BizReview Ep7: All Eyes on Zepto

The Quick-Commerce wars have barely begun and experts already predict this industry to be the bloodiest battle ground in the coming decade. With the big guns blazing and iconic companies like the Tata group backing BigBasket (and looking for an upcoming IPO), Reliance backing JioMart (and the now almost-in-its-grave Dunzo), Zomato and Swiggy backing Blinkit and Instamart respectively - the underdogs in this game of chess remains, ironically enough, the creators of this industry - the young ‘Zepto’. With the recent fundraising round on Friday, June 21 which concluded with the company raising $665mn at a valuation of $3.6 billion, this puts the implied valuation of the industry to $13 billion. With the Flipkart HQ all locked and loaded to enter the industry, how dynamics shape up and how quickly growth is facilitated remains something to be seen; but this episode of BizKrispies is about where it all began. 

During the lockdown, when the 19 year old Stanford dropouts - Aadit Palicha and Kaivalya Vohra found themselves trapped in Bombay with their movements restricted, they realised how it was a problem for everyone to get groceries and essentials. As a proof of concept for their Y-combinator project, they created a WhatsApp group with the residents of their building where members of the group could send in their grocery requirements and Aadit and KV would get them delivered in association with a grocery shop owner. This was the birth of Kirana Kart. Soon, realising how the PoC was proving effective, AP and KV widened their base and started serving more customers across localities of South Bombay with more grocery stores affiliated with them. While KiranaKart promised delivery in under an hour, they accidentally managed to deliver an order in the Bandra locality of Mumbai within 20 minutes of it being placed and found that the customer was overly surprised and pleased. Having raised funds from their Y-Combinator incubatorship, they realised that eventually it will be speed which would define the industry. 

The gap in the market was imminent - customers wanted instant deliveries to fulfil any unexpected needs and to reduce the stocking up of groceries in order to declutter their fridge. The next-morning delivery or slot-wise delivery schedules followed by Grofers and BigBasket weren't enough - the need was to outperform the next best alternative, to deliver supplies faster than it would’ve been possible for an individual to walk up to their closest store and acquire them. ‘10 minutes’, the magic number was thus born. 

It wasn’t much later that the Zepto boys realised how unfeasible it would be to only serve as an aggregator and fulfil their vision - they couldn’t just pick up and deliver, they needed to be the distributors themselves. With some brainstorming, they came up with the need to come up with ‘dark stores’ - well designed and scientifically laid-out warehouses of sorts that would store all items necessary for delivery. Every two kilometres, according to their calculation, would need a dark store to service every household of every locality within ten minutes keeping traffic in account and ensuring that delivery riders maintain a safe speed of 25-30 km/h and don't overspeed.

According to the plan’s blueprint, every dark store would have around 15 organisers and packers, who, as soon as an order would be placed, would arrange items by bringing them out from the allotted shelf code and pack it up - all within 2.5 minutes and the order would be processed and dispatched within 30 seconds, allowing the delivery rider with 7 minutes in hand to cover a distance of 1.5 kms on an average. 

On the finances front, zepto’s gross margin is 15-20% of its order value and the delivery rider is paid Rs 30-40 per order delivered. Additionally, the packers are paid salaries  of INR 15-20k per month and there are additional expenses including rentals, electricity, utilities, software management, payment gateways and backend operation expenses - which basically means zepto generates a positive EBITDA if an order crosses INR 400 approximately. 

Recently Aadit Palicha went on record saying how business performance allowed the insane fundraise which they pulled off and how they want Zepto to be a $50 billion brand in the coming decade, stating how a miracle in innovation and business like this is possible “only in a country like India.” He also stated that 75% of the dark stores are now EBITDA positive and the gestation period to bring a store to profitability has been reduced to 6 months from the initial 23 month period. With ambitious aims to expand the dark store outlay to 700 soon, Zepto has ambitious targets and so does the entire q-com industry. With the founders keen on making it big with Zepto Pass and Zepto Cafe too, what the future holds would be an interesting fairytale to monitor.