Zepto Founder Aadit Palicha On E-Comerce Growth | Startup Central - The Big Interview | ET Now

Summary

In this insightful discussion, the CEO of quick commerce company Zepto highlights the surge in demand during religious festivals and special occasions, attributing it to the convenience of 10-minute delivery. The company has seen significant growth, with over 600,000 orders per day during holidays like Holi. Zepto aims for 30% of its GMV to come from event days, leveraging this trend for buyer base expansion and profitability. The CEO also addresses concerns about high platform fees, emphasizing Zepto's commitment to customer-friendly actions and supply chain efficiency to achieve profitability, with plans to go public in the next 18 to 24 months.

Takeaways

• 🚀 Quick commerce is experiencing significant growth and is well-established as a convenient delivery option for consumers, especially during religious festivals, holidays, and family gatherings.
• 📈 Zepto has seen a substantial increase in sales during events like Holi, with over 600,000 orders per day, and a 3 to 5x spike in white t-shirts sales.
• 💡 The company is focusing on expanding its buyer base by attracting new buyers and reactivating old ones, which has led to a 40-50% increase in those buyers week on week.
• 🎨 There is a strategic emphasis on the assortment of products offered during events to drive conversions and customer retention post-event.
• 📊 Zepto aims for 30% of its GMV to come from event-led days, both organic and platform-created, contributing to significant incremental sales and profitability.
• 🛒 The average order value has increased during special events, and the company is targeting to achieve EA (Earnings Before Amortization) positivity in 4 to 5 months.
• 🏙️ Metro cities currently drive the majority of Zepto's volume, with a focus on the top 40 cities for growth and profitability.
• 🛍️ The introduction of Zepto Pass has led to a reduction in delivery fees for customers, contributing to an increase in subscription and a more attractive value proposition.
• 💼 The company is working towards profitability through supply chain optimization, assortment expansion, and a growing advertising business, rather than increasing delivery fees.
• 🌐 The entry of Flipkart into quick commerce is seen as a significant validation of the business model and its potential for growth and profitability.
• ⏳ Zepto has ambitions to go public within the next 18 to 24 months, with a focus on creating value for shareholders and leveraging the momentum in the quick commerce space.

Q & A

What is the current status of quick commerce in terms of demand trends during religious festivals and holidays?

Quick commerce is well established for use cases like religious festivals, holidays, parties, and family gatherings. It has seen deep growth and retention benefits with limited to no cost due to traffic spikes and the right assortment selection, leading to a 40-50% increase in first-time and long-time buyers week on week.

How did sales of juices and mixers in the evening correlate with the holy event?

During the holy event, there was a 2X spike in the sales of juices and mixers in the evening, presumably due to evening parties after the day's festivities.

What was the highest number of orders per day achieved during the holy event this year?

The company achieved over 600,000 orders per day during the holy weekend, marking a significant win.

What was the unexpected spike in sales related to the holy event?

There was a 3 to 5x spike in the sales of white t-shirts, especially those with holy colors all over them, as people needed fresh t-shirts after the event.

How does the company plan to leverage special occasions for business growth?

The company targets 30% of GMV to come from event-led days, including both organic events like festivals and platform-created events, aiming for a 15 to 20% growth week on week during these event days.

What is the contribution of special events and days to the overall sales of the company?

Special events and days are expected to contribute significantly to the overall sales, with the company aiming for 30% of GMV from events and an incremental sales boost of 400 to 600 crores due to event execution and planning.

How does the company view the entry of Flipkart into the quick commerce space?

The company views Flipkart's entry as a big validation of the quick commerce space, indicating a shift from skepticism to recognition of the business's potential for scale and profitability.

What are the city-specific trends in quick commerce between metros and small cities?

The majority of the company's volume comes from metros, with a deep customer base and value spent on grocery and fast-moving goods. The company projects that the top 40 cities will contribute significantly to the profit pool.

How does the company plan to achieve profitability?

The company is focusing on supply chain excellence, assortment expansion, increasing AOVs and margins, and growing its advertising business to achieve profitability in four to five months, without increasing delivery fees.

What is the company's strategy regarding delivery fees and the introduction of Zepto Pass?

The company has introduced Zepto Pass, offering unlimited free delivery for a low subscription price, which has reduced delivery fees for customers and contributed to the company's value proposition.

Is there a plan for the company to go public, and if so, when?

The company has ambitions to go public within the next 18 to 24 months, aiming for an IPO by the end of 2025 or early 2026, depending on market conditions and the company's readiness.

Outlines

00:00

📈 Quick Commerce Growth and Sales Trends

The conversation begins with an acknowledgment of the rapid growth in the quick commerce sector, particularly during religious festivals and holidays. The speaker highlights the benefits of quick delivery services, such as the ability to attract new customers and retain existing ones at no additional cost. The discussion points to a significant increase in sales during specific events, such as the holy season, with a notable rise in the sale of items like juices, mixers, and laundry detergents. The company's sales numbers are impressive, with over 600,000 orders per day during the holy weekend, and a 3 to 5x spike in white t-shirts sales. The speaker also mentions the importance of event-based sales strategies for buyer base expansion and the surprising assortment of items that spike in demand during events.

05:02

🎯 Targeting Event-Driven Sales and Profitability

This paragraph delves into the company's strategy to leverage special events and days to drive sales and profitability. The speaker mentions a target of achieving 30% of the company's gross merchandise volume (GMV) from event-led days, which includes both organic and platform-created events. The company aims for a 15 to 20% growth week on week during these event days, contributing to a significant increase in incremental sales. The speaker also emphasizes the high margins associated with festive SKUs and the overall profitability improvement that events bring to the company's monthly P&L. The discussion also touches on the launch of new categories, such as toys, and the importance of these strategic moves in achieving the company's sales and profitability goals.

10:03

🌆 Metros vs. Small Cities: Growth Projections in Quick Commerce

The speaker discusses the geographical distribution of the company's sales, noting that the majority of the volume comes from metro cities. However, the top 40 cities in the country are identified as the primary focus for growth and profitability. The speaker explains that these cities contribute significantly to the overall grocery spend and that the company's strategy is to concentrate on these areas. The conversation also touches on the potential entry of Flipkart into the quick commerce space, which the speaker views as a validation of the sector's potential. The speaker expresses optimism about the quick commerce sector's growth in 2024 and beyond, comparing the company's growth trajectory with established businesses like dmart.

15:04

🚀 Path to Profitability and Public Market Aspirations

In the final paragraph, the speaker outlines the company's path to profitability, emphasizing customer-friendly actions such as the launch of the Zepto Pass, which offers unlimited free delivery for a low subscription price. The speaker also discusses the company's focus on supply chain excellence and operational efficiency to reduce costs without impacting customers negatively. Additionally, the conversation covers the company's advertising business, which is a significant contributor to profitability. The speaker shares ambitious targets for the company's growth and expresses a clear intention to go public within the next 18 to 24 months, aiming to create value for shareholders in India.

Keywords

💡Quick Commerce

Quick Commerce refers to the business model of delivering goods to customers within a short time frame, typically 10-15 minutes. It is central to the video's theme as it discusses the growth and success of this sector. The script mentions how Quick Commerce has been established as a convenient option for customers during religious festivals, holidays, and family gatherings, leading to increased demand and customer retention.

💡GMV (Gross Merchandise Volume)

GMV is the total dollar volume of sales transacted through a marketplace over a certain period of time, regardless of the percentage that is kept by the marketplace. In the script, the company aims for 30% of its GMV to come from event-led days, indicating the significant contribution of special occasions to their overall sales.

💡Retention

Retention in this context refers to the ability of a business to keep its customers coming back after their initial purchase. The video discusses how Quick Commerce benefits from high retention rates, especially during events, as customers who make purchases during these times are more likely to return in the future.

💡Assortment

Assortment pertains to the range of products or items offered by a business. The script highlights the importance of having the right assortment to cater to specific use cases during events, which can drive massive conversions and attract new and returning customers.

💡Conversion Driver

A conversion driver is a factor or strategy that compels potential customers to make a purchase. In the video, pitch Caris on hoing is mentioned as a conversion driver during events, indicating that it significantly influences customers to buy, thus increasing sales.

💡First-time Buyers

First-time buyers are customers who make their initial purchase from a business. The script notes a spike in first-time buyers during events, which is a key indicator of the success and growth potential of Quick Commerce companies.

💡Reactivation

Reactivation refers to the process of encouraging past customers who have not made purchases for a while to buy again. The video mentions reactivating old buyers during events as a strategy to expand the buyer base and increase sales.

💡Zepto Pass

Zepto Pass is a subscription service mentioned in the script that offers customers unlimited free delivery for a low subscription price. It is part of the company's strategy to reduce delivery fees and enhance customer value, contributing to the overall growth and profitability of the business.

💡EA Positive

EA Positive, or Earnings Before Adjustments positive, indicates that a company's earnings before certain adjustments are positive, showing financial health. The script discusses the company's ambition to achieve EA positive status within a specific timeframe, demonstrating its financial goals and growth trajectory.

💡Supply Chain Excellence

Supply chain excellence refers to the optimization and efficient management of a company's supply chain to reduce costs and improve profitability. The video mentions supply chain excellence as a key strategy for achieving profitability without increasing delivery fees or platform charges.

💡Advertising Revenue

Advertising revenue is income generated from advertising on a company's platform. In the script, it is highlighted as a significant contributor to the company's profitability, with a goal to reach a substantial revenue target in the coming years.

Highlights

Quick Commerce is becoming well-established for delivery during religious festivals, holidays, and family gatherings.

The advantage of Quick Commerce is its ability to drive growth and retention benefits at limited to no cost.

During events like Holi, there's a significant increase in first-time buyers and reactivated old buyers.

Holi resulted in the highest ever orders per day, exceeding 600,000 orders.

Surprising sales spikes were observed for white t-shirts, juices, and mixers during Holi.

Regional festivals like Mahashivratri also show spikes in sales for religious SKUs.

Christmas and the World Cup final were also significant days for sales spikes.

The company aims for 30% of GMV to come from event-led days.

Special occasions are a huge opportunity for brands in the Quick Commerce space.

The company is targeting profitability with customer-friendly actions like Zepto Pass for unlimited free delivery.

Supply chain excellence and operational efficiency are key to achieving profitability.

The advertising business is a significant contributor to revenue and profitability.

Most of the sales volume comes from metro cities, with a focus on the top 40 cities for growth and profitability.

The company is on track to become EBITDA positive in four to five months.

The Quick Commerce sector has seen significant growth and is expected to have its moment in the sun in 2024.

The speculated entry of Flipkart into Quick Commerce is seen as a big validation of the space.

The company has ambitions of going public within the next 18 to 24 months.

Transcripts

ADI we know that you've been in backtack

meetings so thanks very much for taking

the time out I want to understand from

you quick Commerce companies have been

really painting the town red green and

perhaps with all sorts of colors and my

colleague ASA was presenting uh you know

some interesting Trends I want to

understand from you what are the demand

trends that you witnessed during holy

interestingly you also had sales of

juices going up in the evening along

with mixers and laundry detergents what

really explains that and do throw some

light on uh the sales numbers that have

been achieved during uh holy this year

versus last

year absolutely look I think the uh

events as a use case on quick Commerce

is well established now and what people

are realizing is that you know getting

things delivered in 10 minutes perfectly

suits religious festivals holidays

parties and family gatherings and that

use case the advantage of it is we're

able to get deep growth and retention

benefits and we're able to do it at

limited to no cost because not only do

we see a traffic Spike but if you pick

the right assortment and you're able to

serve a specific use case on that day

for example pitch Caris on hoing it ends

up just being a massive conversion

driver and the best part about that is

is that you see a spike in firsttime

buyers you see a spike in buyers that

haven't purchased in a long time so the

platform sees a 40 50% increase on those

buyers week on week and the retention of

those customers after the event is much

higher and so you it just becomes a l to

keep expanding our buyer base how many

new buyers are we getting how many old

buyers are we reactivating and as a

result of that I think the you know

events is something that we focus on

deeply you mentioned holy for example

holy is a you know event that you know

got us our highest ever orders per day

we did over 600,000 orders per day uh

over the holy weekend and that was a big

win for us and you know when we looked

at even the types of excu that sold we

got surprised right we saw a 3 to 5x

spikee in t-shirts white t-shirts people

that got holy color all over them and

needed a new Fresh t-shirt or bought

before holy we saw spike in juices and

mixers in the evening almost a a 2X

Spike of juices and mixers uh primarily

because of presumably evening parties

after sort of you know holy festivities

in the morning in the afternoon were

were done um and we also saw you know

even in in Fes you know other festivals

for example mahash ratri right Regional

Festival uh big spike in Puja flowers

big spike in other religious skus um

that we have on the on the platform for

example you know Christmas as well right

Christmas was a massive day for us a

couple of months ago you know World Cup

matches the World Cup final was was the

first time that we breached you know

half a million orders on a single day so

you know we are uh actually know we

reached 400,000 ERS that day and then we

grown to now you know over 600,000 ERS

on holy weekend um so all of these

things you know it becomes a growth

driver it becomes a buyer based

expansion driver and we see you know the

assortment that that spikes keeps

surprising us day in and day out so

events is exciting for

us ad you throwing up some very

interesting numbers a three to five x

Spike as far as white t-shirts demand is

concerned in fact uh over 6,000 orders

you're mentioning and you rightly said

that special occasions are indeed

turning out to be a huge opportunity for

brands in the quick Commerce space uh

but if you could give us a sense of the

kind of contribution that these special

events and days are making to your

overall sales and how much has the

average order value gone up

by got it so sub what we're targeting is

we're targeting 30% of gmv coming from

event leg days so there are not just

organic events obviously organic events

Eve holy Diwali you know events along

those lines but there are also platform

created events so for example at the

beginning of every month we do a weekl

long big sale biggest indan grocery sale

is what we call it and it gives

customers access to ATA rice Dal

beginning of the month purchases at good

prices right and we we work with brand

our brand Partners to execute those

events and so platform created events

and even for example today we launching

toys if you open up the zto app you'll

see toy uh category launch formally and

you'll see a big widget on the app and a

little bit of an event there where we've

introduced a new assortment and we've

got uh new prices and you know great

deals for customers as well on day one

right so it's opening day for us on toys

as a category and if you look at

the uh if you look at all these events

combined right platform created events

and organic events we're aiming for in

two quarters 30% of gmv to come from

events and we see anywhere between 15 to

20% growth week on week during event

days so if I look at this on a base of

around 10,000 CR in sales which is where

zepto is right now growing rapidly at

10,000 CR in sales 30% of GMB is 3,000

crores if you get a 15 20% bump on that

that's anywhere between 5 you know 400

50 to 600 crores of incremental sales

that are coming because of events L

execution and planning on our end uh so

we're getting a couple hundred crores of

of sales for shareholders and um that is

a big lever I mean not not many things

can give you a few hundred crores of of

incremental Top Line uh just like that

so so that's uh and the best part is not

only is it a creative to growth but it's

also creative profitability you know

categories like pitari for example

yesterday and even festive skus right

are you know to be very C at pretty high

margin right and they're much higher

margin than than most sort of Base

grocery spends customers have a higher

willing willingness to pay especially

for impulse purchases during those days

and so we see profitability Spike uh as

well those days and it actually adds up

to our overall month level pnl uh where

we we see you know not just a few basis

points actually 10 to 20 bips if not

hopefully more when we hit a higher

penetration of profitability improvement

that comes from from

events

right other than of course credit goes

to you and quick Commerce companies on

how you've really created these branded

days uh you know capitalized on other

events festivals and special days now

speaking of the quick Commerce phenomena

it's largely been a big City Trend where

people like me don't want to go out

don't want to step out and are ready to

pay extra for convenience sake but what

are some City specific Trends in terms

of metros versus small cities and what

are the growth projections then from

each of these

geographies yeah so look I think for us

right now similar to you know categories

like food delivery and ride sharing and

other high frequency consumer internet

platforms what we're thinking of right

now is a little over the majority of our

volume will come from metros that

there's any way a deep burito

distribution in Metro cities not even in

terms of customers but in terms of value

spent on Grocery and fast moving Goods

like you know Personal Care Beauty and

cosmetics cities like obviously toys

which is what we're launching today meat

and sea food fresh fruits and vegetables

so the power law or the Poo distribution

of sales is definitely in metros

actually what we're projecting is going

to come from metros in terms of you know

tier two and three cities about 40% of

oh sorry 40 cities in the country

contribute to a large chunk almost a

majority of groceries spent about

between 40ish to 50% depending on the

report that you look at so 40 cities is

really where the whole game is you know

when you look at the tens of thousands

of cities towns and other settlements in

India right you're in a place where why

would you know for our category to

become massive what you said $45 billion

of combined Top Line which would take us

to the largest grocery outcome in the

country right multiple times bigger than

even dmart um at that point you know we

look at this space and say okay even if

we need to achieve that $45 billion in

outcome why do we need to go to rural

jaran or rural Rajasthan right obviously

those are I'm sure those are great

markets but the top 40 cities have a

huge pero distribution of value so let's

just go all in and focus on cracking

those markets not just on on grow but on

profitability right uh so look I think

that there's a Pito there I mean there's

the data suggests to a deep Pito

distribution in the top 40 cities in the

country out of tens of thousands of

cities in terms of value spent and my

you know intuition looking at the

business right now is that that parito

distribution is even more intense when

you look at it not from a sales scale

perspective but when you look at it from

a profit pool perspective so if let's

say hypothetically 40% of of overall

groceries bought just in 40 cities up

tens of thousands of cities I'm sure 70%

of the profit

would be in those top 40 cities so yeah

that's our philosophy and I think uh you

know City number 10 to 40 is on the

horizon some of it this year and

definitely over 2025 and

2026 all right so 70% of profitability

will come from the top 40 cities that's

a big uh you know big statement coming

from you but ADI I have to speak to you

about the other issue that's brewing in

the quick Commerce space which is that

of high platform fee recently Carriage

fee as well uh which a lot of brands are

undertaking in order to achieve

profitability I want to understand from

you how do you look at these charges uh

when you hiking these charges uh and the

impact that they'll have on your overall

profitability and how soon are you

looking at turning profitable and

another question on uh from a consumer

length from a consumer point of view

will we see further hikes as far as

these Carriage charges or platform

charges are

concerned yeah absolutely so you know to

give you a sense actually month- on

month our delivery fees have come down

and that's because we launched zop Pass

and zepto Pass gives customers unlimited

free delivery for a relatively low

subscription price right 90% of

customers are seeing subscription

anywhere between 19 rupees and 39 rupees

obviously there are very high spend

customers like me that have got charged

a little bit more but you know 1939

rupees right now uh is what zepto pass

is priced at an unlimited fee delivery

on top of that you're getting incredible

prices right if you look at the pricing

of products on zepto pass it's you know

equivalent to even or not too far I

wouldn't say equivalent we still have

some more work to do to get to

equivalency but we're not too far even

from best-in-class discount grocers in

the offline world right and so we are

pushing hard on that price and delivery

fees as a value proposition zepto pass

today is already at north of 2 million

subscribers you know almost a majority

of our orders are getting contributed to

from zepto pass customers uh so free

delivery is is very much on the cards

and yes we make all these small

optimizations you mentioned a platform

fee um and it's giving us obviously

incremental profitability but what we're

most excited about is how do we actually

get to profitability and we're actually

quite close to it right now getting to

profitability not with customer

unfriendly actions like increasing

delivery fees that's why we launched

epop pass but getting to profitability

instead with customer friendly actions

or customer neutral action so for

example supply chain excellence and

whether it's you know throughput for

square foot in our mother hubs whether

it's line hall utilization whether it's

Manpower productivity in our stores

whether it's wastage management because

of forecasting Excellence whether it's

last smile and the you know orders per

hour per delivery partner that we're

able to drive all of these metrics are

you know metrics that we can move to

reduce costs and do it in a customer

neutral or customer friendly way so

that's one big ticket line item of

profitability pure supply chain Six

Sigma style operating Excellence that's

one the second part on you know

assortment expansion increasing aovs and

margins as a result of that and most

importantly our advertising business

today we're run rating hundreds of

crores of advertising revenue and

growing rapidly growing 150% plus year

on year by next year we could get to

1,000 crores in ad Revenue if we're able

to execute it um and that revenue is

straight to bottom line helps

profitability meaningfully and again is

not harmful to customers so those are

the big ticket items that we're focusing

on that's why if you look at our journey

right now despite launching zepto pass

we're on track to hit EA positive in

four to five months um if we continue on

this trajectory so we should be even you

know so if I take a step back and I look

at the overall of the company we

launched 29 months ago even 4 months out

we have effectively gone from zero to

almost $1.5 billion in sales EA positive

in less than 36

months and we've done that with the

fracture of the capital that most

consumer internet companies have taken

to get to the scale of a billion dollars

in sales so we think that this is best

in-class return on Equity active

execution and this is going to be a

generational outcome if we able to keep

our eye on the ball for the next

decade all right so zto looking at

becoming AIT positive in less than 36

months that indeed is an ambitious

Target one that can surely be achieved

by the likes uh by a company like

yourself but uh are there lots of other

developments also happening in the quick

Commerce space and I'm alluding to the

speculated entry of flip cart in the

space Also zato claiming that the quick

service business will be bigger than

their core food delivery business uh

from the time when there were many

doubter

of course doubting and expressing skep

skepticism on the viability of quick

Commerce as a business domain quick

Commerce sector indeed has come a long

way do you really think that 2024 is the

year when quick Commerce will have its

moment in the Sun and secondly and most

importantly I want to understand how

you're looking at flip cart's entry into

this

space you know we actually look at it

like a big validation of the space like

you mentioned right these these were the

folks that were writing obituaries about

quick Commerce not too long ago right 18

months ago it's been you know only 18

months um earlier where you know this

was not taken seriously not just in

e-commerce but just generally in Deen

India and so looking at a player like

Flipkart well established business that

is getting into the space is a huge

validation and I think anyone who is

doubting this business now can come in

and say that even the people that were

writing obituaries about this business

18 months ago are now actually changing

T and realizing wow not only is this

going to be you know an Amazon flip cart

level outcome in terms of scale billions

of dollars in sales this quickly but

it's going to be you know right now it's

highly you know overperformed on

profitability I mean we're going to get

to EA positive faster than food delivery

faster than ride sharing faster than

core e-commerce faster than you know

High Time fintech right pretty much

every category of consumer internet

that's high time or high Market

opportunity this is the fastest category

that's hit profitability and still

growing you know today we're growing

well over 100% plus year on year on a

base of thousands of GR in sales so it's

a it's a quality outcome and I think

that it's a great validation of the

space in terms of you know your first

question which is you do we think you

know quick Commerce is going to see um

its day in the sun in 2024 I mean

absolutely we're you know on track both

on profitability and on growth and you

know what I leave you with shamita is

that Dart I keep referencing them huge

amount of respect probably one of the

best executed independent businesses in

Indian corporate history um and if you

look at dmart they were started before I

was born right it's a $30 billion

company and despite being such a well

executed $30 billion company that's that

old they are only today 5x our size in

sales and we are growing 2 to 3x every

year and they're growing 10 to 15% your

ear year adjusted for inflation and we

just in month

29 so the way that we look at this in

the next 24 to 36

months we are we're going to be at their

doorstep in terms of scale and I don't

think it's a competition I think both of

us are serving different categories in

different use cases but really I mean

this business is quite likely to be

bigger than Demar in the next 24

months well we hope so too AIT in fact

indeed like you say that big validation

of the Quake Commerce space due to the

purped entry of flip cart the space like

you said was not really taken seriously

but is now overperforming one final

question before we let you go do you

plan to enter the public markets anytime

soon considering that there's been an a

lot of interest by smaller companies and

even angels and if yes then how

soon I know you know I joking with our

board you know it's 29 month old company

I don't think there's any other company

that's two years old that people ask why

are you're going public to so I think

it's it's a good sign it's a it's a

humbling sign and look we we have

publicly stated ambitions of building in

public and you know creating value for

shareholders in India uh we're very

excited about it and I think the the

objective is yeah I mean I think we're

going to be going public in the next 18

to 24 months we working towards it

obviously there are multiple nuances not

just on externalities and the market but

even on um our Readiness for an IPO as a

fairly young company we're working

pretty hard towards but the idea would

be by you know end of end of 25 early 26

to go public I mean that's what we've

worked towards for quite some time and

hopefully uh it looks like hopefully

things play out and as things stand

right now it's on track