“When we started 12 months ago, every conversation we had was, ‘You are totally crazy, this will never work,'” teen CEO Aadit Palicha said.
Still, Palicha’s company has managed to prove those doubters wrong – it’s now approaching unicorn status and is one of India’s fastest growing fast commerce apps. A unicorn is a startup valued at over a billion dollars.
Zepto is a startup that promises to deliver groceries in less than 10 minutes. Although it is just one of many companies to join the wave of instant trading, it has already caught the attention of investors.
Its last cash injection of $200 million in May 2022 valued the company at $900 million, just nine months after launch.
The drivers of its meteoric growth are Palicha and Kaivalya Vohra, two 19-year-olds who dropped out of Stanford University to pursue their entrepreneurial dreams.
“At this point, we had already reached a few million dollars in annualized revenue. We said this was an opportunity to raise a large amount of capital, it clearly corresponds to the product market,” Palicha said. at CNBC Make It.
“How many people in their lifetime have the opportunity to create a potential generational business? We thought it was just a more exciting opportunity than studying at an elite university.”
45 to 10 minutes
The idea for Zepto came in July 2021 – when the childhood friends were stuck at their home in Mumbai, in the midst of the Covid-19 pandemic and a nationwide lockdown.
At the time, demand for delivery services surged as many stayed at home.
“The online grocery store [would] take six, seven days to deliver, offline options were pretty much closed or unavailable. It was incredibly difficult for us to shop for groceries,” said Palicha, CEO of Zepto.
“We had similar conversations with our neighbors who were complaining about the same issue. That’s when we said…why not try to find a solution for the people in our neighborhood?”
But Palicha and Vohra were no strangers to the instant grocery delivery business. In 2020 – at just 17 years old – they launched KiranaKart, which they said delivered races in Mumbai in less than 45 minutes.
“Some people were getting their deliveries [within] a delay of 10 to 15 minutes,” Vohra said.
“In terms of retention, how much they liked the platform and how often they referred their friends, [it] was significantly higher for people who received the deliveries within that time frame.”
“That’s why we said, ‘Look, maybe there’s some value in exploring this. “”
They weren’t wrong. India’s online grocery market could be worth up to $25 billion by 2025 and it’s an opportunity “too compelling to pass up,” according to research from consulting firm Redseer. Palicha said.
“If you look at all the other major e-commerce categories – electronics, apparel, you take them all and combine them, they’re just a fraction of the grocery market,” he added.
Building trust and reliability
In order to fulfill grocery orders in less than 10 minutes, the duo established a network of dark stores, or micro-distribution hubs through cities.
Dark stores are closed to the public, housing goods only for online ordering.
“We design our network across the city, to ensure that our pick-up points are very close to population groups in a specific neighborhood,” Palicha said.
“What ends up happening is that the average distances of our deliveries are so short that we are able to deliver consistently within 10 minutes.”
The startup added that the average distance for its deliveries ranges from 1.7 to 2 kilometers. Other forms of hyperlocal delivery, he said, could take “2 to 2.5 times longer than that.”
Today, Zepto says, it operates hundreds of dark stores in 10 cities across India, with tens of thousands of delivery drivers at work. Palicha added that he currently delivers “90 to 95%” of his orders between five and 20 minutes.
But speed isn’t Zepto’s only secret to retaining and retaining customers. The startup, whose name comes from zeptosecond – the smallest unit of time – claimed it was adding 100,000 new users per day.
“To really build long-term customer loyalty, what you really need 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] best possible quality.”
Reduce cash burn
Investors are also excited about Zepto’s popularity.
To date, the company has attracted $360 million from investors, including Y Combinator, US healthcare consortium Kaiser Permanente and Nexus Venture Partners. Its latest funding round puts the company on track for a likely $1 billion valuation.
Palicha said a key driver of Zepto’s investment success is its “operational discipline”.
“When we went to investors this time around, we showed very, very clear paths to profitability. We’ve gone from $0 in revenue about a year ago to today, we’re making hundreds of million dollars in annualized revenue,” he added.
“We always talk in terms of multiples and not percentages when it comes to our growth rate, and that’s something we’re passionate about.”
Zepto claims to have successfully reduced its cash burn rate by 5x per order, while achieving 800% revenue growth quarter over quarter.
Even so, the days of easy money for energy-guzzling tech companies are over, as interest rates rise and investors demand more results. Nevertheless, the young founders remain unfazed.
“We’re in a position where you look at the size of our balance sheet, we’ve effectively secured capital to last us several years, in the context of this downturn,” Palicha said.
“Since day one, we have…forced ourselves to be efficient to make every dollar last. We are able to place more orders with the same amount of money, we can acquire more customers with the same amount of silver .”
Keeping costs lower than competitors in the high-growth technology category has given them an edge, the duo said.
“It just puts us in a position where we’re able to continue to grow in a sustainable way, where other people have been forced to … cause layoffs, basically pull growth plans and contract to survive in a market like this one,” Palicha added.
Hit “the billion”?
Due to this challenging environment, Palicha and Vohra are not resting on their laurels despite the new funding Zepto has in the bag.
“The main focus now is to just build the incremental scale we need to break even in key markets. Once we have a balance sheet that is now functioning at breakeven, we can start to grow. in new cities with much more confidence and clarity,” says Palicha.
Zepto was previously reported to be doing $200-400 million in annualized revenue and the founders are now hoping to “hit the billion mark.”
Palicha added: “[Zepto] was born 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, which we are extremely grateful for.”
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