Streamlining Commerce: Zepto’s Strategy for Optimal Efficiency in 2023
( Anees Hussain is the writer of The Financial Express, who provided the article’s source and credit.)
The smallest unit of observable time used in physics is where the word Zepto comes from. However, the namesakes, two 20-year-old Stanford University dropouts, appear to be temporarily defying physics.
The quick commerce player, which began operating only 2.5 years ago after changing from its previous avatars, is present in seven cities, runs about 240 dark stores, maintains more than 6,690 stock keeping units, and has doubled its daily delivery capacity to 350,000 orders in less than a year.
The cherry on top, of course, was when it secured $200 million at a $1.4 billion valuation last month, breaking India’s 11-month unicorn drought. Not only that, but Zepto also has another investment round planned before its anticipated IPO in early 2025.
Given the swift decline of rivals like Dunzo, if all of this seems like something out of Alice in Wonderland, hold on. The goal going forward, according to Zepto co-founder Aadit Palicha, is to make Ebitda (earnings before interest, taxes, depreciation, and amortisation) positive in 12 to 15 months.
Aside from his investors, few people would be persuaded by his claim. The burn is, after all, the primary obstacle to swift trade. It is exceedingly difficult because of last mile logistics, dark shop operations, and perishable commodities losses. Additionally, grocery store low margins are a stark reality that is difficult to deal with.
So many claim that turning the firm successful is a challenge, if not a mirage.
The outside noise doesn’t bother Zepto, though. The corporation acknowledges that in FY22, it took 3.75 rupees to make one rupee, resulting in a loss of nearly 390 crores. But it asserts that these figures have greatly improved since then.
Zepto claimed in its pitch deck to investors that it had doubled annual sales from about Rs 2,500 crore in August of last year to about Rs 5,000 crore in March of this year, and that it had decreased its cash burn from about Rs 90 crore in September 2022 to about Rs 55 crore in April 2023 with the help of Boston Consulting Group.
and has increased its annual average order value by nearly 40%.
As a proportion of total sales, the firm was able to lower its dark shop leasing expenditures from 2.5 percent in June 2022 to 1.5 percent in March of this year. Additionally, it has resisted the need to enter more recent zip codes and neighbourhoods.
Instead, it has placed a strong emphasis on efficiency optimisation, increasing output delivery, and maintaining the specified delivery median time. Customer retention rates have increased as a result of that. That is a wise course of action because scaling outside of major cities will probably be difficult. This is due to the fact that each store’s daily order volume requirement is essential to profitability.
According to Palicha, the median delivery time is now 12–13 minutes, but efforts are being made to reduce it to 8–9 minutes by the end of the year. Zepto’s chief growth officer, Viral Jhaver, continues, “We recognise that customers place a high value on the concepts of proximity and quickness. Our conversion and retention rates from the same area increase as the predicted arrival time declines.
Due to many tech-based optimisations, Zepto claims its client acquisition costs are half those of other companies in the market. “We streamlined our whole price structure at the end of last year. We no longer impose a shipping fee for an average customer whose basket value is over ‘199.
Other companies in the fast commerce and food delivery industries operate differently from this. It has also lessened the pressure to attract new users, says Jhaveri, which has increased our client retention rates.
Pricing is also another concern for customers. Customers have the choice to compare pricing on both online and offline venues, as we have seen. We have focused a significant portion of our work on optimising pricing levels, adds Jhaveri.
He says that because a grocery shopping cart often contains many items, a single customer isn’t encouraged to compare prices across various platforms for each item. “On 20% of our inventory, the majority of which consists of well-known value items such daily eggs, fruits, veggies, etc., as well as certain home and personal care products, we have managed to be incredibly competitive. We sought to match the competitors on the remaining 80% of our selection, adds Jhaveri.
As a result, an order on Zepto is often between Rs 15 and 20 less expensive than on other online marketplaces. Increased revenue from advertising has been a significant factor in reduced Ebitda margins and cash burn.
To gain a closer synergy with Google and Meta, the start-up has thus made substantial adjustments to its SEO approach. Due to the large number of extremely low quality users who were coming in through this channel, affiliate marketing activities have been discontinued.
Zepto has made very little investment in outdoor advertising and zero in print advertising. Zepto also has ambitions to open Zepto Cafe, a new service, in each of the seven main metro areas. It is already available in Mumbai.
Zepto Cafe serves a variety of foods, including meal combinations, snacks, and drinks like tea and coffee. The platform, which was initially established in collaboration with Chaayos and Rebel Foods, has decreased its need on partner outlets and now prepares the majority of its cafe units inside of their own storefronts.
It presently operates 20 of these cafés and intends to build 40 more over the following three quarters. Cafes may be opened for around 50% less money than darkstores and can make three times as much money as FMCG or supermarket products.
“We consider Zepto Cafe to be a significant factor in the entire company’ profitability. Therefore, we want to significantly scale this up in the days to come,” adds Palicha.
Additionally, the business is creating its own brands for products like meat and housewares. “3% to 4% of our sales are accounted for by house brands. According to Paricha, we want to reach 10-12% quickly.
In the rapidly evolving world of quick commerce, where consumer demands for instant gratification and convenience are paramount, Zepto, a rising star in the industry, is taking a distinctive approach.
While many players in the quick commerce (or q-commerce) sector are sprinting to capture market share as quickly as possible, Zepto has chosen a more measured path, adhering to the age-old adage of “haste makes waste.” This deliberate approach may seem counterintuitive in a space where speed is of the essence, but it is yielding intriguing results and challenging conventional wisdom.
Quick commerce, or q-commerce for short, is a relatively new and burgeoning sector within the broader e-commerce landscape. It refers to the lightning-fast delivery of everyday goods and essentials to consumers, often within 30 minutes or less.
Q-commerce companies operate on the premise of fulfilling orders with unprecedented speed and efficiency, leveraging a combination of cutting-edge technology, data-driven logistics, and a network of local dark stores or micro-fulfillment centers.
The rush in the q-commerce sector can be attributed to several factors. Firstly, the COVID-19 pandemic accelerated the adoption of online shopping, prompting companies to adapt quickly to meet surging demand for home deliveries. Secondly, fierce competition has led to a race to establish market dominance before others can do so. Companies are vying for customer loyalty, market share, and investor attention.
In this fast-paced environment, Zepto stands out by choosing to “make haste slowly’’. Zepto prioritizes delivering high-quality service over achieving rapid expansion. Rather than expanding to as many cities as possible, Zepto has concentrated on optimizing its operations in select markets. This means they may serve fewer cities compared to their competitors, but they strive to provide a more seamless and reliable experience in these areas.
Zepto’s approach is highly data-driven. The company meticulously analyzes customer behavior, order patterns, and delivery routes to fine-tune its operations. This granular level of analysis allows Zepto to make data-backed decisions that optimize efficiency, reduce waste, and enhance the customer experience.
Instead of aggressively burning through capital to subsidize ultra-fast deliveries, Zepto is committed to sustainable growth. This means they are less likely to participate in price wars that could compromise profitability in the long run. Zepto aims for a more sustainable business model that can withstand market fluctuations and economic challenges.
Zepto prioritizes partnerships with local businesses and communities. By working closely with small-scale suppliers and integrating into the neighborhoods they serve, Zepto fosters a sense of community and trust. This approach helps them adapt to local preferences and challenges, enhancing their reputation and customer loyalty.
Despite its measured approach, Zepto doesn’t skimp on technology. They continue to invest in cutting-edge solutions for inventory management, last-mile delivery, and customer interfaces. This ensures they remain competitive and agile while upholding their commitment to reliability.
Zepto’s measured approach has yielded some promising results. They have been able to establish a reputation for reliability and quality, which can be a valuable asset in the fickle world of q-commerce. Customers in the markets where Zepto operates often praise their service for its accuracy and consistency.
However, this approach is not without its challenges. Zepto faces the risk of being overshadowed by competitors who prioritize rapid expansion and can saturate markets quickly. Furthermore, investors and stakeholders may demand faster growth and greater market penetration, which could put pressure on the company’s strategy.
In the world of quick commerce, Zepto’s decision to make haste slowly is a fascinating experiment in a field driven by speed and scale. While it may not conform to the industry’s prevailing wisdom, it offers a compelling alternative.
By prioritizing quality, data-driven precision, sustainability, community integration, and innovation, Zepto is proving that there’s more than one way to succeed in the world of q-commerce. Only time will tell if their approach will ultimately prove to be a winning strategy, but it certainly challenges our assumptions about what it takes to thrive in this dynamic and competitive sector.
