“When we started this 12 months ago, every conversation we had was, ‘You’re crazy, this is never going to work,’” said teen CEO Aadit Palicha.
Still, Palicha’s company has managed to prove those doubters wrong — it’s now approaching unicorn status and is one of India’s fastest-growing fast-trading apps. A unicorn is a startup valued at over $1 billion.
Zepto is a startup that promises to deliver groceries in less than 10 minutes. Despite being just one of many companies joining the instant commerce wave, it has already caught the attention of investors.
Its latest $200 million cash injection in May 2022 valued the company at $900 million, just nine months after launch.
The rapid growth is being driven by Palicha and Kaivalya Vohra, two 19-year-olds who left Stanford University to pursue their entrepreneurial dreams.
“At that point, we had already scaled up to a few million dollars in annual revenue. We said this is an opportunity to raise a large amount of capital, it’s clearly suited to the product market,” Palicha told CNBC Make It .
“How many people get the chance in their lifetime to build a potential generation company? We thought that was a more exciting opportunity than studying at an elite university.”
From 45 to 10 minutes
The idea for Zepto came in July 2021 – when the childhood friends were trapped in their Mumbai homes amid the Covid-19 pandemic and a nationwide lockdown.
At the time, the demand for delivery services rose as many stayed at home.
“Online shopping [would] takes six, seven days to deliver, offline options were practically closed or unavailable. It was incredibly difficult for us to go grocery shopping,” said Palicha, CEO of Zepto.
“We had similar conversations with our neighbors who complained about much the same problem. Then we said…why don’t we try to come up with a solution for the people in our neighborhood?”
But Palicha and Vohra were no strangers to the instant supermarket. In 2020 – at just 17 years old – they started KiranaKart, which they said delivered groceries in Mumbai in less than 45 minutes.
“Some people got their deliveries [within] a time frame of 10-15 minutes,” Vohra said.
“As for their retention, how much they liked the platform and how often they referred to their friends, [it] was significantly higher for those people who got the deliveries in that time frame.”
“That’s why we said, ‘Look, maybe there’s some value in researching that.'”
They weren’t wrong. According to research by consultancy Redseer, India’s online grocery market could be worth up to $25 billion by 2025 and that’s an opportunity that was “too attractive to pass up,” Palicha said.
“If you look at all the other major categories of e-commerce – electronics, clothing, you take them all and combine them, they are a fraction of the supermarket market,” he added.
Building trust and reliability
To complete groceries in less than 10 minutes, the duo has set up a network of dark stores or micro-distribution hubs. across cities.
Dark shops are closed to the public and house goods intended solely for ordering online.
“We are designing our network throughout the city to ensure that our pick-up points are very close to populations in a specific neighborhood,” Palicha said.
“What ultimately happens is that the average distances of our deliveries are so short that we can consistently make deliveries in 10 minutes.”
The startup added that the average distance for its deliveries ranges from 1.7 to 2 kilometers. Other forms of hyperlocal delivery could be “2 to 2.5 times longer than that”.
Today, Zepto says, it operates hundreds of dark shops in 10 cities in India, with tens of thousands of delivery drivers at work. Palicha added that it currently delivers “90 to 95%” of its orders between five and 20 minutes.
But speed isn’t Zepto’s only secret to retaining customers and building loyalty. The startup, whose name comes from zeptosecond — the smallest unit of time — claimed it adds 100,000 new users every day.
“To really keep customers for the long haul, you really need to build trust and reliability. Reliability comes in many ways,” said Vohra, who is also the Chief Technology Officer.
“Yes, we deliver on time, but also reliability in terms of — if I order 10 things, I get those 10 exact things. And if I order fruits and vegetables, [they’re] the highest possible quality.”
Keep cash low
Investors are also excited about Zepto’s popularity.
To date, the company has raised $360 million from investors, including Y Combinator, the US healthcare consortium Kaiser Permanente and Nexus Venture Partners. The latest financing round puts the company on track for a likely valuation of $1 billion.
Palicha said one of the key drivers of Zepto’s investment success is its “operational discipline.”
“When we went to investors this time, we showed very, very clear paths to profitability. We went from $0 in revenue about a year ago to today, we’re doing hundreds of millions of dollars in annual revenue,” he added.
“We’re still talking in terms of multiples and not percentages when it comes to our growth rate, and that’s something we’re excited about.”
Zepto claims it has managed to cut its cash burn rate by 5 times per order, while delivering 800% quarter-over-quarter revenue growth.
Still, the days of easy money for money-burning tech companies are over as interest rates rise and investors demand more returns. Yet the young founders remain unaffected.
“We’re in a position where you look at the size of our balance sheet, we’ve basically got capital to last us for several years, in the context of this downturn,” Palicha said.
“Since day one, we’ve … forced ourselves to be efficient to make every dollar last. We can take more orders with the same amount of money, we’re able to acquire more customers with the same amount of money.”
Keeping costs lower than its competitors in the fast-growing technology category gives them an edge, the duo said.
“That just puts us in a position where we’re able to continue to grow sustainably, where other people are forced to… cause layoffs, essentially pull back growth plans and contract to survive in a market like this ,” Palicha added.
Touching ‘the billion mark’?
Because of that difficult environment, Palicha and Vohra are not resting on their laurels, despite the new financing that Zepto has in its pocket.
“The main focus now is to just build the incremental scale we need to break even in key markets. Once we have a balance sheet that is now breaking even, we can start expanding into new cities with many more confidence and clarity.” said Palicha.
It was previously reported that Zepto earns $200 million to $400 million dollars in annualized revenue, and the founders now hope to “reach the multi-billion dollar mark.”
Palicha added: “[Zepto] came out as a personal project between Kaivalya and [me] to see if we can solve a problem in our neighborhood on a small scale.”
“Eventually it grew into the company we are today, for which we are extremely grateful.”
Do not miss: This is how you can make your career recession-proof, according to a CEO
Do you like this story? Subscribe to CNBC Make It on YouTube!