Quick-Commerce War : Zepto Has Burned Rs 250Cr In A Month!

The 10-minute grocery delivery startup, Zepto, may be disturbing India’s e-commerce waters with its aggressive expansion as well as because of large funding it has received. The company has been co-founded by Aadit Palicha and Kaivalya Vohra in 2021. As of now, Zepto is competing intensely with other quick-commerce giants like Swiggy Instamart, Blinkit (a subsidiary of Zomato), and BigBasket. At the same time, as it tries to maintain its lead, the company has seen a leap in monthly cash burn to over Rs 250 crore ($30 million), which is an impressive figure considering how ambitious its growth plans are.

Zepto’s Cash Burn Jumps By Leaps And Bounds

From Rs 35-40 crore in May, the company’s expenses escalated to Rs 250 crore in September and even Rs 300 crore in October. These are expected to stay in the Rs 300 crore range for November as well. While this could be unsustainable for the long term, the timing of these investments is strategic. The festive season in India is the peak period for e-commerce growth, and the company has been waiting for a time like this to go on an offensive, particularly in competitive quick-commerce space.

“In their statements, Aadit Palicha, Zepto’s CEO, said that the capital expense of his company remains committed to long-term growth,” reads the report. He said that “(Over) 70 percent of our existing stores have hit full EBITDA profitability,” and the funds are essentially going into capital expenditure, working capital, and operational setups for opening new stores.

Zepto is on the verge of opening hundreds of new stores every quarter, and though the investment is one-time, Palicha is sanguine, mentioning good performances and growth prospects from the new stores. Zepto has been expanding its footprint across India and will continue to do so up to 700 stores by the end of 2024.

Increases in spending are not limited to infrastructure and operations alone. Zepto is spending heavily on digital marketing, performance marketing, and customer acquisition often at aggressive rates. Reports suggest that the firm has increased its digital marketing spend to Rs 120 crores a month, which in turn helped it rise as the top app in the quick commerce segment.

Further, discounts by Zepto, especially on high-demand items such as smartphones and groceries, are serving to acquire customers and expand the base of transacting users. One of those close to the company’s operations said that Zepto had been buying expensive keywords on Google and Meta, which were causing the rates to surge as its competitors were refraining from bidding at those levels.

The source of a leading ad-buying agency added, “The rates to buy keywords have increased over the last month or so because of how high Zepto’s bids are.”Other companies have become stingy and stopped spending because it doesn’t make any sense to keep acquiring customers at that rate.” This aggressive keywords bidding and dominating the digital marketing channels is part of Zepto’s overall strategy not just to increase brand awareness but secure a bigger share of the rapidly growing quick-commerce market.

Poaching Top Talent From Competitors

One of the most important pieces of Zepto’s strategy has been acquiring top talent-particularly from the ranks of competitors. The firm has been doling out whopping hikes to push employees from fellow quick-commerce outfits like Swiggy Instamart and Blinkit overboard. In this cutthroat competition for skilled professionals, Zepto’s strategy has been to poach key talent by promising them biggie offers.

The company’s growth demands Zepto’s recruitment spree. While scaling its operations, the company demands all professionals to handle anything from logistics and technology to operation and customer services. Having garnered a substantial cash pile of $1.4 billion this year through multiple rounds of funding, Zepto has been able to pay salaries big enough to persuade employees away from competitors.

According to sources, Zepto has been offering hikes of up to 50-60% to attract workers from competitor firms. This aggressive approach has caused a stir in the industry, where talent acquisition has become a battleground in itself. “It has become crazy, and they are now giving hikes of up to 50-60 percent to poach talent.

Zepto’s superfast rise is making it a challenge for its rivals to outdo them in retaining the very best talent, as talent is now one of the main accoutrements in the fight for supremacy in quick-commerce. Attracting and recruiting top executives has become an essential component of Zepto’s growth strategy. Here, it is no more than scaling infrastructure or marketing; it is about having the best people to manage things at a time of explosive growth.

A larger movement in Indian tech and e-commerce sectors is equally occurring, in which companies are hiring aggressively to cope with the demands of a more competitive marketplace. This trend is lapped up by Zepto to strategically fill up its workforce with experienced professionals in driving rapid expansion.

Market Share Battle

This growth is not just about talent attraction and burning cash on marketing for Zepto. The company has made such efforts to expand its footprint across India, targeting the top 40 cities, which included key metros like Bengaluru, Delhi, Chennai, and Lucknow. With a target to scale up to 700 stores by the end of 2024, Zepto plans to continue its aggressive expansion into new territories and verticals.

One of the most interesting aspects of Zepto’s growth is the diverse services it is offering. Zepto has just launched its café service, which started out great in Mumbai. Its café offerings, which include beverages, snacks are super popular now. It turned out to be so successful that the company is considering taking the café service out of Mumbai city to the other cities including Delhi NCR, Bengaluru, Hyderabad, and Chennai. This move into café and snack delivery comes as competitors like Blinkit and Swiggy Instamart are also venturing into this space.

The entry into café service is an exciting step for Zepto, not only because it is a diverse product offering but also because it increases average order values. Customers who order groceries are likely to add a beverage or snack, while increasing their entire spend on the platform. In an extremely competitive market, the ability of Zepto to offer a very diverse product is a critical differentiator that will enable it to maintain its lead over the rivals.

Not only major cities, but the company also expects to scale up beyond metro and Tier II or III cities. The growth potential in these cities is tremendous, and Zepto is very eager to tap into the under-served regions of India. While companies like BigBasket and Swiggy are well entrenched in Tier I cities, there is still significant latent demand in other areas of the country. Zepto’s focus on expanding their network of stores and services in these geographies will also help it achieve a strong base in a fast-growing segment of the Indian market.

Zepto’s Road To Overtake D-Mart

In a bold statement, Zepto CEO Aadit Palicha expressed confidence in his company’s ability to better India’s largest retail chains, D-Mart, in sales within the next 18 to 24 months. “DMart is a $30 billion company and they are only 4.5 times our size in sales,” said Aadit Palicha while addressing the foundation day of JIIF in New Delhi recently. If we keep executing well, we will just continue to grow 2-3 times every year. And potentially overtake them in the next 18-24 months, which is an incredibly well-executed consumer company.”

That daunting goal is underpinned by the gargantuan scale of India’s grocery market, which was measured at $650 billion in FY23 and is likely to grow to $885 billion by FY29. Zepto aims to tap the top 50-75 million households in the country. The initiatives are centered around the most populous and commercially active cities. Palicha has a commitment to the future of Zepto, for there was no lack of vision from spending Rs 10,000 crore to the figure of Rs 2.5 lakh crore rising with the years.

However, Zepto’s ambition to surpass D-Mart in sales terms is a very huge ask from the company. What’s important is that the company’s rapid growth and market expansion can make it a giant killer in quick-commerce and grocery delivery space. The efforts that the company places on expansion of its offerings, poaching top talent, and aggressive funding is all geared toward establishing a dominant position in India’s burgeoning e-commerce markets.

In terms of financials, Zepto has witnessed impressive growth. Its GMV for FY24 breached $1 billion, and till May 2024, 75% of its stores had achieved EBITDA positivity. With all these positives coupled with the plan to scale up the network of stores, Zepto should continue witnessing strong growth in the coming years as well. This company, through an expansionist strategy, concentrating on digital marketing, and having huge cash reserves, can be set onto making itself a serious player in the retail space.

The Road Ahead

It is an aggressive expansion strategy, but it involves many risks, especially when cash burn increases multi-fold. Still, it remains focused on becoming EBITDA-positive in the long term, and according to the company, over 70% of its stores today already qualify as EBITDA-positive. So, this means Zepto is not burning cash without a strategy. What the company is doing is that it is opening new stores, marketing and talent acquisition is all about fuelling future growth.

As the competition in the market with public listings of Swiggy and Zomato and the development of more BigBasket and Blinkits continues to grow, its aggressive strategy becomes a challenge for Zepto.

The Important Question Is – How long can these businesses last if they do not change their strategy of burning funds to expand?