Zepto mania: Stealing the hyperlocal delivery market away
Business
Zepto, a <6 month old start up recently made headlines when they raised $60M in funding, at a $225M valuation. Given the recent buzz around startup capital raises and IPOs, you might wonder what the fuss is about.
The origin story
Zepto was the brainchild of 19-year-old co-founders and Stanford drop-outs, Aadit Palicha and Kaivalya Vohra, who came back to India during the pandemic.
As two bachelors fending for themselves during the pandemic, they quickly grew frustrated with the online grocery wait times, sometimes reaching 2-3 days. Having already collaborated before on a ride hailing app for school children, they set their sights on solving the hyperlocal grocery delivery, with a promise to deliver within 10 minutes!
So how did they do it?
Dark store model (i.e. cloud warehouses) custom designed to ensure easy movement and packing within 60 seconds!
Geospatial intel like road patterns, traffic dynamics, weather, last-mile supply availability to optimize delivery routes.
AI powered demand forecasting to prevent stock outs.
The result?
For the curious soul:
Zepto /ˈzɛptəʊ/
(used in units of measurement) denoting a factor of 10^-21 or 0.000000000000000000001
"zeptosecond"
Alluding to their astonishingly short delivery time with a median of 8m 47s.
Turtle or hare?
Don’t be fooled by the tender age of its founders, as Zepto is backed by highly competent management (senior leaders from Flipkart, Uber, Dream11, Pharmeasy, and Pepperfry) and funds (Glade Brook Capital, Nexus, and Y Combinator.
Its also backed by angel investors like Lachy Groom, Neeraj Arora (Ex-Whatsapp CBO) and Manik Gupta (Microsoft Exec).
Do the numbers agree?
Having only started in April 2021, it has already reached 100K downloads on the Playstore with MAUs said to be growing by 200% each month.
Zepto has also managed to uphold a high level of customer service boasting a 78% retention rate and 85% NPS (customer satisfaction).
Its 40 dark stores are expected to touch 100 in 2022, to serve its expansions from Mumbai, Bengaluru and Delhi to Hyderabad, Chennai, Pune, and Kolkata.
Market dynamics
The Q-commerce market is said to be valued at $21 billion by 2025 given rising income and affluence, lower tier consumption and e-commerce penetration.
So whilst there is enough room to play for all, Zepto finds itself competing on delivery times with Swiggy Instamart, (15-30 minutes), Zomato backed Grofers that plans to launch 10-minute grocery deliveries and Google-backed Dunzo Xpress Mart (19 minutes).
The big boys will have their say
All’s good under the hood at present but only a fool would downplay the threat posed by the big boys. Although Zepto has quicker delivery vs Tata’s Big Basket and Amazon Fresh (1-2 hours), it’s unit economics are 40% costlier.
Further, the incumbents have already proved their mettle in freshness, quality and variety of grocery and essentials, an equally, if not more important value proposition.
Remains to be seen how this competitive space shapes up.
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Insightful article. Source for Zepto's unit economics?