How does Zepto use data analytics to compete in hyperlocal delivery?
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Zepto started as Kiranacart in September 2020 by partnering with Kirana retailers to supply groceries in 45 minutes or less. Within a few months of its launch, it has gained popularity due to its guaranteed 10 minutes delivery policy. In only 11 months it is showing a growth rate of 200% with 60% return customers. It started its services in areas of Mumbai, Delhi, Bengaluru, Gurugram, and Chennai and plans to expand in Hyderabad, Kolkata, and Pune soon.
How does Zepto deliver in 10 mins?
Zepto started with finding answers to these three questions:
- What do the consumers want? Quick delivery and high discounts
- What will consumers pay for? Convenience
- What options are already available in the market? Competitors like Swiggy Instamart, Grofers, Bigbasket etc.
Through the study of Indian consumer behaviour, Zepto found that quick delivery services and high discounts are something desired by many Indian consumers which were unfulfilled by the grocery delivery business.
Zepto business strategies:
When Zepto enters into a particular area, it analyses three key things:
- The buying patterns of the consumers in that area
- The purchase frequency i.e. how frequently the consumers in that area purchase those things
- The total spending power of consumers in that area
Strategy 1 — Location engineering: When Zepto enters a new location, it analyses the traffic route and the price of real estate in that area. This helps them analyse the average lead time it will take to deliver in that particular area.
Strategy 2— Dark Store Model: After analysing the above factors, Zepto establishes its dark stores in centralized locations in the area. Dark stores are mini warehouses whose capacity is to serve all the customers within a radius of 3kms.
Next, it uses efficient PPB(Picking, Packaging and Bagging)
Picking — It is extremely fast in Zepto warehouses. Whenever an order is placed, it arrives at a central hub. From the central hub, the orders are sent to the dark store. Employees working in dark stores receive order updates on their tablets. Using their tablets, the employees are able to check what items have been ordered. Next, they are able to quickly locate the shelves where the items are placed.
Packaging — The items are collected and packaged quickly
Bagging — As soon as the items are packed they are handed over to delivery agents who quickly leave the warehouse to deliver the order.
Zepto ensures that the lead time of all the three activities PPB(Picking, Packaging and Bagging) should be under 60 seconds. This enables Zepto to deliver orders within 6–10 minutes which other players are able to do in 15–20 minutes.
Strategy 3— Hyperfocus: The big existing players in India like Bigbasket, Grofers, Instamart have all been in a price war. They have been burning cash by offering huge discounts to consumers. Whenever customers get discounts from their platforms they are likely to order from that particular platform. However, Zepto is providing a different value proposition by offering speed, free delivery and good discounts all at the same time. Since first time purchasers are highly impressed by the guaranteed 10-minute delivery they become repeat customers. In the next coming orders even if they don't get as many discounts they still value the speed of delivery and hence they become loyal customers. Thus Zepto only has to burn cash once or twice to acquire and retain the customers.
Major threats Zepto might face in the near future:
Retainer strategy by competitors: While Swiggy offers Instamart it also has other value propositions like free food delivery. So a consumer with a Swiggy subscription is likely to remain loyal to Instamart as they will keep getting lucrative offers from Swiggy. Similarly, Bigbasket offers Bigbasket daily which helps it in retaining customers. Grofers on the other hand has hefty funding which allows it to provide deep discounts to customers to retain them. With Grofers becoming Blinkit, it is also moving to a 10-minute delivery model.
Cash Crunch: Zepto being a new player in the market will not have as many funds as the established players to purchase inventory.
Price power maintenance: Although quick deliveries look fascinating, it costs hugely to the companies especially when the companies are not even charging any delivery costs to the customers. Maintaining the speed of delivery along with low prices simultaneously is quite tough as it requires strong cash flow and a lot of funding.
Important Business lessons to learn:
1- Customers are loyal to the value provided by the brand and not the brand itself. Hence improving the value proposition is the only way to survive in the market.
2- Tapping the untapped — In every market, sector or business there is something that is always untapped. If a business is able to discover that untapped need, it can become successful.
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