Zepto, a key player in India’s quick commerce space, is burning through cash at an unprecedented rate. The company’s monthly cash burn has skyrocketed to over ₹250 crore ($30 million) in the past two months. This sharp rise comes amid stiff competition and efforts to dominate the market.
The surge in expenses coincides with Zepto closing a ₹2,500 crore ($300 million) funding round. The funds came from high-net-worth individuals (HNIs) and family offices in India. Zepto aims to use this fresh capital to solidify its position and expand aggressively.
Cash Burn Multiples in a Few Months
In May 2024, Zepto’s monthly burn ranged between ₹35-40 crore. By September, this figure surged to ₹250 crore. In October, it peaked at ₹300 crore ($35 million). Experts anticipate similar levels for November. The festive season in India, known for heightened e-commerce activity, has also contributed to this spike.
Zepto’s CEO and co-founder, Aadit Palicha, explained that most of this expenditure is strategic. “Over 70% of our stores have reached full EBITDA profitability. The burn is for capex, working capital, and operational setup for launching hundreds of new stores each quarter,” he said.
The company’s aggressive investments in digital marketing, talent acquisition, and customer discounts have driven the sharp rise in expenses.
Investment in New Stores
Zepto is rapidly scaling its store network. Palicha highlighted that new stores show a better EBITDA trajectory than older ones. This gives the company confidence to continue expanding at a rapid pace. The company plans to sustain this momentum to achieve over 200% year-on-year growth.
Marketing and Customer Acquisition
Zepto is leading the quick commerce category in app downloads. This achievement is tied to its aggressive digital marketing spend, which now exceeds ₹120 crore per month.
The company has invested heavily in performance marketing and keyword purchases on platforms like Google and Meta. Reports suggest Zepto’s high bids for keywords have forced competitors to scale back their spending.
Discounts are another critical strategy. Zepto’s “Super Saver” unit offers steep discounts to attract customers. Offers on high-demand items, such as iPhones, have made the platform even more appealing. The company provides discounts of ₹4,500 or more on the latest iPhone models, setting itself apart from rivals.
Talent Acquisition War
Zepto is poaching talent from competitors by offering hikes as high as 50-60%. This approach has intensified competition in the industry. A source noted that such hikes have made hiring a challenging task for other players in the space.
Strategic Aggression
Zepto’s leadership believes this is the time to scale aggressively. A source close to the company said, “Zepto realizes it’s not the time to go slow. This is when it needs to accelerate.”
The company competes with established players like Zomato-owned Blinkit, Swiggy Instamart, Tata’s BigBasket, and Flipkart Minutes. Each competitor is vying for dominance in the growing quick commerce market.
Investor Confidence
Despite the cash burn, Zepto continues to attract investors. The company has raised over $1 billion this year alone. Its recent $300 million funding round marks a significant milestone.
Prominent family offices, including Motilal Oswal’s Raamdeo Agrawal, Manipal’s Ranjan Pai, and those of Mankind Pharma, Cello, and Bisleri, participated in the latest funding round.
Zepto now boasts a cash reserve of $1.4 billion. This war chest positions it well to compete against rivals like Swiggy and Zomato, who are also pursuing funding and public market strategies.
Mature Store Profitability
Zepto has reached profitability in over 70% of its existing stores. This mature store performance provides confidence to investors and fuels its expansion plans.
Palicha emphasized the company’s vision to become a fully Indian-owned entity. “We raised this Indian capital as the first step to quickly becoming a fully Indian-owned company within the coming fiscal,” he stated.
Quick Commerce in India: A Battleground
The quick commerce industry in India has grown exponentially in recent years. Consumers demand faster delivery of groceries, essentials, and more. Players like Zepto, Blinkit, and Swiggy Instamart are locked in an intense battle for market share.
This space has attracted massive investments. Companies are focusing on digital marketing, aggressive discounting, and building extensive delivery networks. However, the high cash burn in this sector raises questions about long-term profitability.
Competitive Pressures
Competitors are also ramping up efforts to maintain their market positions. Swiggy recently went public, raising fresh funds for its quick commerce unit. Zomato is planning a Qualified Institutional Placement (QIP) to raise $800 million-$1 billion. These moves signal heightened competition in the months ahead.
Zepto’s decision to aggressively expand during this time underscores its ambition to lead the market. However, sustaining this growth will require careful management of resources and a focus on operational efficiencies.
Key Challenges
- High Marketing Costs: Zepto’s monthly marketing spend is unsustainable for long periods. Maintaining leadership in app downloads and customer acquisitions will require innovative strategies.
- Talent Retention: Offering steep salary hikes to attract talent may impact profitability. The company needs a balance between aggressive hiring and cost management.
- Customer Loyalty: Zepto’s heavy discounting strategy may attract price-sensitive customers. Retaining them in the absence of discounts will be a challenge.
- Competition: Rivals like Blinkit and Swiggy Instamart are well-funded and capable of matching Zepto’s strategies.
Future Outlook
Zepto’s growth trajectory is remarkable. Its ability to scale stores and maintain profitability in existing units is commendable. However, the road ahead is filled with challenges.
The company’s focus on building a fully Indian-owned business is a strategic move that aligns with national sentiments. This could also enhance its appeal among domestic investors.
Zepto’s war chest of $1.4 billion provides a significant advantage. It allows the company to invest heavily in marketing, talent acquisition, and customer acquisition. However, this cash burn needs to translate into sustainable growth.
The Bigger Picture
The quick commerce industry is evolving rapidly. Companies are redefining consumer experiences by delivering essentials in record time. This sector’s growth potential remains immense, but so does its volatility.
Zepto’s current strategy is aggressive and high-risk. If executed well, it could solidify its leadership in the market. However, managing costs and ensuring profitability will be critical to its success.
Conclusion
Zepto’s rapid rise in the quick commerce space is a testament to its strategic vision and execution. Its aggressive approach to scaling, marketing, and customer acquisition has set it apart from competitors.
While challenges remain, Zepto’s strong investor backing and focus on profitability provide reasons for optimism. The next few months will be crucial in determining whether its bold strategies pay off in the long run.