Zepto’s cash burn crosses ₹250 crore a month on rising costs; closes ₹2,500 crore funding round: Report

Online quick commerce platform Zepto’s cash burn has exceeded over ₹250 crore per month for the last two months amid rising competition in the quick commerce space, reported the news portal Moneycontrol.

Zepto’s rise in cash burn comes amid the company closing an investment round raising ₹2,500 crore of funding from Indian High net-worth individuals as it aims to build a war chest to compete with rivals and gain market share. 

The company’s monthly burn, or the amount which the business is losing per month, was trending in the ₹35-40 crore range in May this year, four people aware of the development told the news portal. The burn has increased over six times in the last three months as the company has ramped up investments in operations, digital marketing and hiring as per the report.

Zepto’s Burn Rate

The quick commerce platform burnt ₹250 crore in September, the monthly cash burn went as high as ₹300 crore in October, reported the news portal quoting two people aware of the development. The burn rate is expected to stay in the ₹300 crore range for November as well, they said.

This comes at par with the festive season in the country, which is the busiest quarter for e-commerce and quick commerce platforms. 

“(Over) 70 per cent of our existing stores have hit full EBITDA profitability. The capital we are burning is primarily for the capex, working capital, and ops set up to launch 100s of new stores per quarter,” said Aadit Palicha, the chief executive officer (CEO) and co-founder of Zepto, told the news portal, confirming the news development.

“Although the investment is upfront, these stores have a better EBITDA trajectory than the older stores – giving us the conviction to invest in launching new stores, which is delivering 200%+ y-o-y growth on a base of 10s of thousands of crores of scale,” he said.

What’s the reason for Zepto’s cost spike?

Zepto has been spending aggressively on digital marketing, performance marketing, buying keywords on Google and Meta, giving out discounts to acquire customers and more, according to the people cited in the news report.

“The rates to buy keywords have increased over the past month or so because of how high Zepto’s bids are. Some other companies have stopped spending because it makes no sense to acquire customers at that rate,” said one person cited in the news report. 

The company is spending close to ₹120 crore a month in digital marketing and is now the leading app in the category. “Just look at their downloads on Playstore,” another person told the news portal.

“It has become crazy and they are now giving hikes of up to 50-60 per cent to poach talent,” said one of the people cited above, highlighting the intense competition in the quick commerce sector.

The company is giving higher discount rates on products listed on its platform, especially the wholesale unit Super Saver, to pull customers away from other apps and push up its base of transacting users. They are also giving attractive discounts on the iPhones, offering at least ₹4,500 off on the latest models, as per the report.

“Zepto has realised it’s not the time to go slow, this is when it needs to accelerate which explains the aggression,” a person aware of the company’s workings told the news portal.

Zomato-owned Blinkit, Swiggy Instamart, Tata’s BigBasket and Flipkart Minutes are competitors to Zepto in the quick commerce market. 

Zepto’s latest fund round

The quick commerce startup has raised over a billion dollars this year, and the latest out of that is ₹2,500 crore from multiple family offices, who are looking to diversify their investments, reported the news portal.

“Investors are confident with the mature store profitability proven and the forward indicators of EBITDA for new stores, which is why we have successfully raised the largest ever 100 percent domestic financing for a private startup in Indian history. We are raising this Indian capital as a first step to quickly becoming a fully Indian-owned company within the coming fiscal,” Zepto Chief told the news portal.

Motilal Oswal’s Raamdeo Agrawal, Manipal’s Ranjan Pai, the family offices of Mankind Pharma, Cello and Bisleri, among others, were the places Zepto raised its recent fund round via multiple segments.

With this ₹2,500 crore backing, the company now has a cash balance of $1.4 billion, as per the news report.