Decoding Zepto- India's 111th Unicorn #Issue01
The tale of a 10-minute grocery delivery app.
In the dynamic realm of on-demand services, we are thrilled to spotlight Zepto. This groundbreaking grocery delivery platform has redefined the quick commerce industry landscape by delivering grocery items within 10 minutes or less.
Abstract
In August 2023, The dark clouds of uncertainty for the growth of Indian startups seemed to be clear with the entry of Zepto - a quick commerce groceries delivery startup headquartered in Mumbai into the unicorn’s club after raising its $200M Series E funding round at a valuation of $1.4 billion from StepStone Group.
Founded in July 2021 by the visionary duo, Kaivalya Vohra and Aditya Palicha, both Stanford University dropouts with a passion for innovation. The company began with a different name “ KiranaKart’ Later renamed as Zepto. Resembling its name (the word "Zepto" is an acronym for the factor of 10⁻²¹).
Zepto's journey to unicorn status is indicative of the unwavering confidence that investors place in both the startup and the quick commerce sector. As per several research reports, The size of the Indian grocery market was US$ 6.8 Billion in 2022 (Rs 56200cr), with a growth rate of more than 37%. The quick commerce subcategory is expected to jump from $300 million in 2021, about ₹2,478.9 crore, to $5 billion by 2025, which is around ₹41,315 crore. Zepto is giving good competition to companies like Zomato, Blinkit, BigBasket, and Dunzo, many of which have already been in the sector for years.
Zepto is placing a strategic bet on revolutionizing grocery delivery. By leveraging cutting-edge technology, hyper-local infrastructure, and a meticulous operating cadence, Zepto aims to outpace competitors in the speed race. The objective is clear: serving more customers per unit of labor time, resulting in cost savings and, most importantly, delivering an unparalleled user experience.
DUAL PILLAR Product Strategy
With the tagline “Groceries Delivered in 10 Minutes'' Zepto’s product can be broken down into symbiotic relationships existing between the customer-facing app and the robust "dark stores." At the heart of Zepto's success lies the seamless integration of these two elements: the app ensures an optimal user experience, while the strategically positioned "dark stores" serve as the backbone, managing inventory and orchestrating orders for efficient and cost-effective deliveries.
Zepto has established a dark store model – compact micro-warehouses spanning 2.5K-3K square feet. The only difference between a dark store and a departmental store is that they are not open to the public. Instead, they are established for retailers to stock their inventories. These stores eliminate the need for consumers to visit, ensuring swift order assembly for drivers' seamless pickups.
With over 200+ dark stores strategically scattered across cities like Mumbai, Pune, Delhi, and more, form a network enabling short delivery times. Zepto demonstrates scalability and adaptability. Tailoring inventory to local customer shopping patterns and preferences, each dark store serves a specific area, ensuring quick, customized deliveries and avoiding unnecessary costs. The model's cost-effectiveness, consuming less than 10% of company revenue, empowers Zepto to operate profitably in multiple cities.
Zepto's in-house software most likely an AI tool, optimizing paths within dark stores, plays a pivotal role in maintaining quick delivery times. Zepto’s CEO Aditya Palicha once mentioned that within 76 seconds of an order being placed, the order is packed and ready for pickup. The delivery riders are kept on standby for different locations. As soon as the order is placed, the riders have more than sufficient time to deliver the product to its destination.
The average distance of a Zepto delivery is around 1.8 kilometers, enabling the company to deliver its items in a median of 8 minutes and 47 seconds.
How Zepto Makes Money?
Running Zepto, from a close-up and wide-angle perspective, involves several expenses. They use dark stores to store groceries and rely on delivery partners to get these products to customers. However, this operation can be quite expensive. Zepto has fixed costs like rent for dark stores, salaries for those managing the stores, and payments for delivery partners. On top of that, they have to cover costs related to technology, product development, and marketing. So, you might be wondering, how does Zepto make money by selling groceries?
Zepto makes majority of its revenue by adding small margins to the products consumers buy. Additionally, they also charge a small delivery fee of less than $0.25. Their other revenue comes from handling charges and In-App Product advertisements.
Key Opportunities
Domestic Growth
Whenever Zepto makes headlines about securing funding, they make it clear: the cash infusion is earmarked for ramping up operations, unveiling more dark stores, and connecting with a broader customer base. They've got a strategic eye for areas where they stand out without facing too much competition, making it a more cost-effective venture to bring in new customers. Zepto's game plan is all about expanding its footprint to cover as many regions as possible. The logic behind this? Well, the more dark stores they set up, the better their profit margins become. It's not just about serving customers faster; it's also about snagging better deals from suppliers and spreading out costs more efficiently.
Supply-Chain Verticalization
In February 2023, Zepto unveiled a game-changing app called Zepto Bloom, designed to be a farmer's reliable companion throughout the entire agricultural journey – from planting seeds to selling produce. This innovative "farmer's app" comes with a network of collection centers strategically placed in villages across India. The primary goal is to empower farmers, allowing them to sell their crops directly without the need to navigate through long-term credit agreements. Zepto Bloom is set to revolutionize the farming experience, offering support at every stage and giving farmers more control over their produce and sales. This app can be a strategic investment for Zepto to lower the risk of low inventory and quality variance.
Key Risks Associated with Zepto
Profitability in a price-sensitive market
As India experiences remarkable economic growth, it's on track to become the world's third-largest economy by 2027. This surge in prosperity means more Indians can now afford convenient services like grocery delivery. However, many of Zepto's customers have roots in a market where cost is a critical factor, especially concerning food. These spending habits are deeply ingrained and won't fade away overnight.
To win over price-conscious consumers, Zepto consistently rolls out promotions to engage users and cultivate lasting loyalty. The challenge lies in how Zepto can strike a balance, maintaining profitability amid logistical and delivery costs in this fiercely competitive market.
Strict Timeline
Zepto's standout feature of delivering orders in under 10 minutes, while impressive, also poses a significant risk. The entire process, from producing the items to ensuring their timely delivery, is a delicate operation where even minor hiccups can disrupt the commitment to a set timeline. Challenges like supplier issues or a slight delay in locating a specific item in the dark store can throw off the well-oiled machinery. While Zepto has likely fine-tuned its business model to navigate these obstacles, the inherent danger of such a swift delivery promise remains a factor to consider.
Looking beyond Zepto's current operations, it's crucial to recognize the challenges that other companies in the same league have encountered globally. Both Getir and Gopuff have faced substantial layoffs. Every global market has its nuances, and Zepto seems to have carved out a distinctive success story by emphasizing precise operating procedures and concentrating on densely populated areas in India. However, it's important to note that fundamental risks persist in the overall business model.
Regulatory Guidelines
As India experiences economic growth, the lives of its citizens are also improving. However, the aging infrastructure in many cities poses challenges, particularly in terms of unsafe roads. With increasing wealth, there's hope for improved road quality and better traffic regulations. While this is a positive development for the safety of Zepto's drivers, it also presents a potential challenge to the company's swift delivery times. Given that a driver has only about seven minutes to deliver an order, effective navigation through any traffic becomes crucial. The pressure is on for these drivers to skillfully maneuver their bikes between the dark store and the customer to meet the tight delivery deadlines.
The bottom line
In a world where customers crave faster and more efficient delivery, Zepto is stepping up to the challenge. By outpacing competitors in delivery speed, Zepto's riders can handle more deliveries in less time. This not only satisfies customer demands but also slashes costs for fuel and storage, thanks to their innovative business model. As Zepto evolves into a unicorn in the quick commerce sector, there's a buzz about the positive outcomes it might bring. Now swimming in the big fish tank, it's intriguing to see how Zepto will hold its own against the major players in the industry. The spotlight is on Zepto, and it's set to make waves in the competitive world of quick commerce.