Daybreak - Quick commerce is dead? Zepto doesn't think so

Episode Date: June 9, 2023

Just two years ago, quick commerce became all the rage. Now, it's slowly becoming a relic of the pandemic. The biggest names in the business have been tumbling over in the past few months. They've either been shutting down their quick delivery businesses or they're rolling back the number of their dark stores.Meanwhile, Zepto, one of the leading quick delivery platforms that made ten minute deliveries a thing, is among the first in the Indian quick-commerce space that hasn’t had layoffs or store closures in recent times. Nor has it pivoted to new verticals. In fact, its founder Aadit Palicha who spoke to The Ken told us he sees no reason to turn away from delivering groceries in minutes.Tune in.Recommended reading: Zepto is looking for a chairDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Quick commerce is dying. We all know that by now.

What became a rage just two years ago is now slowly becoming a relic of the pandemic. The biggest names in the business have been tripping and falling all over in the last few months. Geo Mart shut its rapid grocery delivery service Express. Reliance back Danzo closed its dark stores across multiple cities. The same story with Zomato's quick commerce arm Blinket. All of this, wild delivery workers protested against pay cuts.

And this is not something unique to India. Even in the US, startups like Frig No More and Zero Grocery all shut down in 2022. But when Quick Commerce picked up two years ago in India, it was a war between the giants. Larger startups, I mean, Swiggy, Grofers, Dunzo. And then, out of nowhere, Zepto came into the picture and disrupted the whole market with its USB. Speed. It was making deliveries in less than 10 minutes, an average of 8 minutes 47 seconds to be exact. It was like a startup on steroids.

In less than a year since its launch, the company was raising funding every 90 days. It was insane. But in July last year, something fundamental changed in Zepto. Suddenly, the website's banner that promised 10-minute deliveries vanished. This was around the same time when other quick delivery companies very quietly stopped promising 10-minute deliveries. And by then, the average delivery time for Zepto, had risen to 9 to 10 minutes. Now, Quick Commerce is looked at as a cash burn business.

Like I said, companies are either shutting down these businesses or they're pivoting away from it. But this carnage in the world of Quick Commerce has not changed Zepto's mind. Its founder, the 21-year-old Adid Palichia, sees no reason to turn away from delivering groceries within minutes. Quite strange, no? So let us look at what is giving him this confidence. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I Don't Chase the New Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays,

I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 9th of June. For Zepto, since the time that it began, the focus was singular, to be a pure e-grocer with a 10-minute promise from 7am to 2 a.m. Now, Zepto is among the first in the Indian quick-commerce space that has not had layoffs or store closures in recent times, nor have there been any pivots to new verticals. In fact, Zepto, even though it does not promise a 10-minute delivery anymore,

is still sticking close to its 10-minute delivery time frame. Most of its competitors take double the time. It is not that Zepto is operating in some kind of parallel universe. It has the same challenges like any other delivery platform. Things like scaling the docks store model into less dense areas and into the outskirts of cities or tier two towns and beyond. And just like the others, Zepto 2 has to deal with high cash burn, low ticket sizes and a funding crunch. But Leachar, the companies found.

told Somi Jeebzah, a reporter with the Ken, that on an average, Zepto gets over a thousand orders per day per dark store. Overall, it does about 3 lakh orders in a single day. But from what quick commerce delivery executives told us, this is less than the 4 lakh orders per day, each for Instamart and Blinket. Now, at a time when most of its competitors are reducing the number of their dark stores, Belichar told again that all of Zepto's 200 plus dark stores except three are contribution profit positive. Contribution profit is basically a metric that includes cost of goods and variable costs like

dark store manpower, last mile delivery, returns and wasted costs. But it does not exclude fixed costs such as dark store rent and utilities. Belichael also told us that more than half of Zepto's dark stores are store-level EBITA positive. And this is the goal that Zepto is now aiming for. It wants to get at least 85% of its dog stores to this store level of profitability. And it wants to do it by July this year.

Now, as we all know, at the heart of any quick commerce business are its dog stores. So why don't we take a look at one of Zepto's dog stores? Somerjit actually visited one. Stay tuned to hear about it. The Zepto Dock Store that my colleague visited is located in a residential area in North Bangalore. Imagine a sprawling 3,000 square feet area covered with shelves made of stainless steel. Inside the space are employees who form the backbone of Zepto's operations.

Pickers. These are highly efficient individuals who pack and research. stock items. And the manner in which they work makes you think about the number of times they must have done this to achieve this level of speed. There's literally not a minute to waste getting the delivery bag ready and they have to choose from close to 5,000 products or SKUs or stockkeeping units. These pickers need to deliver on two fronts. Speed of course, but also something else. Can you take a guess? It's accuracy. And now it is not. more important than speed for Zepto. And to achieve it, Zepto has a foolproof mechanism.

Restocking, or what they call the put-away process in the dark store, is done very, very carefully. It is of utmost importance. So high-frequency items like potatoes and bread are the easiest and the quickest to access, while cohort products, which are basically bought together like milk and bread, are kept near each other. Virad Sharma, the director and zonal head of supply chain operations at Zepto, told us how the quality of this put-away process directly impacts the speed and quality of delivery. So once an order lands, the pickers pack the first five items within 90 seconds. And each additional item in the order takes 18 seconds. The dock store is mapped out so pickers know exactly where the items are and their handheld devices.

and arrow-like markings on the floor guide them along the most optimum path to pack items. They use AI technology and data to maximize their efficiency. Now, this efficiency depends on how riders also deliver. Riders travel about two kilometers per order, delivering two to three orders per hour on average. Palichael told us that keeping the distance short is key to keeping the delivery time low and productivity high. All of this feeds into Zepto's quest for profitability. Coming up next, what is Zepto doing to achieve it?

Just a year ago, things were quite different at Zepto. It had raised a $200 million round in May 2022, but the economy was looking bad at the point. So it was pretty clear that the chances of another major round in the near future were quite low. It had to make some changes. So it decided that it needed to focus on controlling costs like rent and last-mile delivery. And by June 2022, Zepto had decided to cap the expansion of dark stores to about 200 only. It also began working on building better relationships with farmers and brands to avoid wholesalers.

It began investing in coal storage and coal supply chains because it realized that this would bring down its refund and wastage costs by substantial numbers. Now, it is 2023 and Zepto founder Pelica tells us that he's pretty sure that the company will be a beta positive, including corporate costs in the coming 12 to 15 months. He is also planning to increase the number of dark stores now by 30%. The company is also planning to expand to two-tier towns. But not everyone is convinced. A bunch of factors like low disposable incomes

and other stuff like credit lines that Kirana shops extend to their loyal customers are big challenges that cannot be underplayed. Plus, customer habits will be difficult to fight against. And then there is the ever-present danger of larger and better-funded competitors which in Zepto's case is almost all of its direct competitors. But Palija is confident. He says that success in this business lies in the detailing and efficiency of execution. And it is the only thing that can set you apart both in the eyes of the customer and in terms of profitability.

Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscribers. only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host and today's episode was edited by my colleague Rajiv Sien.