The viability of the much touted 10-minute grocery delivery or the quick commerce model as it is called is still being debated upon but quite contrary to popular perception, takers of fast deliveries may not just be restricted to the millennials and GenZs. "The biggest cohort on the platform is moms," Aadit Palicha, co-founder & CEO at Zepto, tells Fortune India. The nine-month old startup bagged a fresh $200 million in funding led by Y Combinator Continuity at a valuation of about $900 million. The Series D investment added new investor Kaiser Permanente to the firm's cap table. Existing backers Nexus Venture Partners, Glade Brook Capital and Lachy Groom also supported the funding round. "There's not really much doubt I think from my conversations with investors on quick commerce as a model and its viability. This round especially in an environment like this is a huge mark of investor confidence that we are getting it right," says Palicha.
Quick commerce as a model is a cash guzzling one and analysts have often raised concerns about firms' ability to make money on orders given that the ticket sizes are usually not that large. Lower average order values coupled with high cost of servicing the deliveries makes for an unpalatable combination in terms of economics. Rival Blinkit's (formerly Grofers) pivot to a quick delivery model has certainly not been a smooth one and the firm struggled to raise capital, with Zomato extending it a loan of up to $150 million to stay afloat. The funding in Zepto also comes at a time when the instability of the macro environment and tightening of interest rates by global central banks have nudged investors to become prudent with deployment of capital. Analysts say that the flow of capital into startups will be selective and only sound ideas will get funded. "We have grown quarter on quarter, turned multiple micro markets profitable on an operating basis, we have got our burn per order down significantly. Today, we are at hundreds of millions of dollars of GMV (gross merchandise value), growing 40%-50% month-on-month," claims Palicha.
In a statement, Zepto says that it has reduced burn by as much as five times on a per-order basis. When asked about the mechanics it deployed to achieve the same, Palicha says that the firm has managed to build a strong supply chain network, curbing wastage. The startup also claims to be banking less on discounts now. "From February to March, the month-on-month growth was 61%," says Palicha, acknowledging that the quick commerce model is a rather tough one. "The real anxiety about it is the ability to execute on it. Quick commerce as a model is incredibly intense..it is a business that requires a lot of attention to detail..there's a lot of complexities in the supply chain," says Palicha.
Palicha did not elaborate on the number of orders the firm records per month and the number of customers it has. Palicha, however, claims that mature customers use the platform 2.5 times a week. Categories like fruits, vegetables, meat, bread & dairy products, beverages and cooking essentials sell a lot. "We do millions of orders a month. We should be able to do 10 million orders a month in the mid to long term," says Palicha. Hyderabad is the fastest growing market for Mumbai-based Zepto currently. Delhi and Bengaluru are its other key markets outside its home turf.
The fresh capital will be used to fund expansion. The strategy is to extend its reach to about 20 cities in the next year or so from the current 11. Besides, portions of the capital will also be deployed to hire more staff across departments led by the tech and product teams. "What keeps me up at night is just that I want to maintain and retain this team for the next four years," says Palicha.
Nevertheless, building a startup business and sustaining growth momentum in a competitive landscape is not easy. To widen its revenue avenues, Zepto is piloting a new service called Zepto Cafe in select areas of Mumbai. The idea is to allow the shopping customers to place an order for a quick chai, coffee or other ready to eat items on the platform that will be delivered to them in 10 minutes. The service will be hosted on the same app as a different section. This is also a ploy to enhance customer experience and get them to use the app more. "It is a complimentary experience to the whole grocery buying journey and that is exactly what we want to build," says Palicha.
