Hiren Ved, director and chief investment officer at Alchemy Capital Management, noted that investors are increasingly moving away from traditional FMCG stocks.

“They are turning to aggregators and e-commerce platforms, particularly quick commerce, which sell both discretionary as well as non-discretionary consumer items as it provides a better proxy for growth as compared to the FMCG companies,” Ved said.

Apart from Zomato, one has limited choice in the listed place as far as non-discretionary e-commerce aggregators are concerned, said Deepak Jasani, head of retail research at HDFC Securities. In the unlisted space though, Zomato’s competitors include Swiggy, Zepto and Bigbasket now. Swiggy is expected to come out with its initial public offering soon.

Zomato acquired Blinkit (formerly Grofers) to fortify its position in the instant grocery delivery space, while Swiggy rolled out Instamart, which has rapidly emerged as a key revenue engine for the company. Analysts said that Instamart, with a slower expansion pace than its competitors, is losing market share to Blinkit and Zepto.

The declining interest in FMCG company shares is reflected in their returns. Shares of Dabur, Tata Consumer Products and Hindustan Unilever have delivered modest returns of 2-5% in 2024, with Nestle even slipping 6%.

In contrast, restaurant aggregator and food delivery giant Zomato’s stock has skyrocketed 126% during this time. Among retailers, Trent has surged 168% and Avenue Supermarts has gained a modest 3%.

Market disruption

Retailers and aggregators selling FMCG products are driving disruption in the market, said Trideep Bhattacharya, president and CIO of equities at Edelweiss MF. Both channels offer well-established products from Nestle, Dabur, and Hindustan Unilever.

“Over time, from a portfolio management standpoint, food and non-food aggregators have steadily captured market share from traditional retailers, with a shift in investment allocations away from the conventional FMCG retailers,” Bhattacharya said.

While traditional FMCG companies and retailers may struggle with margin pressure and slower earnings growth due to the disruption caused by food and non-food aggregators, Bhattacharya pointed out that aggregators have shifted their focus to profitability. This has positioned them with stronger growth prospects, now outpacing those of conventional FMCG players.

What’s more, quick commerce companies are favoured over retailers because of the immense growth potential. With online retail penetration still less than 5%, there is ample room for expansion.

“The share of the quick commerce market in online retail has increased rapidly from approximately 0.14% in 2018 to 4.8% in 2023 and with fast-paced growth of 60-80% expected annually till 2028 and is expected to reach 17-30% penetration in online retail, resulting in a quick commerce market size of ₹2,320-4,240 billion,” said Jasani of HDFC Securities.

The profile of consumers is changing. Instead of sticking with familiar brands, shoppers are willing to experiment with new options available through quick commerce platforms. In addition to convenience, some companies – notably Zepto – offer discounts. In the top 30 cities of India, which account for about 45% of the urban retail market, the boundary between planned and top-up purchases is slowly getting blurred, he explained.

Quick commerce growth

Even FMCG companies have acknowledged an increase in the revenue contribution of their e-commerce sales, majorly driven by quick commerce, said Shobit Singhal, a research analyst at Anand Rathi Institutional Equities.

“E-commerce is flying for us. So, it’s a growth of around 30% in e-commerce and driven by quick commerce. Quick commerce growth is around 70% for us, driven by Zepto, Blinkit, and Swiggy Instamart,” Mohit Malhotra, CEO of Dabur India Ltd, said during a post-June quarter earnings call with analysts. For the FMCG giant, quick commerce now accounts for 30-35% of its total e-commerce business.

Sunil D’Souza, MD and CEO of Tata Consumer Products Ltd, said during its post earnings call that the company’s e-commerce is growing 60% and “about 35% of that is coming from quick commerce.”

Early commentaries from Marico, Dabur, and Godrej Consumer Products, along with discussions with the management of other consumer staple companies, indicate that while the overall demand environment is improving, it hasn’t picked up as strongly as initially expected, Nirmal Bang Institutional Equities said in note dated 9 October.