‘Zepto Took Off In A Way That We Did Not Expect’

Two teenagers drop out of Stanford and create an app worth $900 million in India. Now that we have your attention, let us talk about the near-unicorn they have founded. At a time when q-commerce companies are struggling to hold their ground while keeping their delivery time in check, Zepto’s 19-year-old CEO Aadit Palicha is confident of the company continuing with its hypergrowth phase. Palicha speaks with Outlook Business about his upbringing, Zepto’s sturdy business model, how the start-up outgrew legacy brands and more. Edited excerpts from the interview:

After raising $200 million at a valuation of $900 million, Zepto has inched closer to becoming a unicorn. Will that change anything?

We have a good chunk of cash in our balance sheet right now, so we are not looking at raising funds in the short to medium term. Our focus is on execution, month-on-month unit economics and growth.

As far as becoming a unicorn is concerned, it is not really part of our discussion, and we honestly do not care about the valuation today or tomorrow. The way we look at it is the actual valuation that will matter when we get listed and go public. Everything in the interim is just an arbitrary milestone which does not have much impact. While getting a valuation from investors is a great feeling, I do not see it really impacting the way we operate and see ourselves day to day.

Zepto has created a segment that no one knew existed. What was it about the model that convinced you to even drop out?

What gave us conviction was data. [Zepto co-founder] Kaivalya Vohra and I, for many months, were iterating on the multiple models in the grocery space. We were staying alone in Mumbai during the first wave of the pandemic and were inundated with the challenges of getting groceries. Several offline options had shut down and online options were taking days to deliver. We understood that there was a serious pain point in online grocery. We thought about the right model, but even after months of research, we could not find one with a deep product-market fit.

When we experimented with the model that Zepto is today, we saw that quick deliveries that were reliable and had a fantastic assortment of groceries could work. When all these pieces came together, we saw retention numbers go through the roof. Our frequency of usage almost doubled and NPS [or the net promoter score, a customer loyalty and satisfaction measurement method] stabilised in the mid to high eighties. We realised that it is a model that customers love. We spoke with people who said, “We never thought groceries could be delivered in such a frictionless way.” Business started growing organically through word of mouth, and we realised that this would be the next big thing in the country from the perspective of online grocery. We will build Zepto over the next decade or so into a generational company.

How was your early life? What kind of an impact did it have on shaping you as an entrepreneur?

My upbringing was pretty insightful and full of principles like thoroughness, attention to detail, ambition and eye for action that I still hold close to my heart.
 
I grew up between Mumbai and Dubai. I studied in an Indian school in Dubai, but the traditional Indian style of rote learning did not interest me. It was around that time itself that I started to explore non-traditional career paths. The most consequential part of my upbringing that really led me to where I am today was going through a programme by the Y Combinator Startup School. It had a series of YouTube videos by some fantastic start-up founders about their journey of building a start-up and its challenges and thrills. Going through those videos made me curious about the entire world of start-ups and entrepreneurship, and it was precisely the reason why both Kaivalya and I applied to Stanford. The idea was to be closer to Silicon Valley.

Also, my mother runs a business which she started when I was born. So, I pretty much grew up with it. I have seen her manage a small team and how she grew the business each day. That pushed me more towards starting something on my own.

But, honestly, when Kaivalya and I started working on the grocery delivery problem, we had no intention of starting a business. We loved building, grew up building our own small products for fun and thought of building something again, maybe for the community, but it took off in a way that we did not expect. Zepto was more about our love for building, but entrepreneurship has been part of my life for quite some time.

What are the biggest challenges you faced while building Zepto?
 
In the early days, finding a product that customers actually loved was the biggest challenge. It is much easier to have a million people like your product but really hard to have 100 people love it. There were months of pain and near-death experiences when we thought of giving up and shutting the company down. There were even situations when we said maybe there was nothing here. But, when we started getting customer appreciation and feedback, we knew this was something we should scale immediately. It was a great learning experience. Would I trade that time for anything in this world? Not at all.

Zepto faces fierce competition from the likes of Blinkit, Dunzo and bbnow. What is the advantage that Zepto has over its competition?

Q-commerce is a complex business, which has many moving parts. Being a focused vertical player that predominantly eyes this space has given us an advantage. The reason we have outgrown other legacy brands that existed way before us is that we focused a lot on execution. If we continue to execute better, we will win. If not, we will lose. It is all about how smart your execution is, what your capital efficiency is and how you are able to squeeze month-on-month growth without breaking the back. Pure-play execution is everybody’s advantage and everybody’s disadvantage.

Doing 10-minute deliveries in India’s crowded cities with heavy traffic is not easy. How do you retain your delivery personnel and what kind of incentives do you offer them?

It is a misconception that quick commerce is about fast delivery. The reality is that 10-minute deliveries are about short distances and not speed. We are in a position where our average delivery distance from the pick-up point to the drop-off point is 1.7 kilometres, which is significantly lower than what any other hyperlocal player has in the country. If I break down the 10-minute delivery, it takes under two minutes to pack the order and give it to the delivery partner and eight minutes to travel. To travel 1.7 km in eight minutes, the speed has to be 21-22 kmph, which is much lower than what an average biker achieves on the road.

The reason we have 7% higher monthly rider retention than any other local platform is because we are able to manage short distances incredibly well without hitting fast speed. The biggest pain point for delivery partners on other delivery platforms is the long distances that they have to travel which, in bigger cities, becomes taxing.

The beauty about Zepto’s model is that if ... [riders] stay near the [pick up and drop] area, they can map to the pick point and deliver in just that area. So, they deliver, work, eat and live in that area and at the end of that day, their home is just a few minutes away.

There are some basic amenities that they do not have on other platforms. For example, if it rains, we have a shelter at all our pick-up points specifically for riders. For food delivery, restaurant owners do not allow riders to sit inside the restaurant, so riders end up sitting out in the rain. We have clean washrooms at all our pick-up points. We also provide free medical consultations and medical insurance for their families.

In the future, we plan to have better benefits, such as education, for our delivery partners. What we are really building for riders is also to grow personally. For example, if you have been a delivery rider in Zepto for a year and displayed dedication, work ethics and willingness to please customers, the structure allows you to be promoted as a shift in-charge, cluster manager, city last-mile manager and so on. We are creating a career path for them.

Which are your biggest markets, considering you still have to make your mark in NCR?

While Mumbai continues to be our biggest stronghold, we are gaining ground fast in other cities as well. Building up on assortment and expanding to other cities are two independent programmes, and we are doing these simultaneously. As far as the range of inventory is concerned, it may differ in different pick-up stores.  

Right now, our focus is to penetrate deeper into the cities we are already functional in. We are also launching in cities adjacent to metros or on the outskirts.

Companies that have been profitable from day one have been able to fight the current slowdown. Do you discuss Zepto’s road to profitability and rate of cash burn?

We raised the current round of funding when the global markets were at their worst—NASDAQ was losing 500 to 1,000 points a day. It became possible only because our unit economics, discipline and rigour are best in class. On a per-order basis, our cash burn is two-three times less than the next best competitor. That is driven not just by our internal efficiency but also the decisions that we have taken about managing working capital and last-mile cost.

Capital efficiency has been our priority since day one. You can see that not just on a macro level in the revenue ratio and comparison with competitors but also on a micro level with mature warehouses and dark stores getting cash flow positive much faster than in the case of an established supermarket chain. That will continue to be our advantage in the next one to two years till this downturn plays its course.