“We are trying yaar. I know some people don’t believe in us and they have some cynical idea about what we are building, but we are working hard to build a company that we and hopefully the nation will be proud of,” — Zepto
cofounder and CEO Aadit Palicha
It’s hard to believe that a startup with just three full years of operations has stolen all the limelight this year. In some ways, Zepto’s staggering $1.3 Bn fundraising spree (10% of all funding this year) reminds us of the frenzy before the funding winter.
If that was not enough, Zepto outpaced Swiggy’s Instamart, and Zomato’s Blinkit in terms of revenue, earning more than both these giants combined. So when we look back at 2024, it would be a great disservice to not get a closer look at the Zepto story.
The strong financial performance has allowed Palicha and the company to bring conviction around its plans for a potential public listing. As per sources, the startup has already begun its groundworks for an IPO, including talks with bankers.
If Zepto manages to pull off its IPO listing by the end of 2025, it will possibly become the first Indian startup to list within just four years of its inception. To date, the shortest period a startup has taken to lists since its inception is Ola Electric – six years.
Plus, 2024 was marked with another major transition for Zepto — moving from Mumbai to Bengaluru — and with this the next chapter of the company.
What this means is that perhaps this is the startup that most are looking at when it comes to the next big thing from India. How does Palicha view this ‘burden’ and will the highs of 2024 be followed by another watershed year for Zepto?
How Zepto Showed Its Stripes In 2024
The startup entered the year with $261 Mn – the amount it raised in 2023 alone. The idea was simple: continue scaling the company while also improving unit economics and then go to the investors in the second half of the year to raise a fresh round.
“Our thought process was to get to a certain scale, while multiplying the business year-on-year and get to a point where we can show our investors that we are getting close to profitability and can achieve cashflow breakeven. After this, we wanted to raise capital primarily in the second half of 2024,” Palicha recalled.
Plaicha admitted that investors would only back the company at a higher valuation only when there is a measurable change in the unit economics. This was the big push in the beginning of the year — Zepto’s contribution margin improved to a negative INR 0.5 per order by April 2024 from a negativeINR 8 at the end of the previous year.
This improved unit economics coupled with its fast growth prompted investors to invest sooner in the company. “Disciplined aggression is how I would want to sum up this year,” Palicha remarked.
The aggression came in the middle of the year. Zepto, which was just operational in 7 cities by the end of 2023, expanded to over 35 cities in the year, and its dark store count doubled, while employee count jumped by 3X.
$1.3 Bn Funding, Delivered In No Time
Zepto’s first round this year came in June 2024, soon after there was a noticeable tick in unit economics. It bagged $665 Mn in its Series F funding round, almost doubling its valuation from $1.5 Bn to $3.6 Bn.
What caught people’s attention was not the 2X jump in valuation, but Zepto’s ability to bring several new investors in this round, including the likes of Anu Hariharan’s newly formed VC firm Avra, which made its first investment in India through Zepto.
Even in its Series G funding round, Zepto raised funding from three new investors including General Catalyst, Mars Growth Capital, and Epiq Capital.
Most young startups might struggle to bring such investors on their cap table, let alone a startup that is being run by first-time founders such as Zepto’s Palicha and Kaivalya Vohra.
Palicha explained that these rounds were a result of engaging with investors in 2022 and 2023, when the startup was out in the market for funds., “Over the years I have managed to build a good relationship with these folks even when I was not looking to raise the money. They saw the potential in the company, and chose to support our vision.”
The third fundraise in 2024 was the $350 Mn, which was notable for being a wholly domestic round. Led by Motilal Oswal’s private wealth division, this round saw participation from Indian family offices, which was the company’s way of diversifying the cap table.
Palicha admitted that while this round was excess to requirements, it was needed to increase the sake of domestic investors in the company.
But raising such big rounds comes at the expense of equity dilution.
Prior to this funding frenzy, the founders and their family trusts owned around 22% of the company. While it is not clear how much stake both of them continue to hold after three mega rounds, Palicha claimed neither founder is losing sleep over the equity.
“Whenever we go for an IPO we are looking to have 15-20% stakes. We are not losing sleep over the dilution of our stakes. A US-based founder once told me “when you have built a $50 Bn company, nobody will raise an eye on that 1% or 2%.”
Zepto Cafe And The Revenue Push
The year for Zepto was also marked by product innovation and an entry into new verticals.
First, the startup launched its membership subscriptions – Zepto Pass – to offer free delivery, a move that would directly impact its topline.
Post this, the startup, which initially piloted its cafe business in 2022, finally ironed out the kinks and launched it officially in 2024 as a separate app.
The separation of Zepto from Zepto Cafe shows the startup is now going all-in on this vertical. It will also be investing separately to push the Zepto Cafe business and hire talent exclusively for the cafe business.
Besides, the startup has also announced that it will be launching 100 new cafes every month across six major cities, including Mumbai, Delhi, Bengaluru, Hyderabad, Chennai, and Pune. But these are early days — as of December, Zepto Cafe has completed 30K orders.
According to the CEO, Zepto Cafe will be one of the biggest QSR chains in the country, and will clearly boost the topline and help in meaningful customer retention.
“Our long-term goal was to really bring serious evolutionary differentiation in the quick commerce business and that is why coming into the 2024, we were working on deep structural innovation that would change the quick commerce experience and so we introduced Zepto Cafe and Supersaver,” Palicha said, adding that it take times to build these products and get them ready to be revenue generators.
For instance, Supersaver was primarily launched to increase the startup’s average order value, since it only allows purchases in bulk — a move that’s perhaps born out of the need to bring more families to the quick commerce fold.
On the other hand, Zepto had to strike off one of a planned ambitious project – medicine delivery. But Palicha does not rule out a return to this space, now that the likes of Swiggy and Flipkart Minutes have added medicine delivery.
After having piloted medicine delivery in 2023, Palicha said the company decided to call it off as it was stretching the bandwidth of the team, and there were a lot of regulatory hurdles in the way.
But quick commerce is a segment where most companies need to be on par with the competition in terms of services and product availability. The big push for electronics and lifestyle products in 2024 is a clear indication of the herd mentality in this space.
Given this, Palicha claimed Zepto is now ready to take another shot at medicine delivery in 2025, but did not reveal how this would be structured from a compliance POV.
Next In 2025: Going Back To Burn
Speaking of competition, Blinkit, Instamart and Zepto combined own almost 100% market share, but that might soon change with the likes of Flipkart, Amazon, Tata-owned BigBasket and others also eyeing 10-minute deliveries.
The quick commerce market is growing at a stupendous pace. According to a Redseer report 2022, the total addressable market for quick commerce is around $45 Bn, this is roughly 7% of the total $620 Bn grocery market in India.
According to brokerage firm Motilal Oswal’s, while Blinkit commands 46% of the market share, Zepto which is relatively a new player in the space has managed to own 29%, beating the category inventor – Swiggy Instamart which has been reduced to 24%.
While Blinkit is currently dominating the space primarily due to its larger SKUs, faster execution, better customer experience, while staying under the ambit of Zomato, Zepto with its billion dollars in its coffers is aggressively entering into newer cities by setting up dark stores.
As the year ends, Zepto’s dark store network is almost at par with Instamart’s 609 stores operating in 54 cities, and Blinkit’s 719 dark stores in more than 44 cities.
Besides operating in metro cities, Zepto just like Blinkit is launching its operations in tier II cities. This year alone it has launched operations in Rajkot, Jaipur, Chandigarh, and Ahmedabad, among others.
While adding that metro cities continue to be an important focus for the company, Palicha said, “We are going to be in tier II and tier III cities. The tier II and tier III cities are doing fairly well for us as this is our added growth and we are going to double down on them in the coming years,” adding that a dark store in Nashik is doing better in terms of profitability than a dark store in Mumbai.
With entries of new and well-capitalised players in the quick commerce space, the competition is going to heat up as companies will be at each other’s neck trying to eat each other’s market share. The edge for companies could very well be robust unit economics, and in this regard, the existing giants have a playbook ready.
Palicha is unfazed by the competition, and as in the past, is banking on Zepto’s strengths in execution. “I don’t think it is about how much funds one has, but more importantly it is about execution. I genuinely think the market is big enough where multiple good players can co-exist. If there are three large players executing well, then there will be three large players in the market.”
What next? For Zepto, Peter Ducker’s famous quote “Innovate or Die” is most appropriate.
Zepto knows that quick commerce is not just about fast deliveries but rapid iteration and development. In many ways, this means that no company can afford to rest on its laurels or existing market share, because marketing dollars change the equation.
As popular as quick commerce is today, it’s certainly not a space where users are loyal to one app or the other. Given this, the need to acquire, retain and even re-acquire users is very high in quick commerce.
Take Dunzo’s case. Unable to raise funding and failing to adapt to the quick commerce transition meant the one-time posterchild of hyperlocal delivery had to all but wind down.
To fuel its growth plans and keep up with customers in new markets, Zepto has increased its monthly cash burn from around INR 40 Cr to INR 250 Cr after the recent capital influx. This leaves little doubt for the idea that expansion in quick commerce — presence or categories — necessitates large funding rounds, even after profitability, as evidenced by Zomato’s INR 8,500 Cr QIP.
Palicha does believe Zepto needs to keep growing. Throughout our conversation, he repeatedly dropped phrases such as “keep growing”, “keep improving inputs” and “keep doing new things for customers”, which perhaps shows the unenviable side of the quick commerce boom.
“We are still far away from where we want to be. In the quick commerce market, there is a $50 Bn – $70 Bn opportunity in terms of the topline, and we haven’t yet achieved 10% of it yet. A lot of blood and sweat still needs to be shedded, but we will get there,” the Zepto CEO added.
The 22 year-old has time and again in public has drawn a comparison between Zepto and the likes of Amazon or DMart.
But it will need to use the existing capital judiciously to grow in the next year. Sources close to Zepto added that the startup won’t be raising any further capital until its IPO. With enough cash in the bank, Zepto will be in hyper-growth mode until March 2025, post that it will fix its unit economics in new markers as it builds up to the IPO.
Thus far, Zepto has managed to show its capability both in terms of scaling up and fending off big competition. But there’s more of the same in store in 2025, only this time around, Zepto is a bit bulky and needs more fuel to keep its juggernaut going.
Edited By Nikhil Subramaniam
