Welcome to the 16th edition of GrowthDeck! If you enjoy reading deep dives like this, please share it with your friends or colleagues who would appreciate it. Now, let's dive in!

India is one of the fastest growing countries in the world right now, but you know what is growing at the same pace in India ? Quick Service Commerce!

Imagine its 4pm and you are out of detergent, the only option you have is to either wash without detergent or go to a shop nearby and waste 20mins in doing that.

But enter, Zepto in India, while you figure out what clothes you want to wash in 10 minutes, Zepto delivers the detergent to house in same time.

Aadit Palicha and Kaivalya Vohra, where 19 year old when started this business which has now reached a valuation of over $1.4B and has over $150M ARR

What is Zepto ?

For giving an overview, Zepto runs by having dark stores in your area and they use technology to place and operate this dark stores and delivery guys to deliver it to your home from dark store to your location. The story behind zepto’s starting is absolutely unconvential and the fact that it is being run and owned by couple 20 year olds. Lets have look at the journey first !

Zepto’s Journey

Aadit Palicha and Kaivalya Vohra met in the third grade. They wanted to follow the typical path of many students who go to the UK, US, or Canada for university education.

They began programming at a young age, working on various projects together. They decided to make a career out of building things after being exposed to Y Combinator's startup school.

To get to Silicon Valley, they applied to Stanford and were lucky enough to get accepted. However, the pandemic disrupted their plans, so they decided to take a year off

Their initial experiment involved delivering groceries for elderly neighbors via a WhatsApp group chat. As demand grew, they built an app called "Kirana Cart" for a more scalable solution.

Over time, they realized the importance of controlling the customer experience from end to end, leading them to experiment with dark stores – small, hidden warehouses for faster deliveries. This shift marked the beginning of their journey into building a successful grocery delivery business.

Here is a quick look into their journey !

We won’t be dividing this deep dive into Growth Driver, instead lets look at what and how they are doing it best.

How does Zepto deliver orders in 10 minutes?

Darkstores serve as the foundation of Zepto's rapid delivery model. All of the items available on the Zepto app are housed in these physical warehouses, and when customers place orders, Zepto's delivery executives collect the items from these dark stores and deliver them to the customers.

Dark stores, unlike traditional retail stores, are only accessible to Zepto's team members and vendors. Zepto's strategic placement in dense urban areas enables them to complete orders in under 10 minutes.

Dark store expansion decisions are data-driven, taking into account factors such as geography, growth potential, traffic, weather, driver availability, and more.

The operational efficiency of Zepto is the result of custom-built software and flawless operations. Following the placement of an order, an operations executive within their warehouse receives a list of ordered items as well as a map for efficient navigation within the warehouse.

The streamlined process ensures that the entire order is dispatched within 60-90 seconds, leaving the delivery partner with minimal work and reducing pressure on them. Zepto's overall speed and efficiency benefit from this quick packaging process.

They optimize their warehouses using a data-driven approach, placing frequently ordered items closer to the entrance for quick retrieval. This structured approach considers item size, refrigeration requirements, and fragility. For instance, high-margin categories like fruits and vegetables are strategically placed near the entrance for easy access

Zepto's success in delivering orders in 10 minutes is partly due to their proximity to urban locations. The presence of warehouses near densely populated areas shortens the last-mile delivery time.

The familiarity of delivery executives with customers' locations further reduces delivery times. For frequent customers, Zepto can assign the same delivery partners who are well-acquainted with the areas, leading to even faster deliveries.

How does Zepto make money ?

Margins on Each Individual Product

• Zepto's profitability model relies on earning margins on each product, similar to traditional retailers.

• By sourcing products at lower prices from distributors, Zepto can offer competitive prices and still maintain a profit margin. Kailvya talks about this here.

Handling Charges

• Handling charges are fees collected by Zepto to ensure safe packing and dispatch of items in the customer's order.

• While handling charges are not standardized across all grocery delivery platforms in India, they play a role in Zepto's revenue model.

Delivery Charges

• Delivery charges are a significant factor in ensuring profitability for grocery delivery startups.

• Zepto balances delivery charges with customer satisfaction by offering free delivery options for orders above a certain threshold, increasing the average order value and overall revenue.

  

  When Order amount is low, Zepto charges a lot of extra which helps them increase the order value

Product Customizations

• Zepto customizes products, such as fruits and vegetables, to increase their prices and margins.

• Simple changes, like washing and cutting carrots, allow Zepto to offer customized products and generate higher profits.

Product Ads

• Zepto utilizes product ads as a revenue stream by allowing retailers to feature their products prominently in search results and categories.

• Product ads are a common strategy in the e-commerce and marketplace industry to generate predictable revenue.

  

  Here is the video example

Although, there are lots of small growth drivers already covered in the things we have talked upto now. Here are just two Growth Drivers which impacted their journey early on so much.

Zepto’s Growth Driver

Growth Driver 1: Rapid Scaling and Innovation

As we Zepto's journey began with the founders, who had started a ride-sharing platform for school commutes in Dubai at the age of 16.

• Adaptation During the Pandemic: The first growth driver here is the ability to adapt swiftly to changing circumstances. The founders demonstrated remarkable adaptability by pivoting from their original plan of studying in the U.S. to launching a grocery delivery startup in Mumbai in response to the challenges posed by the pandemic.

• Innovation through the Dark Store Model: Zepto's innovation in adopting the dark store model was a significant driver of their growth. It allowed them to provide faster and more reliable deliveries, solving a critical problem faced by customers during the lockdown. This innovation not only attracted more customers but also improved customer satisfaction and retention.

• Bringing on Experts: A key insight is the founders' focus on scaling rapidly. To do this effectively, they brought on board experts with extensive experience in supply chain, marketing, and business strategy. This approach ensured that they could learn quickly and avoid major mistakes during their rapid growth phase.

Growth Driver 2: Fundraising and Financial Diligence

While they have raised a ton of money but following are the factors which has helped them put them to best use.

• Early Engagement with Investors: Zepto's engagement with investors started early in their journey. Nexus reached out when the company was still in its early stages. This proactive approach allowed them to build relationships and gain support from investors who believed in their vision.

• Multiple Rounds of Funding: The ability to secure multiple rounds of funding within a short period demonstrates strong investor confidence in Zepto's growth potential. These funds were instrumental in fueling their expansion.

• Strong Financial and Operational Controls: Zepto's focus on building robust internal controls and guardrails alongside their growth strategy was pivotal. This diligence likely contributed to their ability to raise significant capital in a challenging market environment.

This deep dive was written from multiple sources including podcasts and blogs. Here are couple of the best ones, 1st, 2nd and 3rd.

That’s all for today. This edition took us about 23 hours of effort, If you think your friends or colleagues would like this, please share this link. Also, please consider following us on Twitter (Keval Jagani, Meet Shukla) and sharing this newsletter.