HUL, Marico Flagged Underperformers While Blinkit, Zepto Shine

Quick commerce platforms such as Zomato's Blinkit, Zepto, and Swiggy Instamart are rapidly gaining ground, outpacing traditional FMCG Nifty-50 heavyweights like Hindustan Unilever Ltd. and Marico Ltd., according to a recent report by CLSA. 

HUL and Marico have been rated "underperform" while Zomato has sped ahead with an "outperform" rating. The ratings agency also has an "overweight" rating on the Indian consumer space.

The report found that despite HUL’s historically strong urban distribution network and Marico’s dominance in categories like hair and edible oils, the rapid rise of QC platforms is eroding their competitive advantages. 

HUL, which has long held a dominant position in India's FMCG market, is now facing threat as QC operators undercut prices and offer better margins. CLSA believes this will erode HUL's urban distribution advantage, negatively impacting its working capital and gross margins.

The report retains an "underperform" rating on HUL, noting that the company's high margins and returns, a result of its dominant market share, are increasingly at risk in urban areas due to QC's rapid growth. A noteworthy point here is that HUL reported that its rural sales have outpaced its urban sales in the first quarter of fiscal 2025. 

Marico is similarly under pressure, with CLSA pointing out that while its flagship brands Parachute and Saffola remain strong, the company's growth prospects are limited due to intense competition from QC, modern trade, and private labels.

The report specifically notes the limited presence of Saffola on QC platforms, which could hinder its long-term prospects. CLSA has retained its "underperform" rating on Marico, with a revised target price of Rs 470.

In contrast, CLSA is optimistic about the future of Zomato, particularly its QC arm Blinkit. The report notes Blinkit's aggressive expansion plans, with management guidance suggesting the addition of 2,000 dark stores by 2026. 

Zepto, another key player in the QC market, is also noted for its rapid growth and innovative offerings, such as the Zepto Pass, which has already garnered over 4 million members.

With these developments, CLSA assigns an "outperform" rating to Zomato, citing the strong return on investment for dark stores and the overall scalability of QC models in India.

What sets QC apart is its ability to outperform kirana stores, a feat that even established FMCG giants have found challenging, CLSA said. QC platforms have managed to break even and scale effectively, thanks to their innovative approaches in supply chain management and fulfilment. 

The dark store model plays a key role, reducing capital intensity and optimising real estate costs, while strategic locations ensure delivery within 10–20 minutes.

Additionally, QC platforms leverage data analytics to optimise inventory management, ensuring the right products are always available. The availability of cheap labour in India further lowers delivery costs, making QC platforms more viable and attractive to consumers, CLSA said.

Other contributing factors:

• Technology enhances QC efficiency through real-time inventory adjustments.

• QC platforms offer premium products and niche categories not typically found in kiranas.

• Targeted ads.

• The instant gratification model appeals to consumers seeking convenience and quick access to a diverse range of products.

• They cut out the need for middlemen and streamline last-mile delivery operations, which even big FMCG companies cannot do.