Zepto will stick to brand promise of 10-minute deliveries: CEO Palicha

Quick commerce fastest-growing consumer technology industry in India, he says

Many quick commerce businesses are shifting away from shorter deliveries to tackle losses, but Aadit Palicha, chief executive officer of Zepto, believes that though challenging the model can be profitable. Palicha, 21, told Aryaman Gupta that many of the company’s dark stores are on their way to profitability and the business focus is on improving unit economics and increasing scale.

Here are edited excerpts from the interview.

Is Zepto sticking to 10-minute deliveries? How do you plan to manage that as funding has slowed down in quick commerce?

Yes, we are doubling down and working hard to get more deliveries done in 10 minutes. Our core objective is to stick to that brand promise.

We are growing at a healthy pace. Quick commerce is the fastest-growing consumer tech industry in India right now, by far. If you look at sectors such as e-commerce, food delivery, ride sharing, fintech and edtech, quick commerce is growing significantly faster.

With respect to our last-mile costs, there is this low rewards perception right now that faster deliveries lead to higher delivery costs. We are seeing the opposite. If we keep distances short, with our riders making deliveries between the range of 1.7-1.8 kilometre, we can do more deliveries per hour per item and drive lower last mile costs in a sustainable manner.

Fundamentally, if you look at your last-mile costs, it is a ratio of how much you are paying a rider per hour to how many orders are delivered. So, if we pay a rider Rs 75 per hour, and he is completing one delivery per hour, then our cost per delivery is Rs 75. But if we cut the distance in half, and the rider completes two deliveries per hour, then the cost per delivery is Rs 37.5 per hour. So, we look at it in a fundamentally different way.

Today, we are sitting on one of the lowest delivery and last mile costs in the country for a hyperlocal platform. We do not see fast deliveries and low last mile costs at odds with each other. On the contrary, we think that with faster delivery times, we could fundamentally manage better delivery costs.

Do you think you are sufficiently funded to increase your scale of operations?

Since day one, we have been focused on capital efficiency and unit economics. We are in a position where we are burning a fraction of what other businesses are burning.

We raised $200 million in May of 2022. The reason we were able to raise that much capital is because we had some very healthy trends in unit economics that investors were excited by, coupled with our capital efficiency which is the best in the class.

We do not really have any short-term requirements for capital at the moment and can sustain operations for quite a few years at this rate, while maintaining a healthy growth trajectory.

Many quick commerce businesses have scaled down their dark stores recently. Do you think the model is viable?

We have not scaled down any of our dark stores. On the contrary, many of our dark stores are now on the path to profitability. Day by day, we are seeing better unit economics because our supply chain execution is good and we are launching dozens of dark stores every quarter.

Profitability is a function of execution, and the level of depth you can build on your supply chain. I think the model itself is challenging. It requires best in the class operational discipline. If you have that, it ends up becoming a very profitable model. And we are seeing that in our mature dark stores.

We have also just rolled out a new initiative aimed at reducing our delivery fee significantly. Before, we charged delivery fees at different contracts. We have now introduced a better, more customer friendly pricing option. Any order that is above Rs 149 will have free delivery. A full rollout of this service is expected by next week.

Over time, this might change and evolve. But today, we have taken an approach to say that our execution is great, our unit economics are very healthy, and our supply chain is low cost. So, we can afford to charge customers a lower amount because of that efficiency.

Could you elaborate on some of the ways you have managed to streamline the business in terms of efficiency?

There are no silver bullets. There are multiple levers at play and efficiency is a function of hundreds of small initiatives, coupled with discipline on driving governance on those initiatives.

This includes everything, from managing the procurement of the bags that customers get their orders in, to detailed supply forecasting and planning – where we can predict customer demand at an hourly level across our dark stores. This improves manpower utilization and reduces wastage.

So, there are all these tiny levers that are impacted. But at its core, efficiency is a function of our supply chain execution and business metrics.

At this level of efficiency, we can take the savings made from our supply chain, and invest them back into the business. We are not growing at percentages. Our year-on-year growth rate is in multiples. This is extremely fast considering the current macro situation where most businesses have been forced to pull back and halt growth. And with higher scale, we can drive even better efficiency.

Is Zepto looking to focus on any other ventures aside from quick commerce as well?

Zepto Cafe is a great supplementary business to our core offering. Among our customers, the idea of getting coffee and tea along with your groceries is a habit for many. When we look at the statistics of geographies that have Zepto Cafe, we have witnessed an improvement in retention. Customers are transacting on Zepto more frequently when you give them these items.

So, it is a big focus for us. Today, we have about five cafes that are operating in our dark stores. We are planning to scale them up to over 100 in the next quarter or two.

What is on the cards for Zepto going forward? Is the focus on streamlining the business or on expansion?

We are not looking at any large internal changes. Right now, we are focusing on both efficiency and growth. We look at unit economics and growth as a hand in hand. If we have better unit economics, that means we have more cash that is not getting burned, which we can invest back into growth and improving the overall customer experience.

Today, because we have achieved certain efficiency levels, we can afford to sustainably offer free delivery on orders above Rs 149 for quite some time. We see this as an investment back into customer experience, which not only drives growth, but also drives retention. And hopefully, we will have more market share in this industry going forward.