Will Zepto kill the corner retail shop?
The new kid on the block is here.
Zepto recently raised $100 million in funding at $570 million valuation.
That’s crazy, considering how many startups have died so quick in this space.
But, there’s more to it.
Let’s understand the nuances of Zepto’s 10 min grocery delivery business.
Zepto model is managed dark stores. That means they control the supply chain, stock & avoid wastage by predicting demand on the platform. This is critical for perishable items in grocery. The margins here typically go from 7% to 22% depending upon the item. Average delivery sizes are ₹100 to ₹400. As soon as more trust is built on the product from early users & the delivery fee is upped, lot of consolidation will happen and basket size will shoot. That’s ₹20 to ₹50 in commissions per order. Add whitelabeled (Zepto’s own product line in grocery) products and you are at a profit.
The delivery partner
Zepto’s delivery model is genius. A typically delivery person only delivers in a cluster. For example, the place where I live (Indiranagar, Bangalore) there are X number of delivery partners assigned/incentivised to pick items from a particular dark store.
Here’s a quick math.
Each delivery partner takes 10minutes to deliver a single order
This is because they only service max ~2 km of area from the dark store.
That means a delivery partner can do 3 deliveries an hour (10mins to & fro to the dark store). That’s 30 deliveries per partner per day with a 10 hour login time.
Eventually, all this shenanigans of free delivery will go away and will settle at ₹30 - ₹50 depending on the order size. Trust me, this will happen.
That means each delivery partner will make 70% of the delivery fees = ₹30*30*70%
That’s ₹18K to 24K a month. Makes a ton of sense in job opportunity deprived blue collar segment.
This is super interesting.
There are 3 kinds of users here.
1. Want to save time.
2. Just lazy.
3. Want a discount.
The ones that are lazy, zepto is competing with people walking & grabbing grocery from the retail shop. For folks wanting to save time, this is a no brainer.
I spoke to atleast 10 users of zepto in the last 1 week & >80% of them have moved on from Big basket. This sample size may be biased but it’s not something to ignore.
So, long story short. Zepto’s model will beat local retail if they can innovate on.
1. Innovate on quality / SKU variety / SKU availability.
2. Solve for basket size or margins will suffer.
3. Replace grocery buying as the monthly/weekly activity.
P.S. To all my reader fam, I have been shifting cities & moved back to Bengaluru. This had taken a toll on my writing. Will get into the discipline now :)