s Quick Commerce Market Faces High Costs and Low Margins - Can it Thrive Against the Odds?
brazil-quick-commerce-market
July 13, 2023
Propelled by the surge in digital adoption and internet penetration during the global COVID-19 pandemic, Brazil's quick commerce market has witnessed a phenomenal rise. However, like any success story, it faces its fair share of challenges. The market is grappling with soaring operational costs, demanding technological advancements, and slim profit margins, all casting a shadow of uncertainty over its future trajectory.
Will this growth narrative persevere amidst these obstacles? Let’s find out together.
1. The number of internet users increase from 150 Mn to 160 Mn in 2021; ~14% of Brazil’s Digital Market is used in online food delivery
Active Internet Users in Brazil
Brazil Digital Market Usage
Key Trends
- About 81% of the population is consuming internet in 2021, compared to only 67.0% in 2018, reflecting a growth rate of 20.9% between the years.
- Brazil had about 160 million Internet users in 2022, or 74.0% of the population aged ten or older.
- The Brazil Digital Market is distributed between various sectors with Online Food Delivery comprising of 14.2% of total usage and 11.2% is used for Food & Personal Care means.
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2. This was due to the imposition of lockdown by governing authorities that caused customers to adapt to online shopping which boosted Brazil’s Quick Commerce Market
Covid 19 Pandemic
- The sudden lockdowns imposed during Covid 19 Pandemic caused consumers to use online platforms for purchasing their daily household groceries.
- The economy also adopted the work from home culture which has reduced the visits to stores and restaurants leading people to switch to online shopping for needs.
Convenient & Quick Delivery
- Upcoming online business models are fulfilling the consumer demand with faster time, more convenience, competitive prices or lower to that of traditional shopping through physical stores.
Reduced Operating Expenses
- For restaurants, by offering online delivery, they are able to reduce their space costs by having small areas for dine-in
- For grocery stores, many suppliers are able to earn more by offering products more than those being displayed in their physical stores by storing in warehouses and directly delivering
Source: Interviews conducted with Industry Experts, Industry Articles, Industry Reports & Ken Research Analysis
2.1 Moreover, Contrary to traditional shopping, Q-commerce services are available 24 hours a day, and higher availability of products
Internet Penetration & Smartphone Usage:
- With increasing internet penetration and usage of smartphones, more and more people have access to these services and are able to consume it.
- Along with this, the internet penetration in smaller areas in the last few years have drastically increased the demand and usage of such services.
Comfort for the working population
- Q-Commerce provides the working population with the flexibility to order at their convenient time and place, contrary to the traditional mode which required purchasing only during the store’s open hours.
- They are able to save on their time, energy and costs of purchasing food & groceries, increasing the demand of such services.
Operational & Product Availability
- Contrary to the traditional shopping, Q-commerce services are available 24 hours a day.
- They also have a higher availability of products as you can purchase all your items from a single app irrespective of the stores.
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3. The increasing usage of the Internet & latest technology in services among others have been driving the growth of the Quick Commerce market in Brazil
Service Automation
- The rollout of Food Delivery Management Software and other automation services is being used as a tool for increasing the efficiency in every step of delivery.
- The automation of service gives much more autonomy to the customer, reduces the time taken in purchasing from long billing lines, viewing and choosing the products a their own speed.
Rapid Delivery & Flexible Payment Modes
- The Quick Commerce Industry has been competing on the feature of ultra fast delivery lately, with companies providing services in the shortest period of time possible. This has brough the transition from delivery in 1-2 days to delivery on the same day to now delivering in less than 1 hour.
- With the digital adoption across the country, there have been flexible payment options available to customers, easing comfort and convenience.
Sustainable Gastronomy
- With the rising awareness and consumption of sustainable products in daily use, using of biodegradable or returnable packaging in packaging or delivery services is becoming a preference among consumers.
- Companies are trying to become eco-friendly by switching to Electric Vehicles for delivery, avoiding plastic in packaging and more to contribute to the environment.
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4. However, some major challenges like high Operating Costs coupled with the latest technology requirements and low margins are faced by players operating in the market
Operating Costs
- Warehousing & storage costs, Labor Wages can be costly and expensive, cutting out on profits and margins.
- Inventory management can be costly as it requires increased availability as well as expensive software to have operating efficiency.
- Logistics Inefficiency with respect to fleet size, supply chain management & delivery time period.
- Traffic Congestion in cities and safety concerns can cause delay in delivery, increasing pressure on delivery men.
- Reducing delivery time period could increase costs for the company as it requires efficient vehicles, right management software and other updated technologies.
- Dark Stores can be a challenging model as they require the location to be as close as possible to the consumers. Such prime locations could be heavy costs to be borne.
- Achieving sustainability in operations and processes would incur heavy costs for now in the market due to lack of availability of green products and infrastructure.
Technology Requirements
- Since the industry is based on digitalization and technology, it requires companies to run with updated technologies and software to provide services and user experience to compete and gain market presence.
- This would leave behind many low investment companies in achieving efficiency and reduce competency against big players.
- Smart and cost-effective delivery route planning will require heavy and efficient software along with large volume of orders for route-based delivery.
Margin Structure & Fee Charges
- Delivery platforms might have to reduce commission fee/service fee charged to merchants to encourage them to use their platform for online delivery services. This can cut into margins and profits.
- With the popular use of WhatsApp for on-demand delivery services directly from consumer to merchants, delivery platforms are at a high risk and can be compelled to reduce their margins further to remain in the market.
Source: Interviews conducted with Industry Experts, Industry Articles & Ken Research Analysis
6. But still, with changes in consumer patterns and awareness of e-commerce services post covid 19 pandemic, the growth trend of the Brazil Quick Commerce market is only expected to rise in the future
S
Strengths
- With change in consumer patterns and awareness of e-commerce services post covid 19 pandemic, the trend is only expected to increase among consumers for the comfort and convenience it provides.
- The higher availability of products for consumers over online platforms than physical stores strengthens the demand for such services.
- Improved Comfort and Convenience and reduced time and energy consumption makes the market attractive to consumers, especially for the working population.
- The market can also be cost efficient as merchants can cut on physical space and sell the same products or even more on online channels.
W
Weakness
- Technological developments and upgradations are necessary since the market is fully based on digitalization. Such can be costly due to the requirement of software and infrastructure.
- The market is highly price sensitive, any increment in delivery fee or service fee charged can divert the consumer from using services. The market is also characterized by lack of customer loyalty.
- An efficient practice is to do multiple orders routing but that requires necessary software and tools.
- Due to infrastructure requirements, large fleet size and delivery executives, not many players are able to expand in multiple locations.
O
Opportunities
- With approximately 81% of the population (171 Mn) having access to internet services, the market available to capture is becoming big, inviting global industry players to enter.
- With increase in digital adoption and internet penetration all across the country, especially in smaller areas, the demand for Q-commerce and Online Shopping services has constantly been growing over the last few years.
- A lot of young startups are also entering the market with unique business models and revenue streams making the market diverse and potential.
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