Blinkit, Zepto and the Future of Indian eCommerce: Why We Are Bullish on the Future of Indian Quick Commerce

By Paul Hudson , Founder & CIO, Glade Brook Capital

As the Series B lead investor and board member at Zepto , and an investor in Zomato 's 2018/2019 Series I financing round, I’m always intrigued by critiques of the “quick commerce” business model in India. Together with Swiggy Instamart (where Glade Brook is not an investor), Zepto and Zomato-owned Blinkit have led the growth of this sector, from start-up to millions of users and tens of thousands of crores (billions of US dollars) in revenue in less than 3 years.

But strong revenue growth and consumer popularity does not necessarily translate into profits. And many thoughtful skeptics have doubted the long-term viability of the business model. In April 2023, Ashneer Grover, the co-founder of BharatPe, questioned the ability of the model to generate a profit, tweeting: “Problem is 10Min delivery has no economics - low ticket size and low margin can never be solved through forced low delivery cost.” 

Big Basket CEO Hari Menon echoed a similar view: “The economics just don’t work at 10-15 minutes, which is frankly a fact.” Others focused on the difficulty of execution. “There are n number of ways to get it wrong”, according to Professor Ganesh Prabhu of the Indian Institute of Management, “You have to get the inventory mix correct, you have to ensure that they’re all high value inventory, while also ensuring they’re in high demand.”

These arguments are logical. Blinkit and Zepto contend with relatively low average order values, modest product margins and incremental costs for rapid supply chain, logistics, fulfillment, and delivery - in addition to the cost of acquiring customers and covering overhead. As a result, the business model is operationally challenging - as many peers in India and around the world can attest. Over 2020-2022, dozens of quick commerce start-ups raised and burned through billions of dollars in funding, only to not survive the 2022-2023 venture capital downcycle. In June 2023, one of the sharpest Indian business news publications, The Ken, summed up the prevailing view with the following headline: “It’s been a terrible time to be a quick-commerce company the world over, and India is no different.”

Yet, despite the ostensibly sound reasoning in the above, significant (and to many, surprising) progress has been made by Blinkit and Zepto over the past year. Blinkit has more than doubled gross order value (“GOV”) from the quarter ending December 2022 to the quarter ending December 2023, while EBITDA margins improved from -13.0% to -2.5%. The Blinkit team achieved positive contribution profit (a metric denoting cash flow from operations before corporate overhead) in the September 2023 quarter and expects to generate positive adjusted EBITDA by March or June 2024 - which would demonstrate Indian quick commerce companies are able to hit this important profitability milestone, an outlier in the global market. Zomato’s share price has also defied skeptics, more than tripling in value since Mr. Grover, Mr. Menon and Dr. Prabhu’s critique of the business model. In a recent report, Goldman Sachs analysts valued Blinkit at $7.5 billion - more than 10x what Zomato paid to purchase the company in 2022.  At this point, even that estimate may be conservative.

Zepto similarly has posted remarkable progress over the past year. While the company is privately owned, Co-Founder Aadit Palicha recently shared details of the company’s financial progress on LinkedIn. Zepto continues to grow at triple digit rates and has scaled annualized revenue, akin to Blinkit’s GOV, from zero to more than $1 billion over the past 30 months, among the fastest companies globally to achieve this milestone. EBITDA margins improved by 44 percentage points in calendar 2023, with Zepto management guiding to positive EBITDA by Q3 2024. While Zepto isn’t publicly traded, the company’s private market value reached $1.5 billion in a financing round negotiated in June 2023, up from $900 million the year prior, defying a challenging private company fundraising market. More impressively, I believe Zepto has been able to scale to this valuation with the most efficient cash burn in the industry globally. Given Zepto’s breakout year and the more than tripling in value of Zomato shares, it reasons Zepto’s implied mark-to-market valuation has climbed further. 

One year later, where did the bearish arguments on Zepto and Blinkit miss?  After all, quick commerce remains a challenging business model. While Zepto and Blinkit are demonstrating strong growth and nearing profitability, many competitors in India, from start-ups to industry stalwarts, have exited the market. The answer, I believe, lies in three factors: (1) extraordinary founders (2) true product market fit (3) operational execution and innovation. A fourth factor – a deep competitive moat – is formed by scale and the operational complexity of the business model. Together, these factors are shaping quick commerce into a long-term force in the Indian retail and eCommerce markets. 

(1) Extraordinary Founders

Zomato benefits from a unique combination of extraordinary Co-Founders in Deepinder Goyal (Co-Founder & CEO), Akshant Goyal (Co-Founder & CFO) and Albinder Dhindsa (Founder & CEO at Blinkit). The team’s strategic moves to refocus on the Indian market, expand from restaurant discovery and reviews into food delivery, the acquisition of Uber Eats India, and the acquisition and repositioning of Blinkit (then Grofers), have positioned Zomato as an industry leader in a large and fast-growing market. Along the way, the Zomato / Blinkit teams have out executed peers on growth, profitability, customer value and shareholder returns. If India had an award for top management teams of the past five years, I would enthusiastically nominate Deepinder and Akshant.

Zepto Co-Founders Aadit Palicha and Kaivalya V. are perhaps the most talented young founders in global technology today. In many ways they remind me of a young Brian Chesky (Co-Founder & CEO at Airbnb) or Tony Xu (Co-Founder & CEO at DoorDash), both in terms of current capabilities and learning curves. I first met Aadit and Kaivalya in 2021, soon after they launched Zepto’s first dark store in Mumbai, at the age of 18. It soon became clear they were a one-of-a-kind entrepreneurial force. Aadit and Kaivalya combined an obsessive desire to build a homegrown Indian success story with intellectual horsepower, vision, determination, innovative mindsets, work ethic and humility. They were operating with the knowledge and experience of founders twice their age, but with the energy and agility of top first-time founders.  As we diligenced the newly established company, it became clear their talent was translating into world class execution. Zepto was growing 50% week-on-week during this period, and with operational efficiency that was unrivaled among early stage eCommerce companies. Since then, Aadit and Kaivalya have brought together a world class team that is executing brilliantly, from day-to-day operational excellence to value unlocking innovation. Three years later, I believe Aadit and Kaivalya are defying skeptics and are well on their way to building Zepto into a generational Indian company. 

(2) True Product Market Fit

In the words of Walmart founder Sam Walton, “There is only one boss: the customer.”  And for quick commerce, the customers are consumers and brands. 

Ordering everyday needs via app across thousands of products, delivered within minutes, has struck a cord with Indian consumers. This is especially true for the millions of digitally native young people in India’s large and growing cities. The value proposition hinges on both convenience and value - if the experience is more delightful than alternatives and the cost is lower, clicks and wallet share follow. To this end, Blinkit and Zepto are improving the daily lives of millions of Indian consumers.

Clicks and wallet share are also important to brands, who are increasingly advertising on Zepto and Blinkit to reach Indian consumers.  High transaction frequency among desirable demos, the ability to link ad impressions to actual sales happening in real time, and hyper local targeting and insights are driving attractive ROI for advertisers. And as the platforms scale, the value proposition for brands becomes more compelling, creating a virtuous cycle. 

Hundreds of large and emerging brands are now growing their businesses with Zepto and Blinkit, driving triple digit ad revenue growth, (Zomato Shareholder Letter) and globally best in class monetization, which, in turn, enables the companies to reinvest in the customer experience, tech stack and pricing, which further drive revenue growth and scale. 

(3) Operational Execution and Innovation

Quick commerce is an operationally complex business.  Every basis point matters and every aspect of the business should be optimized - from SKU selection to supply chain management and procurement to dark store layouts to the technology driving the advertising platform. Both the Zepto and Blinkit teams have proven adept at iterating thousands of small improvements, or kaizens, with every step critically evaluated and innovated.

For product forward and tech savvy teams, India provides the ability to cost effectively build most aspects of the tech infrastructure in-house. In many other large markets, such a strategy is cost prohibitive, forcing companies to buy third-party software, adding layers of costs that often don’t scale as efficiently. Zepto and Blinkit have brought nearly every aspect of the technology stack in-house, allowing the teams to customize and optimize in a manner that would otherwise be impossible.  Going forward, the application of artificial intelligence tools and large language models are likely to further improve the quick commerce experience for consumers and brands, from demand modeling and inventory management to customer service and advertising efficiency.

(4) Deep Competitive Moat

Outstanding execution is required to achieve operating scale in quick commerce. Scale unlocks advertising ROI and high margin ad revenue, which can then be reinvested into pricing, technology and the customer experience.  Scale also brings a number of other moats including buying power. 

India is characterized by high prevalence of unorganized retail in the form of local kiranas. In fact, 90%+ of the $650 billion grocery market is made up of unorganized retail.  This market structure enables Zepto and Blinkit to leverage scale for relative buying and pricing power, unlocking a compelling price and value proposition that bolsters product market fit.  It’s worth noting India’s market structure is unique among large global markets, many of which are now dominated by scaled big box retailers such as Walmart, Tesco, Costco and Aldi. 

Longer Term Opportunities

The longer term investment thesis behind quick commerce extends beyond rapid delivery of grocery and daily needs products into a broader SKU assortment that penetrates many categories. The moonshot of delivering a wide assortment of SKUs rapidly – say in one hour – opens up the much broader eCommerce market to a superior customer value proposition.  The market is already moving this direction, with Zomato and Zepto expanding their product assortments, Amazon offering same day delivery in select Indian cities and Walmart-owned Flipkart recently announcing a similar move.  

The companies that can crack the supply chain, logistics, tech and execution code will accrete enormous value as the Indian eCommerce market evolves from its initial roots.  Many believe Amazon and Walmart-owned Flipkart will continue to dominate the future of Indian eCommerce.  In my humble opinion, I would not bet against the hometown teams at Zepto and Zomato.

DISCLAIMER: The information contained herein is intended for discussion purposes only. The above information reflects opinions of Glade Brook as of the date it is written and, as such, all such opinions are subject to change. It is not a recommendation, offer or a solicitation for the purchase or sale of a security or any services of Glade Brook. Glade Brook makes no representations or warranties as to the accuracy, reliability or completeness of any information provided and undertakes no obligation to update, amend or clarify any information contained herein. This discussion should not be construed or relied upon as investment, legal, accounting, tax or other professional advice or in connection with any offer or sale of securities or other financial instruments.