“When we started this 12 months ago, every conversation we had was, ‘You’re completely insane, this is never going to work,'” teen CEO Aadit Palicha said.
However, Palicha’s company has managed to prove the skeptics wrong: it is now approaching unicorn status and is one of the fastest growing quick trading apps in India. A unicorn is a startup valued at more than a billion dollars.
Zepto is a startup that promises to deliver groceries in less than 10 minutes. Despite being just one of many companies that joined the instant trading wave, has already caught the attention of investors.
Its latest cash injection of $200 million in May 2022 valued the business at $900 million, just nine months after it launched.
We thought it was a more exciting opportunity than studying at an elite university.
Addit Palicha
Co-founder and CEO, Zepto
Fueling its meteoric rise are Palicha and Kaivalya Vohra, two 19-year-olds who dropped out of Stanford University to pursue their entrepreneurial dreams.
“At that point, we had already scaled to a couple of million dollars of annualized revenue. We said here is an opportunity to raise a lot of capital, it has a clear fit to the product market,” Palicha said. CNBC Do It.
“How many people in their lifetime have the opportunity to build a potential generational company? We thought it was a more exciting opportunity than studying at an elite university.”
45 to 10 minutes
The idea for Zepto came about in July 2021, when childhood friends were stuck in their homes in Mumbai, right in the middle of the COVID-19 pandemic and a national lockdown.
At the time, demand for delivery services skyrocketed since many stayed at home.
“online groceries [would] delivery takes six or seven days, offline options were pretty much closed or unavailable. It was incredibly difficult for us to get food,” said Palicha, who is the CEO of Zepto.
“We kind of had similar conversations with our neighbors who were complaining about pretty much the same problem. That’s when we said…why don’t we try to build a solution for people in our neighborhood?”
If you look at all the other major eCommerce categories… you take them all and combine them, they are a fraction of the grocery market.
Addit Palicha
Co-founder and CEO, Zepto
But Palicha and Vohra were no strangers to the instant grocery delivery business. In 2020, at just 17 years old, they started KiranaKart, which they said delivered groceries in Mumbai in less than 45 minutes.
“Some people were getting their deliveries [within] within 10 to 15 minutes,” Vohra said.
“In terms of their retention, how much they liked the platform and how often they referred their friends, [it] was significantly higher for those people who received the deliveries in that time period.”
“That’s why we said, ‘Look, maybe there’s some value in exploring that.'”
Zepto is not the only quick trade startup in India, and competition is intensifying both domestically and globally. The country’s online grocery market will be worth about $24 billion by 2025, according to Redseer.
Zepto
They were not wrong. According to research by the consultancy Redseer, India’s online grocery market it could be worth up to $25 billion by 2025 and that’s an opportunity that was “too compelling to pass up,” Palicha said.
“If you look at all the other major e-commerce categories – electronics, clothing – you take them all and combine them, they are a fraction of the grocery market,” he added.
Building trust and reliability
To fulfill grocery orders in less than 10 minutes, the duo set up a network of dark stores, or micro-distribution centers. through the cities.
Dark stores are closed to the public and house products intended for online ordering only.
“We designed our network across the city to make sure our collection points are in close proximity to population groups in a specific neighborhood,” Palicha said.
To fulfill grocery orders in less than 10 minutes, the duo set up a network of dark stores, like the one above, in various cities.
Zepto
“What ends up happening is that our average delivery distances are so short that we can make consistent deliveries within 10 minutes.”
The startup added that the average distance for its deliveries is between 1.7 and 2 kilometers. Other forms of hyperlocal delivery, she said, could be “2 to 2.5 times longer than that.”
Today, Zepto says, it operates hundreds of dark shops in 10 cities in India, with tens of thousands of delivery men working. Palicha added that he is currently delivering “90 to 95%” of his orders within five to 20 minutes.
But speed isn’t Zepto’s only secret to customer retention and loyalty. The startup, whose name comes from the zeptosecond, the smallest unit of time, claimed that it is adding 100,000 new users daily.
“To really retain customers for the long term, what you really need to build is trust and reliability. Reliability comes in many forms,” said Vohra, who is also the chief technology officer.
“Yes, we deliver on time, but also reliability in terms of: if I order 10 things, I get those exact 10 things. And if I order fruits and vegetables, [they’re] highest possible quality.
Keep cash consumption low
Investors are also excited about Zepto’s popularity.
To date, the company has attracted $360 million from investors, including AND Combiner, the US health care consortium Kaiser Permanente and Nexus Venture Partners. Its latest funding round puts the company on track for a likely $1 billion valuation.
Palicha said that one of the key drivers of Zepto’s investment success is its “operational discipline.”
“When we went to investors this time, we showed very, very clear paths to profitability. We went from $0 in revenue about a year ago to today, we’re generating hundreds of millions of dollars in annualized revenue,” he added.
“We’re still talking in terms of multiples and not percentages when it comes to our growth rate, and that’s something we’re excited about.”
Since day one, we’ve been… forcing ourselves to be efficient so that every dollar lasts.
Addit Palicha
Co-founder and CEO, Zepto
Zepto claims that it has managed to reduce its cash burn rate by 5x per order, while achieving 800% quarterly revenue growth.
Still, the days of easy money by tech companies burning cash they’re gone, like interest rates go up Y investors demand more results. However, the young founders remain unperturbed.
“We’re in a position where you look at the size of our balance sheet, we did raise capital for several years, in the context of this recession,” Palicha said.
“Since day one, we’ve been… striving to be efficient so that every dollar lasts. We can place more orders with the same amount of cash, we can acquire more customers with the same amount of cash.”
Zepto’s founders may be young, but their belief in their product is unwavering. “Whether it’s in front of an investor, a senior executive, any government and regulatory stakeholder, you realize that what you’re building is on the right side of what customers want,” said Aadit Palicha (right).
Zepto
Keeping costs lower than competitors in the high-growth technology category has given them an edge, the duo said.
“That just puts us in a position where we can continue to grow sustainably, where other people have been forced to … induce layoffsessentially withdrawing growth plans and contracts to survive in a market like this,” Palicha added.
Touching ‘the billion mark’?
Due to this difficult environment, Palicha and Vohra are not resting on their laurels despite the new financing that Zepto has in the market.
“The key focus now is to build the incremental scale we need to break even in key markets. Once we have a balance sheet now operating at breakeven, we can start expanding into new cities with much more confidence and clarity”. Palicha said.
It was previously reported that Zepto is earning $200 million to $400 million in annual revenue and the founders now hope to “touch the billion mark.”
Palicha added: “[Zepto] emerged as a personal project between Kaivalya and [me] to see if we could solve a small-scale problem in our neighborhood.
“It eventually evolved into the company we are today, for which we are incredibly grateful.”
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