When we started this 12 months ago, every conversation we had was,
“You're totally out of your mind. This is never going to work."
Yet in less than a year, these two Stanford University dropouts have managed
to prove these early doubters wrong.
At that point, we had already scaled to a couple million dollars of annualized revenue.
We said here's an opportunity to, raise a large amount of capital,
it's got clear product market fit.
How many people in their lifetimes get an opportunity
to build a potential generational company?
And we figured that was just sort of a more exciting opportunity
than studying in an elite University.
And their leap of faith has so far paid off.
The 19-year-old founders intend to change the way groceries are delivered in India.
Their company is now valued at $900 million.
Aadit Palicha and Kaivalya Vohra are the founders of Zepto,
a start-up from India that promises to deliver groceries in less than 10 minutes.
They are just one of many businesses to join the wave of what's known as quick or instant commerce.
The childhood friends founded the business in July 2021,
right in the middle of the Covid-19 pandemic.
Operations started two months later.
At the time, there was a surge in demand for delivery services
as many stayed home during nationwide lockdowns.
Zepto says it is now adding 100,000 new users daily,
even since its launch one year ago.
Making it one of the fastest growing quick commerce apps in India.
Grocery is such a high frequency category.
It's not a purchase that you make once a month, or, you know, once every two, three months,
you're making grocery purchases, at least in India, multiple times a week, right.
And so, when you're engaging in a chore, that's very high frequency,
the friction of getting that chore done, is paramount.
The idea for Zepto came while they were stuck inside their homes in Mumbai during a lockdown.
At that time, you know, online groceries will take six, seven days to deliver,
offline options were practically shut down or unavailable, right?
So, it was incredibly difficult for us to get groceries.
And we had sort of similar conversations with our neighbors
that complained about pretty much the same problem.
That's when we said, hey, you know, we love building.
We've done that, sort of growing up as kids as well,
why don't we try building a solution for the folks in our neighborhood?
Aadit and Kaivalya are no strangers to the instant grocery delivery business.
In 2020, they started KiranaKart, offering supermarket delivery services in Mumbai.
During KiranaKart, we had been delivering roughly around 45-minute type delivery timeframes, right.
But some people that were getting their deliveries and a 10-15 minute timeframe.
The customer facing metrics in terms of their retention and how much they liked the platform
was significantly higher for those people that got the deliveries in that 10 to 15 minute timeframe,
which is why we said, "Hey, look, maybe there's some value in exploring that."
In order to fulfill grocery orders in under 10 minutes, the duo established a network
of dark stores, or microdistribution hubs, across cities.
We design our network across the city, to make sure that our points of pick up
are very close to population clusters in a specific neighborhood.
And what ends up happening is that the average distances of our deliveries are so short that
we're able to get deliveries done consistently in 10 minutes.
Right now, the average distance of Zepto delivery is between 1.7 kilometers to 2 kilometers,
where food delivery or any other sort of hyperlocal delivery would be as high as
2.5 times larger than that or longer than that.
Today, Zepto operates hundreds of dark stores across 10 cities in India,
with tens of thousands of delivery drivers at work.
The start-up says it is currently delivering 90 to 95% of its orders in 5 to 20 minutes.
But Zepto isn’t the only quick commerce start-up in India,
and competition is heating up both domestically and globally.
The country’s online grocery market is set to be worth around $24 billion dollars by 2025.
If you look at all the other major categories of e-commerce, electronics, apparel,
you take all of them and combine them, they're a fraction of the grocery market.
And so, we see sort of that opportunity being, you know, too compelling to pass up.
So, what does Zepto need to do to set itself apart?
A survey of European consumers found that user experience, fast delivery and reliability
were the top priorities for customers choosing an instant grocer.
Reliability comes in many ways.
One is reliability in terms of, yes, it deliver on time, but also reliability in terms of if
I ordered 10 things, I get those 10 exact things.
And also, if I order fruits and vegetables, the highest quality possible.
So that's sort of where Zepto comes in.
And it’s taken this market by storm.
Zepto’s popularity has investors excited too.
As of May 2022, the company had attracted $360 million from investors, including Y Combinator,
U.S. healthcare consortium Kaiser Permanente and Nexus Venture Partners.
I think one of the key drivers of the investment success that we've had,
that has been very difficult to raise new equity capital from, is because unlike
a lot of players in the space, we've actually put ourselves in a position where we've had
a lot of operating discipline, when we went to investors this time around,
we showed very, very clear paths to profitability.
We went from $0 in revenue roughly a year ago to today we're doing have hundreds of
millions of dollars in annualized revenue.
We're still talking in terms of multiples and not percentages when it comes to our
growth rate, and that's something that we're excited by.
Even so, the days of easy money for cash-burning tech companies are gone
as interest rates rise and investors demand more results.
Zepto claims it has managed to reduce its cash burn rate by 5 times on a per-order basis,
while making $200 to $400 million in annualized revenue.
How did you guys manage to keep your cash burn low?
We're in a position where you look at the size of our balance sheet, we have effectively
got capital to last us multiple years, in the context of this downturn,
and we also have our overall sort of capital spent as a percentage of revenue,
operating in a very healthy place, especially for a high growth consumer internet company.
Forcing ourselves to be efficient to make every dollar last.
We're able to do more orders with the same amount of cash,
we're able to acquire more customers with the same amount of cash.
Q1 of 2022, we grew about 800 to 900%, Q2 is looking like roughly 300% or so.
With that 300% growth, we were able to keep burn flat,
where in most companies, it would be growing exponentially along that growth, right?
You're spending, at least 2x more in cash.
Zepto’s name comes from zeptosecond, which is the smallest unit of time
But as demand for fast deliveries grow in India, so does the pressure on drivers
to complete orders as quick as they can, sometimes at the expense of their safety.
In February this year, New York City legislators proposed a bill that would ban delivery companies
from promoting 15-minute delivery times.
This was due to worker and pedestrian safety concerns.
There are similar concerns in India too as the instant commerce space becomes more popular.
How are you guys managing fleet safety?
A lot of people do misunderstand how we get fast deliveries done, right.
The thought process that, okay, you get fast deliveries done because
you're pushing your riders to drive rashly.
The reality is actually that our business model is designed to deliver the core value
proposition of 10-minute delivery through short distances, and not fast speeds.
We're seeing our average distance per delivery, between 1.7 to two kilometers per hour,
60 to 90 seconds goes in pack and dispatch, you got eight and a half minutes
to effectively travel 1.7 to two kilometers.
That's what, 20/21 kilometers per hour, which is really well within, even what the average
Indian biker would comfortably be 25, 27 kilometers per hour.
According to Zepto, there are no penalties for delayed deliveries,
nor are there any incentives for early deliveries.
We've got medical insurance, free doctor consultations, family health care,
along with other benefits that sound basic to you and I but are actually luxuries for them.
The fresh funding that Zepto has in the bag may seem like a luxury too.
But Aadit and Kaivalya are determined to grow their company sustainably,
while eyeing expansion into other cities in India.
We're hoping I guess, over the next couple of quarters that we can touch the billion
mark when it comes to annualized gross revenue.
Currently the thing that we're trying to maintain, basically spending less month on month.
I think we're blessed with a business that's growing rapidly.
This came out as a personal project between Kaivalya and I to see if we could solve
a problem at a small scale in our neighborhood and eventually evolved into the company
that we are today in which we're incredibly grateful for.