Zepto's ad revenue, loyalty programme rev up growth as quick commerce booms

Zepto was founded by Aadit Palicha and Kaivalya Vohra.
Zepto was founded by Aadit Palicha and Kaivalya Vohra.

Summary

Working on operational efficiencies and steadily expanding categories helped Zepto to improve margins, its chief executive told Mint

Advertising revenue at Zepto has risen over the past few months and could become a strong growth driver as small and large companies look to promote their products on quick commerce platforms that are considered lucrative sales channels.

Zepto Pass, the company's loyalty programme, is another major growth driver, with the number of subscribers quadrupling in the four months since it was introduced earlier this year.

The company's advertising revenue has already hit 400 crore and is expected to reach 1,000 crore in the next 12 months, Zepto co-founder and chief executive officer Aadit Palicha told Mint. 

“The advertising business is scaling rapidly and is growing at the rate of 150% year-on-year, driving up margins steadily," Palicha added.

Zepto's revenue surged to 2,078 crore in FY23 from 142 crore in the previous year. Advertising revenue plays a key role in widening margins and diversifying income streams for e-commerce marketplaces. That’s because as more companies latch on to these platforms and push their goods via quick commerce, they find merit in advertising.

Given the sheer number of consumers transacting on these platforms—companies are pushing product launches and promotions. Zepto has 6,00,000 shoppers transacting on the platform daily.

Other quick commerce platforms too have spotted the opportunity in advertising revenue. Zomato-backed Blinkit said in its third-quarter earnings note that the quick commerce advertising opportunity is turning out to be “promising."

Blinkit's ad revenue grew 220% year-on-year in Q3 compared with 103% year-on-year growth of gross order value. It said that the transacting frequency on Blinkit is among the highest in any consumer internet category in India.

It said companies are looking to build visibility for their products for a highly engaged and fast-growing customer base with spending power. It, however, did not share absolute advertising revenue figures.

On Friday, four-year-old Zepto said it raised $665 million at a valuation of $3.6 billion, expanding its pool of investors who remain optimistic about the startup's capability to execute successfully in a cash-guzzling sector. The company now plans an initial public offering next year, aiming for a multi-billion dollar listing on the back of a healthy balance sheet, Palicha said.

He said Zepto’s margins have improved significantly over the past few months on the back of steady expansion of categories, which helped boost average order values. The company plans to add categories including cosmetics, gifts and toys, with emphasis on fast-moving and hyperlocal items. Grocery and fresh items still account for 80% of Zepto’s business.

Quick commerce has emerged as a fast-growing channel for consumer companies. Honasa Consumer, which owns the brand Mamaearth, among others, said during an investors’ call last month that sales through quick commerce are outpacing sales at traditional e-commerce platforms.

Pankaj Makkar, managing director of venture investment firm Bertelsmann India Investments, in a recent interview with Mint, reiterated the value of these platforms and called quick commerce an “evolution" of e-commerce.

New initiatives

Zepto Pass, the quick commerce company's loyalty programme that was introduced in February, has emerged as a major growth driver, with monthly prices starting as low as 19. The initiative crossed a million subscribers within a week, underscoring the company's ability to capture value-conscious users.

Zepto Pass has 4.5 millions subscribers today, Palicha said.

While loyalty programmes ensure that customers keep returning, they also helps companies offer a differentiated shopping experience while banking extra money from each transaction.

Zepto Pass already has a positive contribution margin, helped by higher order volumes and frequency as users find the discounted prices attractive, according to Palicha.

“After we launched Zepto Pass, we ended up spending more per customer. But we continue to see Ebitda improve, simply driven by the high frequency of orders," Palicha told Mint.

Zepto Cafe, a pilot initiative introduced a few years ago, is getting good traction from users, according to Palicha. However, the company is going slow on expansion as it steers focus on its core grocery delivery business.

Dark store economics

Zepto’s latest fundraising will enable it to expand its dark stores, where its grocery and e-commerce items are stocked, with the aim of doubling the count to 700 by March 2025.

With about 75% of its 350 dark stores already hitting Ebitda profitability, Zepto claims they take only six months to become profitable, against 23 months earlier, as they work to streamline operations by sourcing products with higher margins and enhancing productivity of the warehouse staff, according to Palicha.

Zepto has improved its forecasting capabilities to minimise wastage, especially of perishable vegetables and food items, which has helped to control costs.

“We are aiming to bring down the time taken for each store to turn profitable to 3-4 months as we expand the number of stores," the chief executive noted.

Zepto is working on adding fiscal discipline by reinvesting the proceeds from profitable stores back into the business.

 

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