Zepto eyes large orders with dark store expansion

Zepto founders Aadit Palicha and Kaivalya Vohra.
Zepto founders Aadit Palicha and Kaivalya Vohra.

Summary

Zepto is said to have received fundraise commitments upwards of $1 billion indicating rising investor interest in the quick-commerce sector

BENGALURU , MUMBAI : Quick-commerce company Zepto is looking to set up bigger dark stores so it can stock a larger assortment of products, according to two people aware of the company's plans. The development comes as the online grocery platform seeks to move big-time into non-grocery delivery, and as investors queue up to buy a stake in the four-year-old startup.

Over the coming months, Zepto will look to set up one or two big storage facilities in major cities. These will serve as hubs as the company moves to deliver, within minutes, high-value items such as electronics, appliances, gifting items, and even luxury goods like gaming consoles, the two people said on condition of anonymity.

To be sure, Zepto already offers some of these categories in a few cities. However, larger stores will allow the storage of more stock-keeping units, which wouldn’t be possible in smaller grocery-focused stores. The idea is also to replenish goods in the smaller dark stores that exist within a 2-km radius in most major cities as per demand, one of the persons quoted above said.

Also Read: Flipkart has FOMO? Zepto and Blinkit are changing the e-commerce giant

“Zepto is slowly adopting Swiggy Mall’s and Blinkit’s model of maintaining specific stores for non-grocery items and a greater number of small stores for fast-moving goods," this person said. “While Zepto is making strides in ramping up e-commerce sales, its focus will remain on quick commerce."

According to the second person cited earlier, Zepto had even considered creating a separate tab in the smartphone application for e-commerce orders, much like Swiggy’s Mall feature, but decided against it keeping in mind its commitment to 10-minute grocery orders.

Zepto currently operates roughly 250 dark stores across major cities like Mumbai, Bengaluru, Hyderabad, and Delhi-NCR, among others. A dark store is a captive retail store used to fulfil a company's online orders, and is not accessible to the end consumer.

Queries sent to Zepto remained unanswered till press time.

The expansion of quick commerce

Quick commerce firms are increasingly looking to sell non-grocery items as the large ticket sizes help boost order values and volume. Consumer brands, too, are benefiting from this strategy with quick commerce platforms becoming a key sales channel for many.

Also Read: The rise of quick commerce has left us with a bagful of questions

Last month, Honasa Consumer, which owns the brand Mamaearth, among others, said during its investors’ call that sales through quick commerce are outpacing traditional e-commerce platforms. 

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

The financials of leading players show the speed of growth of the quick commerce business. Market leader Blinkit’s FY24 operating revenue stood at 2,301 crore, as per announcements made as part of parent Zomato's Q4FY24 results. In FY23, revenues reportedly stood at around 724 crore.

While Zepto’s FY24 revenue is not available yet, its FY23 revenue grew 14 times to 2,024 crore, up from 142 crore a year ago, according to data sourced from the portal of the ministry of corporate affairs. However, losses widened 226% to 1,272 crore during the year, proving the challenges of running a high-burn business.

According to a report by HSBC Global Research from April, Zepto has steadily increased its quick-commerce market share to 28% at the cost of Swiggy Instamart over the past two years, while market leader Blinkit has grown its share to 40%.

Back on investors’ radar

Founded in 2021 by Aadit Palicha and Kaivalya Vohra, Zepto shot to fame after it secured upwards of $150 million in funding from marquee investors such as Y Combinator and Nexus Venture Partners within months of inception. It attained unicorn status last year after bagging $200 million in Series E funding led by US private equity investor StepStone Group, joined by Goodwater Capital and existing investors such as Nexus Venture Partners and Glade Brook Capital.

Also Read: How India could become the world’s first quick-commerce success story

Zepto is now gearing up to raise fresh funds ahead of a public-market listing potentially in 2026. The firm is said to have received commitments upwards of $1 billion for its pre-IPO round, according to a third person aware of the matter.

“The round is continuously growing larger. Now it’s up to Aadit to decide how much to pick in order to not dilute too much," this person said, also requesting anonymity.

The rising interest indicates the comeback of optimism in the quick commerce space, which was once dismissed by the venture capital and private equity ecosystem owing to its cash-guzzling proposition.

However, quick commerce firms have managed to fuel consumer demand as well as show better unit economics, making the space highly competitive in recent months. 

For instance, improved performance has helped Blinkit—Zomato’s grocery delivery app—drive up its implied value to $13 billion in March 2024 compared to $2 billion a year ago, as per a report by Goldman Sachs.

Zepto introduced its subscription programme, Zepto Pass, in February, aiming to enhance brand loyalty and reward its frequent customers. It claimed to have bagged a million subscribers within a week.

It is also looking to scale up Zepto Cafe, its quick snack and meal delivery option.

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