In a move that signals Zepto’s commitment to staying ahead in India’s competitive quick commerce space, the four-year-old startup is set to raise $300 million in fresh funding. This new round, featuring marquee investors like Amitabh Bachchan, Sachin Tendulkar, Ravi Jaipuria (RJ Corp), and Harsh Goenka (RPG Group), doubles the initial quantum planned by the company.
Notably, Motilal Oswal Asset Management Company has also increased its commitment from $40 million to over $60 million, highlighting the confidence of domestic investors in Zepto’s trajectory. The funding will value Zepto at $5 billion and aims to bolster its infrastructure and deepen its foothold in the Indian market.
Boosting Indian Ownership for Regulatory Compliance
Zepto’s strategic focus on increasing Indian ownership comes amid growing scrutiny of foreign-funded e-commerce platforms. Post-funding, Indian shareholding in Zepto is expected to rise to 35%, with founders Aadit Palicha and Kaivalya Vohra collectively owning 18%. Both have been rewarded with an additional 1% stake for achieving key performance milestones.
By selling a 6% stake to new investors, Zepto is laying the groundwork to become a majority Indian-owned entity, aligning with local regulatory norms. This move is essential as the company eyes a future IPO, where domestic credibility and compliance with foreign direct investment (FDI) laws will play a critical role.
Rivalry Heats Up: Zepto vs Blinkit and Others
The quick commerce sector is currently witnessing a fierce rivalry. Blinkit, owned by Zomato, remains the market leader with an annualized gross sales run rate of $2.9 billion, while Zepto follows closely at $2 billion. Both platforms have been clocking around one million daily orders during peak periods, such as the recent festive season.
Zepto’s average order value (AOV) has risen to ₹550-560, up from ₹460-470 a few months ago. Its innovative “Supersaver” feature, which offers higher discounts on carts above ₹1,000, has contributed to this growth. Bulk orders not only save on packaging and delivery costs but also improve operational efficiency, helping Zepto optimize its cash burn.
The Cost of Rapid Expansion
Zepto’s meteoric rise comes at a cost. Its monthly cash burn has surged to $30-35 million, with September marking its highest expenditure yet. This spike is attributed to aggressive spending on setting up dark stores and customer incentives to match rivals like Blinkit, Swiggy Instamart, Flipkart Minutes, and BigBasket.
Despite the steep costs, Zepto is betting on scale and innovation to drive profitability. The company recently hit a peak of 900,000 daily orders during event-led days, solidifying its position as a key player in the quick commerce race.
Credits: The Hindu Business Line
Why Local Shareholding Matters
India’s FDI laws prohibit foreign-funded marketplaces from owning inventory directly. To comply, Zepto, like its peers, operates dark stores through third-party entities. However, this structure exists in a regulatory grey area, prompting companies to shift toward higher domestic ownership.
“A significant local shareholding lends credibility and regulatory clarity, particularly as companies gear up for IPOs,” said a source familiar with the matter. The inclusion of high-profile domestic investors further underscores Zepto’s strategy to align its business model with local norms.
Turbocharged Growth Amid Challenges
Zepto has consistently demonstrated its ability to adapt and innovate. From its rapid scaling of dark stores to the introduction of consumer-friendly features like “Supersaver,” the company is making strategic moves to capture a larger share of the market.
The startup’s decision to raise additional funds, especially from Indian investors, aligns with its ambition to dominate the quick commerce space. With its focus on boosting local ownership, expanding its infrastructure, and optimizing operational efficiency, Zepto is poised to strengthen its position against rivals like Blinkit and Swiggy Instamart.
The Road Ahead
As the quick commerce sector continues to disrupt traditional kirana stores, platforms like Zepto face both immense opportunities and challenges. A recent report by Datum Intelligence estimates that kiranas may lose $1 billion in sales to these platforms in 2024, further highlighting the transformative impact of this sector.
