The Exchanges

Q that. And by the way, the thing that makes me happy when doing podcasts is when people break it down and number it. So Usman, you are my hero. Guys, Ralph and Adid, I do just want to touch on your experiences on the pros side. Are there any others where you're like, yes, there's more here, and we have to say this for why it's such a better model?

A Yeah, you know, I was with the, you know, last, last weekend, I was with the CEO, the global CEO of FedEx, Raj Subramanian, and he said something that struck me about This model specifically is that in Q-commerce density is destiny, right? And, uh, you know, we're in a position where because there's such high degrees of density in, in, in population clusters across all major cities in India, you know, we're able to do, you know, order per day levels that are well beyond what we see in Western counterparts, right? And so, you know, some of our, some of our dark stores are operating at, you know, thousands of orders per day. Uh, and, and, you know, not just some, in fact, the average, you know, dark stores that do is operating north of a thousand orders per day today. And as a result of that, our cost of rent as a percentage of revenue for mature dark stores is about .7%, right? And that wouldn't be possible without that density. So just double clicking on that as well, you know, similarly to also what Osman mentioned on, on, uh, operating costs of percentage of revenue. I think that's also best in class. At least what we've seen in India, like matured up, so seven, eight percent of revenue for last month of course, and we think that can get to even better numbers, right? Uh, but when it, when it comes to the other levers that we feel are important, the best thing about emerging …

AI assessment note: “In Q-commerce density is destiny, right? And, uh, you know, we're in a position”

Q that. And by the way, the thing that makes me happy when doing podcasts is when people break it down and number it. So Usman, you are my hero. Guys, Ralph and Adid, I do just want to touch on your experiences on the pros side. Are there any others where you're like, yes, there's more here, and we have to say this for why it's such a better model?

A Yeah, you know, I was with the, you know, last, last weekend, I was with the CEO, the global CEO of FedEx, Raj Subramanian, and he said something that struck me about This model specifically is that in Q-commerce density is destiny, right? And, uh, you know, we're in a position where because there's such high degrees of density in, in, in population clusters across all major cities in India, you know, we're able to do, you know, order per day levels that are well beyond what we see in Western counterparts, right? And so, you know, some of our, some of our dark stores are operating at, you know, thousands of orders per day. Uh, and, and, you know, not just some, in fact, the average, you know, dark stores that do is operating north of a thousand orders per day today. And as a result of that, our cost of rent as a percentage of revenue for mature dark stores is about .7%, right? And that wouldn't be possible without that density. So just double clicking on that as well, you know, similarly to also what Osman mentioned on, on, uh, operating costs of percentage of revenue. I think that's also best in class. At least what we've seen in India, like matured up, so seven, eight percent of revenue for last month of course, and we think that can get to even better numbers, right? Uh, but when it, when it comes to the other levers that we feel are important, the best thing about emerging …

AI assessment note: “in Q-commerce density is destiny, right? And, uh, you know, we're in a position”

Q that changes a lot of the economics around this is delivery fees. Um, a lot of providers have them. How do we all, and I'm, I'm doing this as an open one for the crowd. How do we all feel about delivery fees? Do we have them? Do we not have them? What negatives do they bring? How much do they disincentivize users? What do we think? Open for everyone.

A So, to, to jump in there, what we've seen, post the fifth order on Zepto, the user's likelihood to retain, or sorry, even post the third order, the user's likelihood to retain indefinitely is post-ninety-five percent. Post the fifth order, and all the way to the 11th order, that starts trending towards, uh, 97, 98, 99%, right, uh, likelihood to retain a user indefinitely. As a result of that, what we've seen Implementing delivery fees post the user's fifth order, we haven't seen much drop off, right? And, uh, you know, today, all mature customers across the country currently have a fee attached to their, attached to their orders, right? As we continue to grow, you know, pretty significantly month on month, we're still seeing, you know, delivery fees constantly being added. In fact, our fee construct, uh, doubled the past two months consistently, and we're on track To be in a position where we can continue growing and have about, you know, 60, 70% of our overall customer base paying fees, with that remaining 20, 30% being in that early sub-five order category, right, and eventually that will get to 90, 95% over time. So, that's essentially the, I mean, the very high level strategy is post-maturity, you know, users get hooked up to the fifth order, and after that, as you should have incrementally increased delivery fees, we really haven't seen drop-offs As, you know, as much at l…

AI assessment note: “Implementing delivery fees post the user's fifth order, we haven't seen much drop off”

Q Love it. Addit, final one with you. Tell me, Zepto, how did it come about? And also, like, fuck, you're younger than me. This is a rarity. But, uh, it's lovely to have you, Addit, but how did Zepto come about?

A And it's lovely to be, uh, uh, and, you know, get to meet Usman and Raf as well. For us, I think the aha moment was actually a little bit less, uh, you know, vision enticing. It was more methodical, right? We were experimenting with grocery as a space for a very long time, also egged on by The fact that, you know, we were two bachelors in the middle of Mumbai when, you know, pretty much all offline and online forms of grocery were shut. Uh, but I think when we, you know, how we moved from online grocery, you know, as a marketplace or sort of longer format delivery to eventually QCommerce was just in the data. And we, um, you know, it was Y Combinator. We were just iterating on different levers that we had and figured out that, Hey, When we take our delivery times from 45 minutes to under 15 minutes, what we see with retention is two to three x goodness. NPS starts stabilizing at north of 85 points, and you have frequency of usage numbers that are off the charts, and when we saw that, we were blown away, and more importantly, we saw that coupled with, you know, four x the assortment that we were operating with, better freshness and control over quality, And, you know, pricing levers, you know, with economies of scale as well. All those in one, you know, platform was just a very compelling user experience, and it just reflected the numbers, and that's when we, you know, decided t…

AI assessment note: “how we moved from online grocery... to eventually QCommerce was just in the data”

Q it's true. There's so many different variants, and I totally agree. I'm always killed for being too optimistic, and only showing the good, um, and being promotional. If we flip the coin and go, there's a load of challenges, um, Let's identify them. Ardit, why don't we start with you. What are the single biggest challenges for emerging markets providers in this case? And then we'll do Osman and Ralf.

A Yeah, I think it's a good question. And, you know, I'll start by saying that There's no problem that can't be solved with operational excellence, at least in this model. What we see in emerging markets, it might be a little bit more interesting, uh, and a little bit, you know, less encountered in Western markets are infrastructure related issues. Like, you know, roads are just not as, uh, as smooth as you want them to be. Roots are not as well planned. You've got, you know, when it rains, uh, you know, things flood for quite some time and that, that sort of hampers a lot of, uh, You know, a lot of your traffic back and forth. So I think broader infrastructure issues are, you know, probably one of the key challenges that we see just in day-to-day ops, right? Like how, how do we overcome, you know, rain in a certain area? How do we overcome, let's say, a, you know, road, you know, infrastructure breakdown in another area that's just sort of blocking our routes. So we have to be constant, we have to constantly adapt to that. I think the, the, That way sort of the emerging market landscape, at least on the ground, is a lot more dynamic than in Western markets. So I think that's probably number one. Beyond that, perspective on, on key challenges would also probably be a much higher focus on fresh, right? And, you know, because, you know, Ralph and Osman will probably experience this…

AI assessment note: “broader infrastructure issues are, you know, probably one of the key challenges”

Q it's true. There's so many different variants, and I totally agree. I'm always killed for being too optimistic, and only showing the good, um, and being promotional. If we flip the coin and go, there's a load of challenges, um, Let's identify them. Ardit, why don't we start with you. What are the single biggest challenges for emerging markets providers in this case? And then we'll do Osman and Ralf.

A Yeah, I think it's a good question. And, you know, I'll start by saying that There's no problem that can't be solved with operational excellence, at least in this model. What we see in emerging markets, it might be a little bit more interesting, uh, and a little bit, you know, less encountered in Western markets are infrastructure related issues. Like, you know, roads are just not as, uh, as smooth as you want them to be. Roots are not as well planned. You've got, you know, when it rains, uh, you know, things flood for quite some time and that, that sort of hampers a lot of, uh, You know, a lot of your traffic back and forth. So I think broader infrastructure issues are, you know, probably one of the key challenges that we see just in day-to-day ops, right? Like how, how do we overcome, you know, rain in a certain area? How do we overcome, let's say, a, you know, road, you know, infrastructure breakdown in another area that's just sort of blocking our routes. So we have to be constant, we have to constantly adapt to that. I think the, the, That way sort of the emerging market landscape, at least on the ground, is a lot more dynamic than in Western markets. So I think that's probably number one. Beyond that, perspective on, on key challenges would also probably be a much higher focus on fresh, right? And, you know, because, you know, Ralph and Osman will probably experience this…

AI assessment note: “broader infrastructure issues are, you know, probably one of the key challenges”

Q Adit, do you have any last thoughts here before a quick fire round?

A Yeah, and I think, uh, you know, similar sort of effects exist in other emerging markets that last mentioned, right? We've got Massive CPG brands that really haven't had an outlet outlet for targeted advertising at the point of purchase for customers. The closer you are to the point of purchase, the more valuable the, the advertising property is. And we've seen that CPGs have been deprived of that, at least in India for many, many decades. We've seen India, the percentage of spent for CPG on, let's say TV and billboards and highly untargeted forms of media is much higher than anyone else in the world because In the US, you've got Walmart and Target and Seven 11 that have got sophisticated setups on, on how to advertise in offline markets. That doesn't exist in, in places like India. So this is like, you know, when Africa went from cash to online payments and skipped credit cards in between, you know, the CPG brands that you have no outlet today, they're not, they're not just jumping from no outlet to a targeted outlet, but this is a targeted outlet that now is, you know, Highly personalized, can be, you know, easily, like data can easily be attributed to how much you spend and how, and how much you ended up getting in, in ROI. You know, for us, we've been in a position where, when you include brand, you know, it's not just monetization by the way, that's significant. It's also …

AI assessment note: “similar sort of effects exist in other emerging markets that last mentioned”

Q Adit, do you have any last thoughts here before a quick fire round?

A Yeah, and I think, uh, you know, similar sort of effects exist in other emerging markets that last mentioned, right? We've got Massive CPG brands that really haven't had an outlet outlet for targeted advertising at the point of purchase for customers. The closer you are to the point of purchase, the more valuable the, the advertising property is. And we've seen that CPGs have been deprived of that, at least in India for many, many decades. We've seen India, the percentage of spent for CPG on, let's say TV and billboards and highly untargeted forms of media is much higher than anyone else in the world because In the US, you've got Walmart and Target and Seven 11 that have got sophisticated setups on, on how to advertise in offline markets. That doesn't exist in, in places like India. So this is like, you know, when Africa went from cash to online payments and skipped credit cards in between, you know, the CPG brands that you have no outlet today, they're not, they're not just jumping from no outlet to a targeted outlet, but this is a targeted outlet that now is, you know, Highly personalized, can be, you know, easily, like data can easily be attributed to how much you spend and how, and how much you ended up getting in, in ROI. You know, for us, we've been in a position where, when you include brand, you know, it's not just monetization by the way, that's significant. It's also …

AI assessment note: “similar sort of effects exist in other emerging markets”

Q Adit, Is this a market of many players or a market of consolidation? In the West, we're seeing everyone, you know, announce layoffs. We saw Getir, Gatir, we saw GoPuff, we've seen Zap. Is this a market of consolidation or actually many players?

A I think this is a market of a few players, right? I don't know if it's a market of consolidation, because like you mentioned, this is a tough business as we've seen in offline retail and even players like food delivery and even e-commerce, right? There will be many players that win and some players that don't. So some players might, you know, fall in the back of consolidation. Some people might just not make it. I don't think it's a winner take all or even a, you know, one or two winners take all in the market. Because like, like Usman pointed out, there are multiple paths to building successful businesses in this category. But I do think that there are, there are going to be some players that make it, some players that don't make it. And at the end of the day, it will boil down to operating excellence, right? Especially in a market like this. Operating excellence will be the number one determining factor of who wins and who loses over the next two to three years.

AI assessment note: “I think this is a market of a few players, right?”

Q Adit, what do you know now that you wish you'd known when you started Zapto?

A I think probably most, the most important thing that I've learned on the road while building Zapto is that the The, it's very important to discern the business that you're building from what investors are also seeing in the West. And I think that's the theme of this conversation. But frankly, there are players that aren't doing so well in the West that have, you know, poor decisions in this space being made by other players. And, and early on, if you get pegged in an investor's mind in the same bucket, it's very difficult to claw away, uh, out of that. So I think the, the biggest, most important thing is just to let an institution, uh, to have institutional investors Clear about, make institution versus clear about the fact that this is a very complex business and it will be built successfully by some players and not successfully by some players. And the dynamics are different in our market versus other markets. Uh, and to prevent that sort of low nuance clubbing of everyone in one bucket being, you know, being upfront about that on day one probably would have given us all a little bit of value today.

AI assessment note: “being upfront about that on day one probably would have given us all a little bit of value”

Q Ah, did it hit me. We, we had there about kind of five dollars 70 for, for India. Is that what you're seeing and what are your AOVs today?

A Yeah, look, we're seeing, we're seeing in, you know, mature micromarkets, AOVs are higher than that. Um, and for us, I think, so one thing that's interesting about AOV for us is that actually, you know, I know for, you know, for a lot of folks that are, you know, less heavy and fresh, AOV is one of the more critical metrics. But in reality, what we, when we look at our AOV, you also have to look at category penetration. So if you put a high penetration in, let's say, packaged products or CPG products, The average selling price of a packaged product or a CPG product would be higher than, let's say, a fresh product, right? Um, versus, you know, the, the modern structure of the fresh product would be, you know, in some cases, two to three X high, right? And so at the end of the day, you're, you're optimizing your take rate, which is how much money are you actually making net of margin when you have, you know, certain AOV. And for us, when we look at, We don't obsess about it too much, more so on the north star, which is how much are we actually taking gross profit from the customer. And that doesn't always move in tandem with AOV per order. So gross profit per order isn't always correlated with AOV per order. Because if you have a high benefit of fresh fruits and vegetables, the average selling price of fresh fruits and vegetables will be lower. But the amount of margin that you m…

AI assessment note: “in, you know, mature micromarkets, AOVs are higher than that.”

Q Ah, did it hit me. We, we had there about kind of five dollars 70 for, for India. Is that what you're seeing and what are your AOVs today?

A Yeah, look, we're seeing, we're seeing in, you know, mature micromarkets, AOVs are higher than that. Um, and for us, I think, so one thing that's interesting about AOV for us is that actually, you know, I know for, you know, for a lot of folks that are, you know, less heavy and fresh, AOV is one of the more critical metrics. But in reality, what we, when we look at our AOV, you also have to look at category penetration. So if you put a high penetration in, let's say, packaged products or CPG products, The average selling price of a packaged product or a CPG product would be higher than, let's say, a fresh product, right? Um, versus, you know, the, the modern structure of the fresh product would be, you know, in some cases, two to three X high, right? And so at the end of the day, you're, you're optimizing your take rate, which is how much money are you actually making net of margin when you have, you know, certain AOV. And for us, when we look at, We don't obsess about it too much, more so on the north star, which is how much are we actually taking gross profit from the customer. And that doesn't always move in tandem with AOV per order. So gross profit per order isn't always correlated with AOV per order. Because if you have a high benefit of fresh fruits and vegetables, the average selling price of fresh fruits and vegetables will be lower. But the amount of margin that you m…

AI assessment note: “mature micromarkets, AOVs are higher than that”