Quick Commerce's Discount and Deliver Approach Comes Under Criticism

With the increase in the quick commerce market in India, a constant discussion that has taken the spotlight has been predatory pricing. This in turn leads to anti-competitive practices, alleges the retail distributors' association, All India Consumer Products Distributors Federation (AICPDF). 

To put it in simple words, companies cater to predatory pricing (cut prices) to cater to competition. The AICPDF highlighted that even if small kiranas do try to give competitive discounts of 10–15 percent, they fail to match the aggressive pricing strategies of these platforms. Zepto generally gives a discount of around 20–25 percent on its products, adds the retailers' body. 

Outlook Business made the comparison and found out that a 650-ml ‘Sunsilk Stunning Black Shine Shampoo’ costs Rs 526 in Zomato-owned Blinkit. The original MRP for the same is Rs 809. The cost is similar on Instamart as well. However, the cost is way cheaper on quick commerce platform Zepto, with 42 percent off at Rs 462. 

Meanwhile, in an interview with Moneycontrol, Zepto founder Aadit Palicha said that in Fy24, only 0.2 percent of the items sold on their platform were overpriced. “Even in the hundreds of dark stores that have turned profitable at Zepto, we are cheaper than MRP. Clearly we are not predatory pricing,” added Palicha. 

The quick commerce founder further added that they are cutting out middlemen and giving sustainable value to Indian consumers. He added, “In that sense, with no predatory pricing, we are deflationary for the Indian consumer.”

Read: Kiranas Embrace Tech To Counter Quick Commerce Threat

Cutting middlemen is one reason these platforms can levy on heavy predatory pricing. A report published by e-commerce consultancy Datum Intelligence says that from producer, a product directly goes from a quick commerce platform to consumers. On the other hand, for offline retail stores, it goes from producer to distributor to wholesaler to retailer and then consumer. So now, for these offline traders, 25–30 percent of the margin is shared between these players. 

On the other hand, for quick commerce, the margin is 10–15 percent as the players are fewer. The rest then gets passed to the consumer. 

Regarding the issue of predatory pricing, it’s interesting to note that some players in the market are offering direct-to-consumer pricing, which bypasses middlemen, said Satish Meena, ecommerce analyst and advisor, Datum Intelligence. 

Speaking about the debate around predatory pricing, some experts highlight that predatory pricing by quick commerce platforms presents an opportunity for the retail landscape rather than a mere threat to Kirana stores. 

“This dynamic can also stimulate positive changes in the market. The competitive pricing strategies enhance consumer choice. Shoppers now have access to a wider array of products at various price points, allowing them to make informed purchasing decisions,” said Somdutta Singh, founder and CEO, Assiduus. 

Meanwhile, with regards to quick commerce platforms practicing predatory pricing, Singh says that these companies can attract VC funding to subsidize initial losses as they focus on rapid growth and market penetration. Further, their operational efficiencies, such as utilizing micro-warehouses for faster deliveries, significantly reduce costs compared to conventional e-commerce models, she adds.

Read: FSSAI Asks Quick Commerce Platforms to Comply with Food Safety Standards

Quick commerce platforms have been receiving significant funding. For instance, Zepto recently secured $350 million in funding. According to media reports, this round, led by Motilal Oswal's private wealth division, marks the company's third fundraising event in the past six months. The Quick Commerce platform, which plans to go public next year, conducted this fundraise to increase domestic shareholding in the company. 

This comes at a time when there have been criticisms around an increase in foreign shareholdings in quick commerce platforms. “With 70% of their ownership slated to be held by foreign investors, it’s evident that the narrative of being an ‘Indian company’ is a façade. This is a systematic strategy to divert attention while eroding the backbone of India’s small retail sector,” said P. M. Ganeshraam, Chief Patron, AICPDF. 

Now, the question that arises is—what does the law say about predatory pricing in India? 

Legal Aspect of Predatory Pricing

Experts opine that the legal aspect of predatory pricing typically falls under Section 4 of the Competition Act of 2002. The act prohibits businesses from abusing dominant positions. 

"If trade bodies are correct in their claims, they may argue that quick commerce platforms are abusing their dominant market position. Predatory pricing could be a concern, but further quantification are needed,” said Abhivardhan, Chairperson and Managing Trustee, Indian Society of Artificial Intelligence and Law. 

Other experts highlight that the Competition Commission of India must strike a balance, fostering innovation and affordability while preventing anti-competitive practices that harm both small retailers and consumer rights. 

“Predatory pricing is considered anti-competitive when used by companies with a dominant market position. The CCI will need to carefully assess whether the pricing strategy of quick commerce companies is aimed at driving competitors out of the market or discouraging potential entrants,” said Vivek Bajoria, Partner and Head, Bangalore, Khaitan Legal Associates. 

A Grey Area 

Experts highlight that for the trade associations to make progress, they need to come up with more specific guidelines. “Without clear definitions, the issue will remain unresolved,” added Abhivardhan. 

Another thing that makes this area gray is the fact that it's difficult to pinpoint whether the pricing is indeed too low or if it’s just heavy discounting. “At this point, it's tough to prove that prices are unfairly low, as there’s not enough data to confirm that they are operating below cost. So, this remains a tricky situation for the government to address,” added Meena. 

Now, if we take the example of the transportation sector, companies like Uber and Rapido offer affordable rides, but they can sometimes manipulate pricing due to demand and time constraints, add experts. 

As a result, the Competition Commission of India (CCI) issued guidelines to regulate pricing practices in the transport sector in 2022. 

In its regulation, the commission highlighted that cab aggregators should formulate a clear and transparent policy on surge pricing and dissemination of the same to both riders and drivers. 

Experts believe that for now, the CCI should come up with guidelines to define fair pricing dynamics. “Guidelines should be introduced to clarify pricing dynamics, so consumers know exactly what they're paying for without being misled by bundled offers,” said Abhivardhan. 

So, will predatory pricing continue on these platforms? As for the long-term sustainability of offering deep discounts—up to 20–30 percent below MRP—it seems likely that this trend will continue, at least for now, add experts. With major players including BigBasket, Flipkart, and others joining the race, Meena said that this is an investment in customer retention, not just in individual purchases. With the quick commerce market being highly competitive, it will be interesting to see how things pan out in terms of predatory pricing.