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Why Zepto can never be profitable in Quick commerce business 


Zepto became a household name ever since the pandemic hit. Yes, if you are a bachelor or a family person, all will be using Zepto for its quick 10-minute online grocery delivery services.

After Zepto arrived in the Indian startup ecosystem, it disrupted the traditional way of online grocery delivery system.

Yes, earlier if you need any grocery from online then you would have to wait for 4 to 6 days. 

But soon after the pandemic hit, everyone are at home and there was no freedom for people to go outside to purchase. Even most of them were reluctant and avoided to out because of the fear of the spread of covid-19.

So, in 2020 there was a massive surge in demand for online grocery services. Even the companies tried their best to provide groceries as early as possible.

However, the customer had to wait for 3 to 5 days. This made most of the customers annoyed.

There were two such annoyed 19-year-old teenagers who came back from abroad to Mumbai due to the lockdown.

Aadit Palicha and Kaivalya Vohra are the teenagers who settled in Mumbat at an apartment. They frequently got annoyed with the late online grocery services.

These two boys were always ready to build the solution to their problems. However, they had the experience build startups previously back in their school day.s

Now they came to know that every customer needs groceries quickly means in minutes not in hours or days.

Zepto Business Model failing

Losess of Online Grocery Delivery startups like Dunzo, Blinkit and Zepto


Zepto opted for a unique and naive model called ” Quick Commerce”. Here in the Zepto business model, a lot of dark stores will be placed in the cities. So, that any orders can be fulfilled within 10 minutes.

So, Zepto needed to place lots of dark stores to fulfill their 10-minute delivery promise to customers.

This kind of business model needs lots of capital in the initial stages. However, these two Standford dropout guys got the spotlight for their previous work.

So, funding was not a tough mission to crack. So, they got the first round of funding in millions.

Till now they have raised $360 million or 28,000 crores (approximately). So, Zepto raising huge investment rounds made it possible for them to be present in 11 Indian cities with 200 dark stores.

However, Zepto’s business model is a capital-intensive business model, as of now there is a drain of cashflow is happenings.

Now Zepto business is far from profitability, in 2022 it incurred a huge loss of 390 crores. In terms of revenue, it made 142 crores. S0, for every rupee to earn Zepto lost 2.7 ruppees.

Now many investors are coming to know that quick commerce cannot be scaled and profitable until its average order value goes high upto 550. Unfortunately, the quick commerce average order value is from 350 to 400.

Also Read: This startup pays for sleeping

Quick Commerce Average order value Game

Yes, Quick commerce profitability all depends on one factor ” Average order Value”.

It’s the minimum price that a users order from the online grocery delivery providers. 

If the Average order value (AOV) of Zepto increase then only Zepto can go on the side of profitability.

Let us take an example of why Zepto will never become profitable with small AOV 

Consider the average order value of the Zepto dark store to be 400.

So, if we eliminate the cost of the products from 400 then we will get 80 rupees of gross margin

400- 320= 80 ( Gross Margin)

Out of the Rs. 80 of Gross Margin, Zepto per deliver costs takes up to Rs.40. So from one order, Zepto has now 40 left.

In the remaining 40 rupees it should maintain its software, staff salaries, Dark Store Rent, and Administrative cost. So, this is impossible.

On the whole, if we consider

The salary of the Delivery Boy be 30,000 if we make 25 deliveries per day and 750 deliveries per month

The rent of Dark Store is 6.12 Lakh/month ( This is the standard price for the 2000 to 2,500 sq if prime location)

Each Dark Store has a minimum of 34 employees each will carry a salary from 18,000 to 20,000

If each dark store makes 600 orders per day then in a month it makes 18,000 orders.

So we take Rs 40 as Gross Margin ( by eliminating delivery costs)

18,000*40= 7.2 lakhs

The 7.12-6.12(Salaries of employees)=1.08 Lakhs

Roughly from 1 lakh the dark store should maintain software costs, Marketing costs, and office expenses. But in any manner, 1 lakh is nowhere to maintain all such expenses.

So, any dark stores of Quick Commerce company cannot become profitable with an AOV of 350 to 400.

Then ideally, if the AOV goes up to 560 then with the same above calculation, nearly 6 lakhs will remain to bare all expenses. This amount will be sufficient and if the business scales then the business can expect profitability.

So, all companies like Zomato, Swiggy, Zepto, Dunzo, and Gofers(Blinkit) are under losses because of low Average Order Value.

Quick Commerce Losses Jio Mart, Gorfers, Dunzo

Dunzo made a loss of 225 crores in 2022

Blinkit incurred a loss of 1812 crores in 2022

JioMart fired 1000 employees 

These all Quick Commerce companies are under losses due to the vital factor ” Average Order Value”

In the coming future, these online grocery delivery startups should look for a way to increase their AOV otherwise they have suffered even more massive losses.

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