The Zepto Boys: Unexpected competition for Amazon
With Zepto, a rapid commerce company that has established a new paradigm in online commerce, Aadit Palicha and Kaivalya Vohra were insane enough to think they might alter the market for online grocery delivery in 2020. Newcomer Zepto, valued at $900 million, is currently competing with Big Tech giants on delivery time and formats.
Steve Jobs could never have imagined that 15 years after delivering his Stanford University commencement address in 2005, two 17-year-old boys would follow in his footsteps and decide to forgo enrolling in the esteemed computer science program at the same university to pursue their entrepreneurial dreams.
Aadit Palicha and Kaivalya Vohra were stupid enough to believe that Zepto, a quick commerce business that has revolutionized online shopping, will change the market for online grocery delivery in 2020. Zepto, a startup valued at $900 million, is currently in a delivery time and format competition with Big Tech heavyweights.
When the pandemic was at its worst, two young people named Vohra and Palicha set out to find a solution for grocery delivery. Instead, they ended up persuading angel investors and venture capital firms to stake $360 million in their “crazy” proposal. Welcome to the startup world of fantasy, where age is just a number and ideas rule the roost.
Zepto is making Amazon and Flipkart look like dated businesses with delivery times of a day or longer in less than a year. Online commerce was developed during the desktop era, and although it has advanced recently, it is still delivering at the same rate as it did in the past, providing a chance for new commerce companies like Zepto to address issues with improved formats and quicker fulfilment.
The latest innovation to shake up India’s mainly monopolized online market is on-demand commerce. Despite being Amazon’s largest and fastest-growing foreign market, Bernstein’s report notes that the country also faces significant competitive pressure in rapidly expanding categories, a weaker value proposition in “New” commerce, limited traction in tier 2 and tier 3 cities, and an unfavourable regulatory environment for outsiders.
The pandemic has sparked the emergence of innovative ideas, and upstarts are upping the ante by achieving something no one could have ever imagined: expanding e-commerce outside of major cities and providing fresh produce and groceries in a matter of minutes.
The Q-commerce player Zepto is already experimenting with private labels in food, high-margin categories like personal care, and 24/7 deliveries of hot snacks and hot beverages with an eye toward profitability. CEO Palicha, who is confident in the direction the business is taking, claims that by October 2023, the business will be on track to process one million orders per day and generate annualized sales of $1 bn.
Suvir Sujan, co-founder and managing director of Nexus Venture Partners, declines to refer to it as the “next Amazon,” instead stating that “On-demand commerce represents a new paradigm in online delivery.” I’d like to declare it’s the next Amazon, but let’s wait till we’ve added more categories and encouraged users to return for more. But only time will tell what is more than just groceries.
The Beginning of Zepto
Palicha enthusiastically welcomes his guests at the Zepto offices in suburban Mumbai with a smile and a Diet Coke from his little refrigerator. Contrary to what one might anticipate from a high school graduate, there is no nervous stuttering.
Palicha has come a long way from the days when he delivered groceries to homes in the suburban Mumbai neighbourhood of Sher-e-Punjab while sporting a green tee with Kirana Kart splashed all over it. Clearly, two years is enough time for a teenager to “grow up.”
The first battle was returning to India from Dubai, where they both attended Gems World Academy for their formal education. Vohra and Palicha boarded their aircraft back to Mumbai with a bag full of start-up concepts after joining the Vande Bharat program, a government initiative to bring Indians back home during the pandemic.
As no one wanted to rent an apartment to two teenage males, they decided to bunk at Vohra’s family-run bed and breakfast in Andheri East after arriving.
They used to bring groceries to clients’ doorsteps after picking them up from Kirana stores at the beginning, which gave them insight into challenges with route planning, delivery times, and order fulfilment. But the most important lesson was that they couldn’t earn money by doing chores.
At this point, they realized that if they wanted to create a successful company, they had to control the entire fulfilment process. Delivering and picking up groceries from Kirana stores wouldn’t provide them with the necessary margins. In those early days, they began receiving 2000 orders daily via WhatsApp groups and the first version of their app, KiranaKart.
The Zepto Birth
As soon as their retention measurements revealed that deliveries within a 1.8 km radius reached within minutes and helped them retain consumers, the model of rapid commerce quickly began to take shape in their minds. Incorrect products in the cart were another consumer complaint. To increase retention, Vohra and Palicha began putting their thoughts to these issues.
Palicha explains, “We had a strategy where we were testing hyper local delivery and that garnered us 2000 orders a week. At first, Kaivalya and I were doing the delivery ourselves. Orders were unclear, and inconsistent delivery schedules were a problem.
Our initial lesson was that having a large number of SKUs would be beneficial. The second problem the team ran into involved quality. Palicha continues, “We looked at cohorts and discovered that delivery times of more than an hour were a problem.
Friends had by this point urged them to apply YCombinator, and once they had completed the program, they had the assurance they required to leap. Two years ago, YCom paid the two guys $125,000, with the remaining funds coming from other angel investors. When they reduced delivery time to less than 20 minutes, they struck the sweet spot. When we delivered in less time, “customers started interacting often,” says Palicha. They opted to scale at that point.
The bus is boarded by Nexus Partners
Palicha and Vohra set out to find the bigger investors for their firm after working on the early versions of the app and learning from their failures. The pair were prepared to take on a legitimate venture capital firm with their own distinctive fast commerce pitch after receiving their training and lessons from YCombinator.
The CTO of Zepto, Kaivalya Vohra, reflects on their early days: “We chose to leave Stanford and work on a startup that would address a customer problem. In 2020, we decided to create the KiranaKart app, which will allow customers to order goods from nearby supermarkets. That is where we first learned things.
Quick Commerce is a well-known industry on a global scale, but its main concentration is on consumer goods like ice, cigarettes, and alcohol, which are frequently purchased from Q-Commerce players.
In established marketplaces, organized retail players supply the need for fresh produce with nearly every block having at least one store. However, both of these marketplaces are dispersed and the quality is a problem in India.
Palicha concurred when Suvir Sujan of Nexus Venture Partners informed him that their plan to distribute goods to Kirana stores would not be successful. He recognized what wasn’t working and was evaluating it to improve the model, Sujan recollects.
He was able to express my ideas about creating several business levels quite well. They have both the technical know-how and the wisdom to recognize that they would require senior staff to create the business.
Palicha began conducting senior professional interviews as soon as it received funds from Nexus to develop the team. Few people wanted to work for a business that had no name and was run by a 19-year-old. In the end, Palicha’s team will consist of individuals who share his passion for problem-solving and upending conventional wisdom.
Amritanshu Nanda, chief marketing officer of Zepto, said, “What drew me was the vision and zeal of the two founders and the significant disruption we were striving to create in the fresh and grocery industry by cutting delivery to under 30 minutes from one day.”
At eleven o’clock, when our first conversation with them ended, I walked away and called my family. Since 2008, Nanda has gained valuable experience working for startups and eccentric business owners.
The Quick Commerce Business
Instead of just reducing the amount of time it takes to deliver the goods, quick commerce focuses more on employing technology to solve issues. Zepto’s dark store in Andheri East can be visited to better understand the company’s business strategy.
According to Palicha, they learned how to delight clients in the early going. “We embodied this thing and we felt it would be wonderful,” he explains. We knew it would be significant when we observed customers being happy. In some ways, we evolved into the product.
The gloomy Zepto store in Andheri East is similar to the trading floors of earlier stock exchanges, where the outcry system was frequently used to purchase and sell shares. While delivery partners wait to pick up the deliveries given to them on the other end, packers at the entry wait for their orders to be assigned to them.
A bell rings each time an order is assigned, and during periods of high demand, the bell rings nonstop. Order numbers and the length of time it took each packer to complete each order are shown on a large screen. On their mobile devices, packers are assigned orders as soon as they are placed, and they pack them in 76 seconds.
Since bread, eggs, and poultry goods are in high demand, they are located right at the entry. Product placement is a crucial consideration. Every time a product flies off the shelf, the mobile device reads the inventory so the warehouse knows what has to be restocked.
There must be a method to deliver packages in 20 minutes, and it all starts with route planning. It is crucial to store just enough of the products for which it is vital to be able to estimate demand to have things available that customers frequently purchase.
Sujan explains, “Demand prediction in a hyperlocal setting requires extensive data analysis. To guarantee a high inventory turn, this data must be sent back into the inventory management systems. The demand forecast is crucial for the success of the entire value chain.
Due to the rapid inventory velocity, dark stores are small. The precise number of dark stores Palicha and his group currently operate throughout India is a secret.
Once Nexus agreed to the plan, implementing it became simpler, and Palicha and Vohra began hiring important personnel, which involved bringing the brightest minds on board. They had to start with the best supply chain professionals because delivering groceries was not profitable.
However, it was difficult to hire because few senior experts wanted to work for an 18-year-old child. Palicha remembers, “People told us we had lost it when we told them what we planned to accomplish. Delivering between 10 and 20 minutes is impossible. Why hadn’t anyone tried it, if it was possible? The initial months of early to mid-2021 were devoted to finding the best talent.
Zepto purchases consumer goods from businesses and farms for the whole fresh segment. Private labels and high-end food products like dry fruits are being experimented with.
The Future Route
Zepto will look at applying the strategy to numerous other sectors that have previously been dominated by the likes of Amazon, including pharmacy, fashion accessories, café, electronics, and personal care. After successfully delivering groceries and fresh produce in the on-demand commerce area. The business aims to overtake Amazon’s market dominance in certain oligopolistic industries. All of these categories can be delivered with the guarantee of quality and simple returns in a lot less time. Can a novice develop the same experience across many categories? Answers Palicha: “KV and I want to build the next e-commerce platform in urban India.” This story is far from over.
