How two 19 year old Stanford dropouts founded Zepto | Zepto Dark Store Business Case Study

Grofers, Big Basket, Swiggy, Danzo & even Amazon pantry. Do you know that a thing is common in all these companies which is, “Disloyal customers’ ‘. If you use Grofers, then definitely you will be using a Big basket as well. In fact, you might be ordering your groceries some days from Swiggy as well. Now the question arises why customers of these companies are not loyal to them? So the reason for this is a thing which is common in all these companies which are, “Proposition of discounting”.

 Zepto Dark Store Business Case Study

Customers keep all the apps downloaded whether it’s Swiggy, Grofers, or Big basket, But they order from where they are getting the most discounts. All these things were going on in the market, But then two 19-year-old guys jumped & shook the roots of all these companies. In September 2020, Aadit Palicha & his friend Kaivalya Vohra together start a startup, whose name used to be “Kirana Mart” as it’s a grocery delivery startup exactly like Big basket & Grofers. But till the arrival of January 2021, it became Zepto.

How two 19 year old Stanford dropouts founded Zepto | Zepto Dark Store Business Case Study

In only 11 months with 60% return customers, Zepto is growing with a growth rate of 200%. And I guarantee if you use Zepto at least once then chances are that you never use Grofers & Big basket. But the question that arises is…

  • what the hell did these two 19-year-old guys do?
  • That people are ordering from Zepto today instead of Grofers & Big basket?
  • what are those business strategies Zepto is using To compete with well-funded startups like Grofers & Big basket?
  • most important, what are those business lessons?

Which we can learn from this case study & can implement in our business.

Idea of Zepto Startup

24th March 2020, Prime Minister Narendra Modi announces lockdown in the whole country, Due to which Aadit & Kaivalya gets stuck into a flat in Mumbai, two bachelors with life skills in a flat And if order grocery from anywhere then delivery time of at least 2-3 days, anyone will get a frustrated man. And this frustration gave birth to, “Kirana Mart ”, whose model was very simple. Because most of the people were locked in their house during covid And we’re unable to go out so Kirana kart will deliver groceries to your house. 

While running Kirana Mart, a pattern was observed & they saw that whichever delivery Is completed in 45 mins to 1 hour, repeat order of those customers is placed 20% of the time. But the deliveries are completed in 20-30 minutes, and the return order of those customers is placed 40-50% times. 

This is the point from which the whole grocery delivery changes. By regularly studying these patterns for a month, Aadit & Kaivalya discovered a lot of things about Indian consumer behavior. And after that, they shut down Kirana kart totally & started Zepto. As both Big basket & Grofers are billion-dollar companies, And hence to compete with them

Zepto business strategies

Zepto used these 3 business strategies. You need to find answers for only these 3 W’s to study consumer behavior of any industry. 

Find answers to these 3 things & you will get a pattern.

  1. First W – What, i.e, What do consumers want? What do consumers need?
  2. Second W – What, meaning for this what is What will they pay for? What’s that thing for which they will give money?
  3. And third W – What, i.e, what is available in the market? 

Consumer behavior in grocery shopping is something like this, First what, i.e, what do consumers want? which is quick deliveries & discounts. Second – What customers are paying for? which is for convenience. And third – What is available in the market? which is Grofers, Big basket, Danzo, Swiggy instamart & others As customer’s want for quick delivery was unfulfilled in grocery delivery business, But as none of the options available in the market is able to fulfill this want so people adapted with this And slowly grocery delivery completion in 2-3 hours became a consumer behavior But as Zepto brought its concept of 10 min delivery, the whole game & scenario got changed. 

Customers were impatient but due to the lack of many options in the market, they weren’t able to do anything. This impatience of people was monetized by Zepto through its 10 min delivery value proposition. But the question arises that, when companies like Grofers & Big basket take 1-3 hours for delivery, Then how is Zepto able to deliver in 10 mins? And this brings us towards the second strategy of Zepto which is, “The dark store model”. So does this work? 

The dark store model

So look, Whichever area Zepto enters into, these three things are done firstly in that area.

  1. Buying patterns, whichever area Zepto enters into first buying pattern of that area is analyzed. First, it’s observed what people want to buy & after that they observe
  2. What’s the purchase frequency/buying frequency of people & how frequently they purchase those things.
  3. What’s their total spending power & how much money they can spend in total? 

After analyzing all these things, the second thing done is called, “Location engineering”. Zepto whenever they enter into a new area then they analyze traffic routes of that area, And after that, they check the real estate prices of that area. And what will be their average lead time if they deliver here. After doing these two things, the third thing is taken & a dark store is opened in a centralized location. 

Dark stores are mainly mini-warehouses, Whose capacity is to serve all the customers within a radius of 3 km. In a particular area, Swiggy instamart delivers to the houses in 15-20 min whereas Zepto in 6-10 mins. Interesting thing is that the delivery boys of both the companies, Time taken by them to reach houses from dark stores in only 6-7 mins. 

Zepto success secret PPB Formula

Then why is there such a great difference in the delivery time of both the companies? So the answer to this is hidden in the PPB formula. And the success of the dark store model is hidden in this formula only.

  1. First P – Picking, which is very fast in all the stores of Zepto In their dark stores, all the employees have tablets as when order is placed it comes to a central hub, From that hub, the order reaches the dark store, And from there it’s given to employees as all things are reflected on their tablets. What are the items in this order & which item is placed in which place, which shelf?
  2. Second P – Packing, all the items are collected & packed quickly.
  3. third B – Bagging, as the delivery agent gets the order in hand, the agent needs to leave the warehouse. 

Zepto ensures that the lead time of all three activities picking, packing & bagging should be 60 seconds. This means after giving the order till you click on the check order tab till then your order will be dispatched from the warehouse. But the question arises that all these things can be done easily by Grofers & Big basket as well very easily.

Then how will Zepto compete with these companies? So the answer to this is hidden in their third strategy whose name is, “Hyperfocus”.

A thing is common in all these three companies Swiggy, Big basket & Grofers Which is that “They all compete on price”. 

Where customers get most discounts, they like to order from there only, But Zepto is hyper-focused on speed. In fact, the customer acquisition strategy of Zepto is different from these companies. So how does Zepto acquire customers? To understand this very carefully. So consider if you are ordering for the first time from Zepto. 

So firstly you will be promised a delivery time of 7-10 mins based on your location. After that, you will be given great discounts of 25-30% or in fact up to 50% off. And alongside you will be given free delivery, After which whatever your order is, will be delivered in next 10 mins to your house. Now you forget the discount & you only remember that your delivery was done in only 10 mins, And too free of cost as I didn’t pay any delivery charges as well. 

And that’s why other competitors to make orders from customers keep doing cash burn, And keep on giving discounts whereas Zepto only does cash burn once or twice, Acquires & retains the customer. But all these things look very beautiful in looking, But there are 3 such major threats which Zepto might be facing in upcoming times.

3 such major threats which Zepto might be face during Future

  • No.1 – Retainers, as companies like Swiggy, Big basket & Grofers have very strong retainers of them, Like instamart of Swiggy, if you have Swiggy to deliver food, And you have Swiggy Supr then you will obviously use Swiggy instamart. If we talk of Big basket then they also have a very strong retainer which is Big basket daily. And if we talk of Grofers, then Grofers doesn’t lack funding at all. Grofers has so much funding that by providing heavy discounts, it can keep customers with it forever. Along with it now Grofers has also started 7-10 mins delivery. So look at Swiggy, Big basket &Grofers will also shift on the 10 min delivery model, In fact, Grofers has already done shifting on it. Acquiring & pulling customers will get tougher for Zepto, Along with that, they will get problems in retaining customers as well, Because all these companies already have their strong retainers.
  • No. 2 threat is, “Economies of sale”. Because the daily sales volume of all these companies Swiggy, Big basket & Grofers is very high, Hence they will be having more cash comparatively along with that they have also got funding than Zepto And all these things give the power of cash discounts to these companies, i.e, they have so much cash that they can purchase whole inventory on cash discounts. And as Zepto is a new player so its purchase capacity is less than these companies comparatively. 
  • No. 3 threat is, “Price power maintenance”, so look, Quick deliveries cost very expensive & especially when you aren’t charging delivery charges. Running low prices & speed simultaneously is quite tougher. And to run these you need strong cash flow & requirement of a lot of funding. And this brings us to the most important part of this case study.

What we can learn from this Business case study?

What are those business lessons which we can learn from this case study & can implement in our business?

First lesson – Customers are loyal toward the value & not the brand. 

Any customer today is attached to the value provided by the brand instead of the brand itself. As the customer is loyal to the value provided by the brand instead of the brand, So that’s why continuously improving the value proposition is the only option left for companies to survive in the market Second lesson – Tapping the untapped. In every market, every sector, every business something is always left untapped. 

Like if we look into this case study then there was an untapped want of people of their impatience. By taking advantage of what Zepto has established its whole business. 

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