In this video, we take a look at why 10-minute delivery startups are taking over India's grocery space. And can these instant delivery startups generate profits?
Zepto changed the way groceries are delivered in India: In September 2021, two 19-year-old students, who were pursuing their bachelor’s degrees in computer science at Stanford, decided to drop out and start an online grocery delivery startup in India. It was a bold move, a risky move, but in less than a year’s time, this company took India’s startup ecosystem by storm by irreversibly changing the way that groceries are delivered in the country. They’ve already raised almost $160 million at the time of us filming this video, and are currently valued at $570 million. This startup’s name, of course, is Zepto, India’s biggest trendsetter in the exciting world of instant grocery delivery.
Why is every startup chasing instant delivery right now: Before 2020, and specifically before the COVID-19 pandemic, grocery shopping was an offline activity. That’s the way that the world, and in this specific case India, thought about it - you go to the grocery store, the kirana, the market, you fill up your basket or your polybag, and you bring it home. That’s how grocery shopping has been done for decades. Ola Store, Ola Foods, Flipkart Nearby and PepperTap – all failed to change this get people to switch from offline to online grocery shopping. Everything changed in 2020, when lockdowns kept people indoors for months and even after that, a lot of people were choosing not to go to crowded, indoor spaces where they were likely to contract COVID-19. And so suddenly, from a struggling industry, online grocery delivery exploded, it became one of the hottest markets to be in, to the point where two of the largest online grocery players, BigBasket and Grofers, were getting more orders than they could handle.
Can 10-minute delivery startups make profits: It seems like many of these companies, both in India and abroad, are fairly confident that they’ll be able to generate profits. Take the example of Turkey’s Getir, which started in 2015, or The Czech Republic-based Rohlik which started in 2014 - these guys have already become profitable, both of them, in 2021, and are now expanding overseas. One aspect of this lies in the way these instant grocery delivery startups operate. In fact, instant grocery delivery startups operate on margins as high as 10% compared to offline stores which operate on 1-3% margins. That’s because instant grocery delivery startups use dark stores which don’t need to be set up in premium locations with high costs.
As deliveries get faster, they get cheaper: The faster you do deliveries, the cheaper they get. That’s because once you’ve achieved the optimal distribution of dark stores in a given area, those areas do become profitable, whereas with food delivery like Zomato and Swiggy, the distance between restaurants and the end customer are wider and with the exception of cloud kitchens, outside of the startup’s control, and so you lose time, you lose money, and you lose the opportunity to be profitable.
One big idea excites VCs: In the past, VCs were hesitant to pour money into online grocery delivery startups because so much money was required. The cost of changing consumer behavior was just astronomical, and so the long-term prospects of grocery delivery startups, the likelihood of them quickly 10Xing their investor’s money, was slim. Now though, with the pandemic doing all of the work on the consumer behaviour front, the path to skyrocketing valuations, lucrative exits, and even diversification is a lot clearer for VCs, and so they’re far more interested in investing.
