Q-Commerce in Emerging Markets with the CEOs of Airlift, JOKR, & Zepto | 20VC #892

1. 0:00 – 3:37

   Aha moment for Airlift, JOKR, and Zepto

   1. RWRalf Wenzel0:00

      (beeping) Three, two, one, zero. You have now arrived at your destination.

   2. HSHarry Stebbings0:08

      Champs, this is such a joy to make this one happen. I've been looking forward to this one for a while. So I wanna start with a little bit of context and a little bit of background. Uh, let's start alphabetically. Airlift. Usman, hit me. What was the a-ha moment for you with Airlift? In about a minute, we're gonna go down.

   3. UGUsman Gul0:26

      Yeah. Uh, very, very excited to be on this show and, and thanks for having us. For us, you know, Airlift, our, our foray into quick commerce was really solving our own problem in the middle of the pandemic. We realized that the single biggest problem we had was getting grocery items delivered at our homes, uh, in a manner that was quick, that was instantaneous. And so, we set out to solve our own problem, and that's really where it all started, and we brought a small team together, and we, we looked at whether... what, what was, was operating efficient, um, uh, mechanism to do that, and, and that's how it all started.

   4. HSHarry Stebbings0:58

      I love it, and thank you so much. No one ever abides by the minute intro, so well done there. Uh, Ralf, hit me. Minute, what was the a-ha for you with Joker?

   5. RWRalf Wenzel1:07

      The a-ha moment for us... And by the way, Harry, thank you for having us as well. Um, the a-ha moment for us was how inefficient, uh, procurement-

   6. HSHarry Stebbings1:14

      Pleasure is mine, my friend. I miss your, I miss your dulcet tones.

   7. RWRalf Wenzel1:17

      It's mutual. It's mutual, yeah. Um, the a-ha moment for us was when we, um, figured out how inefficient, uh, supply chain and procurement processes are, um, globally, locally, um, how many people are involved, how much inefficiency, how much cost is being, uh, thrown away, um, and that there's a significant opportunity to literally vertically integrate, uh, and make supply chains become more efficient, more sustainable, um, and generating, like, a nice margin out of it.

   8. HSHarry Stebbings1:46

      Love it. Aadit, 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.

   9. RWRalf Wenzel1:54

      (laughs)

   10. HSHarry Stebbings1:54

       But, uh, it's lovely to have you, Aadit. But how did Zepto come about?

   11. APAadit Palicha1:57

       And it's lovely to be here, uh, and, you know, get to be with Usman and Ralf as well. For us, I think the a-ha moment was actually a little bit less, uh, you know, vision-enticing. It was more methodical. Like, 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 Q-commerce was just in the data. Like, we, um, you, 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, and more importantly, we saw that coupled with, you know, 4X the assortment that we were operating with, better freshness and control over quality, and, you know, pricing levers, you know, with the economies of scale as well. Like, all those in one, you know, platform was just a very compelling user experience, and it just reflected in the numbers, and that's when we, you know, decided to double down on Q-commerce.

   12. HSHarry Stebbings3:20

       I mean, you've teed me up so nicely there, Aadit. I, I wanna unpack each of those in the show today. I do wanna start on kind of more macro headline topic, being emerging markets, bluntly. And when we look at emerging markets and the operating models compared to Western markets, I wanna touch on, first, the pros. I'm an optimist.

2. 3:37 – 9:45

   Why are emerging markets the best place for quick commerce?

   1. HSHarry Stebbings3:37

      Usman, what's the reason that emerging markets are the best place for quick commerce?

   2. UGUsman Gul3:42

      Re- really like that, uh, question, uh, Harry. So just before I get into emerging markets, you know, w- uh, b- before starting Airlift, I, I spent a few years at DoorDash in their headquarters in San Francisco as part of the early team. One of the biggest learnings for logistics, uh, businesses is, you know, the, the path to free cashflow and how quickly you can get there has a huge implication for how large of a business that you're able to build in, in the next two decades. And, uh, the, the reason we're so excited about emerging markets in particular is because the path to free cashflow is actually extremely straightforward. Uh, and that's for two reasons, right? One is, um, you know, the, the cost efficiency of emerging markets is extremely low wage, or, uh, extremely low minimum wage, uh, costs. Uh, so that's one big driver for why emerging market businesses in Q-commerce will get to profitability a lot faster. The other aspect there is that because of the environment in emerging markets, you're a- actually able to build an operating model that enables you to offer stronger assortment. And, and through that, you're able to get a really strong AOV, which reduces your, your operating costs as a percentage of revenue. So I think it's those two factors combined that, you know, get us really excited about emerging markets.

   3. HSHarry Stebbings4:53

      I mean, I love 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, Ralf and Aadit, I, I do just wanna 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"?

   4. APAadit Palicha5:10

      Yeah, you know, I was with, uh, you know, l- uh, last week, and I was with the C- the global CEO of FedEx, Raj Subramaniam, 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 o- you know, dark store at Zepto 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 from mature dark stores is about 0.7, 0.8%.... right? And that wouldn't be possible without that density. So just double clicking on that as well. You know, similarly to also what Usman mentioned on, on, uh, operating costs as a percentage of revenue, I think that's also best in class. At least what we've seen in India, like mature 7% or 8% of revenue for last mile cost, and we think they 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 markets is, unlike western markets, is that the habit of buying groceries frequently, at least in India, is already ingrained in the population. Right? So, at least in India, you don't have, you know, Walmarts or Costcos where you go once a month to pick up groceries and that's sort of the, the norm. People are used to, you know, getting groceries ad hoc, and that's why we see better frequency of usage than Western counterparts, because people ... You know, this is more of a natural, uh, you know, value add to their existing behavior instead of forcing a change in user behavior or going after, let's say, only a convenience store kind of use case, right? Or, or like a 7-Eleven type of use case. So, yeah, I mean, I think there, there are all these sorts of natural, you know, value adds in emerging markets, both on the customer side and on the operating side.

   5. HSHarry Stebbings7:11

      I'm gonna take that "Density is destiny," uh, comment as one of my own and tweet it as wisdom-

   6. APAadit Palicha7:15

      (laughs)

   7. HSHarry Stebbings7:16

      ... but, uh, I love that. R- R- Ralph, y- you were about to say something there. I do wanna just touch on you before we move on.

   8. RWRalf Wenzel7:22

      No, I think, like, one of the, um, basically unknowns, um, and, um, some of the things, like, people need to understand about emerging markets is the very, very low level of penetration. As Aadit rightly pointed out, um, you don't have the same density of supermarkets. Um, it takes a significantly longer time, um, to do your weekly, monthly or daily grocery shopping, and not even the grocery shopping, or not only the grocery shopping, but for any basically article of basically frequent use, it takes a longer time, you need to travel a longer distance. Um, it's not like in New York or London or, uh, other cities where you have a supermarket and a convenience store, uh, at every single corner or at five minutes walking distance. Um, we're always inviting people to come to Latin America and s- um, come to Sao Paolo, come to Mexico City and test it out and see, how long does it take you to get to the supermarket? How much of your articles of daily or weekly, uh, needs do you get in that supermarket? Because they often come with not the same comprehensive assortment as one of these Walmart type of equivalents in, in, in other parts of the world. If you want to go f- uh, if you want to have fresh food, you need to go to a farmer's market. If you want to go and get convenience articles, you need to get to a convenience store. If you want to get, like, other packaged food items, you need to go to a supermarket, which is like half an hour, one hour away, um, considering also traffic. So, emerging markets give us the opportunity to not only be, like, a quick commerce player, but to be the supermarket, the one-stop shop to go to, um, and the basically, uh, most attractive alternatives for, uh, doing your weekly and your monthly or your daily type of shopping for any type of, um, item of, of, of frequent demand.

   9. HSHarry Stebbings9:17

      I think this is what frustrates me most about ... which is, like, the labeling of quick commerce, and I think so many different providers are bucketed into quick commerce, like we will with this show, which completely bastardizes everything (laughs) , but it's true. There's so many different variances. 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, let's identify them. Aadit, why don't we start with you? What are

3. 9:45 – 16:22

   Biggest challenges for emerging markets providers?

   1. HSHarry Stebbings9:45

      the single biggest challenges for emerging markets providers in this case? And then we'll do Usman and Ralph.

   2. APAadit Palicha9:50

      Yeah, I think it's a good question, and, you know, I'll, 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 that 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. Routes are not as well-planned. You've got, you know, when it rains, uh, you know, things flood for quite some time and, 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 a r- 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? And 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, 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 r- Ralph and, and Usman have probably experienced this as well, because the, the, the current offline experience is so fragmented, customers really use your platform if and only if you can give them something that just, like, viscerally and, you know, a- viscerally adds value immediately, and that key ... What we've seen, at least in India, that, that key category is fresh in fruits and vegetables, fresh meat, milk, bakery, et cetera, and that is obviously a very challenging category, uh, where - especially in emerging markets where they lack, where standardization is lacking, where you, where you, where you're procuring from farmers. The way that you procure from one farmer, the system that he follows is very different from the farmer down the road, right? Uh, which doesn't exist as much in, in, let's say, the US or Europe. So, I think categories like fresh are key in (coughs) emerging markets and they lack standardization. There's obviously a lot of rigor that you can build to get sort of the FMV numbers that we've got, like we did in, you know, fruits and vegetables, NVS, 81 points, uh, largely because of the (laughs) -... the insane maniacal kind of obsession we've had with, with quality. But, uh, yeah. I mean, I think those are the two challenges, infrastructure and lack of standardization with fresh.

   3. HSHarry Stebbings12:13

      Usman, hit me. What do you think? What are the biggest fuck-me challenges with emerging markets?

   4. UGUsman Gul12:19

      Uh, uh, y- I might have a, have a unique perspective on this, but, you know, I think, um, if, if you look at, you know, the operating side of the business, right, I think, uh, you know, uh, we, we love what we're doing in emerging markets. We love what we're seeing. I think one of the biggest challenges here in emerging markets, and I think the, uh, makeup or the DNA of this forum is actually, uh, indicative of that, or reflective of that, is it takes a very, very special and unique sort of a team to build operating efficient excellence in these sort of businesses. And historically, uh, you know, a lot of that, you know, team build-up, you've seen these kind of heavy logistics businesses come out of the US, you've seen these come out of Western Europe, you've seen these come out of, you know, some parts of Africa, you've seen these come out of East Asia in, in some ways, with Grab and all of that. But I think you need kind of that acquired intelligence within the team to really obsess over, you know, low levels of detail on operating efficiency and how to build operational excellence, and, uh, how to really, you know, define measure and, and, and build toward operating efficiency. And if you look at the group here, right, like I... M- my former experience was at DoorDash, Ralph obviously founded Foodpanda, uh, which we now compete against, uh, here in, in Pakistan, and a- Aadit, obviously, you know, has spent a lot of time at Y Combinator. So, I think that is one of the critical challenges in emerging markets, on how you build a team that can actually deliver on extremely high levels of operational excellence.

   5. HSHarry Stebbings13:44

      Ralph, hit me. What's your thoughts on the biggest challenges?

   6. RWRalf Wenzel13:47

      I think from, from our perspective, um, there are two main challenges, and they influence each other. On the one hand side, and Aadit said so rightfully, customers expect you to have a very comprehensive supermarket assortment. Customers do not look at us as basically a convenience, on-demand type of service, just for, like, top-up purchases or so. They're looking at us, they expect us to have a comprehensive assortment, from fresh, to packaged food, to convenience articles, to basically everything that a supermarket or a hypermarket could offer, and that's because of the low penetration that we talked about. So, there's a high demand from the customer side with regards to the assortment, which is a higher demand than, uh, what we have seen with, uh, basically, uh, similar players in, I don't know, markets such as, uh, Europe or in the US. On the flip side, it's significantly more challenging to resolve on that assortment, because you can't rely on existing distributors. You can't rely on partnerships with existing supermarkets, because they do not work very efficiently. They can't replenish that flexibly, uh, and that frequently, and that dynamically. So, you have to build a lot of that assortment, or a l- a lot of the procurement and supply chain infrastructure yourself. You have to become the warehouse and the logistic and the procurement company yourself. And only then you are able to fulfill, uh, the very high demand on the customer side. But if you have done so, once you have built it, you have a very, very high barrier of entry for anyone else to tap into that market. And it's very, very challenging then for a pure marketplace type of company, that only engages in building basically UX and logistic components towards the customer, the last mile element, to compete against it. And, um, in emerging markets, you have to be, I think, to a very, uh, big degree, a supply chain and procurement company. If you want to run these type of quick commerce companies in, I don't know, Europe and, and, and other parts of the world, um, it's sufficient if you are basically, basically relying on partnerships, if you're mostly like a consumer-facing company. Here in emerging markets, you have to be both a consumer-facing company, and a supplier, uh, and producer-facing company at the same time.

   7. HSHarry Stebbings16:07

      Listen, I totally agree with you there. I think it all starts though with the warehousing and the logistics side, and the real estate side, if we start at the kind of core essence of the value chain. Uh, Ralph, (laughs) you're the most experienced, um... (laughs)

4. 16:22 – 19:22

   What makes a great site for a warehouse?

   1. HSHarry Stebbings16:22

      Uh, tell me, what have been some of the biggest lessons and learnings for you in what makes a great site? And then we'll move to Aadit and Usman.

   2. RWRalf Wenzel16:29

      From a, from a, from a supply chain perspective, Harry, or-

   3. HSHarry Stebbings16:32

      Yeah, from a supply, from a supply chain and from a warehousing perspective. What makes the best sites? How do you choose them?

   4. RWRalf Wenzel16:38

      I think first and foremost, we have seen, and we are observing, um, that there is an increasing demand from a customer side for local products, for local brands. Be it on the fresh side, or be it on the packaged food side, or any other type of, um, basically consumer goods, which, um, obviously also adheres to the world's demand for more sustainability. Only if we build more local, uh, procurement and supply chain, uh, processes can we save this world from a total collapse. If we keep on relying on global supply chains, on carrying products, uh, from one part of the world to the other, um, we're neither able to operate efficiently, profitably, nor sustainably. So, one of the things that we're resolving, and s- uh, which adheres to the increasing customer demand for more local products and for more local brands, is to watch out for how much can we procure locally? How much can we procure from local farmers, from local food producers, from local producers of any type of convenience good, and shorten, um, basically the procurement, uh, processes? Because we would only need to bridge like a relatively, um, a relatively small, uh, relatively small distance. The other thing that we have seen is that it's not only, um, that it's not sufficient to only rely on an accumulation and an aggregation of, uh, a variety of small-... basically micro hubs, which are often referred to as, like, dark stores. But you need to work in combination of, like, smaller warehouses and bigger distribution centers. Because the bigger distribution centers, they resolve for, um, the ability for doing, um, replenishment yourself, for building a procurement company on the back of that consumer demand yourself, uh, and working as directly as possible with, uh, uh, producers, uh, suppliers, and, and, and, and farmers yourself. So we are operating in every single city in which we're in, in a combination of smaller micro hubs and larger distribution centers. We are always choosing and trying to find, um, ways of, like, local procurements, trying to reduce the dependency on global brands. Um, and if you do that locally, then you also tap into, uh, a significantly higher, uh, product margin pool, which... At least for Latin America, uh, and would be interested, uh, to hear about, like, uh, the situation in Pakistan and in India and other markets, uh, allows us to tap into a product margin, into procurement margin of up to 50% if we procure local food, fresh items, or locally produced, uh, packaged food items, um, as local and as direct as possible.

   5. HSHarry Stebbings19:21

      Uh, let's

5. 19:22 – 24:16

   How do you think about procurement margins?

   1. HSHarry Stebbings19:22

      dive on that. In terms of the procurement margins that Usman and Aadit, you know, Ralph's obviously said his there. How do you guys think about that and factor that into really the kind of products that you offer?

   2. APAadit Palicha19:32

      Yeah, sure. I'll, I'll take this one. So are you asking sort of how margin affects, you know, which products we wanna pass on to customers? I think that's-

   3. HSHarry Stebbings19:41

      Yeah. And al- ... Yeah, absolutely. And also, like, procurement of, like, local products and how that changes the margin.

   4. APAadit Palicha19:47

      You know, it's a great question. I think, you know, Ralph definitely has the right point of view on, on scaling local ex- local experiences. You know, for us, when we look at our model, right? I'll, I'll, I, I said this earlier and I'll say this again, we are a fresh-focused company, not just because it gives you your retention and high frequency with customers. And, you know, when you talk about fruits and vegetables, people in India at least are buying that three, four, five times a week, right? You can't order a month's worth of bananas, right? Because it'll end up going bad. You have to order bananas two or three times a week. And I think, you know, we focus on categories like that, not just because it's a retention driver or a frequency driver, but also because it's a tremendous margin driver, right? You know, we're in a position where, you know, we've got buy-sell margins in, in fresh fruits and vegetables at scale when you source directly. And, and I'll double-click on Ralph's, Ralph's point of the backend s- supply chain. Um, but, you know, you have insane buy-sell margins on fresh fruits and vegetables between 40 to 50%, right? Which is phenomenal if you can control the wastage, which I think we've done a, also a pretty good job of, right? We're in a position where our wastage numbers are 350 basis points lower than retail benchmarks in India. Forget about cue commerce benchmarks, right? Uh, we're, we're doing better than, than offline players on wastage. And there are multiple sort of structural reasons why that (inaudible) 　 but, you know, we're really doubling down on those strategies. We're seeing sort of a natural push from our end but also pull from customers, right? Where if we can crack high quality fresh fruits and vegetables, fresh meat, fresh bakery, and milk, that's, you know, the, the demand side pull there is just tremendous, right? And so, you know, we have doubled down on those categories specifically when it comes to, you know, sourcing efficiency, quality control. For example, our fresh fruits and vegetables, we built a 12R farm-to-fork chain. So 5:00 PM harvesting time, comes out of the farm, and 5:00 AM it's in our facilities, right? Uh, you know, ready to get shipped to customers. So that level of freshness, that level of sourcing efficiency and quality control through all the different spokes in the chain are one of the reasons why we have such a high penetration of fresh products, you know. Overall, over 40% of revenue, um, for fruits and vegetables, meat, bakery, et cetera. M- more than likely, significantly more than 40%. I don't have the exact number on it.

   5. HSHarry Stebbings22:01

      Man, that is insane in terms of the reduced wastage. I had no idea that, like, 350 bps less than traditional.

   6. APAadit Palicha22:08

      Yeah.

   7. HSHarry Stebbings22:08

      That's insane. Usman, before we dive on, I, I, I'd love to hear your thoughts on this and how important is F&V to you and, and, uh, Airlift in Pakistan?

   8. UGUsman Gul22:16

      F&V is extremely important to us. Obviously it's the anchor category, uh, area. So, uh, you know, I think it brings ... It, it really anchors customers to our platform. It is extremely important. We've actually built out similarly what Aadit is sharing and similarly to what, building onto what Ralph has shared, we've built out a whole supply chain for fresh, right? Where we procure directly from farmers and, and, you know, deliver that all the way to customers through our own internal supply chain, a vertically integrated supply chain that does all of that. But in terms of procurement efficiency, you know, I think there's kind of, uh, three, three things that drive that, and this is probably building on top of what Aadit and, and Ralph have already shared, right? Like, uh, purchasing from local producers is extremely important. Who you buy from makes a huge difference in terms of procurement efficiency. It reduces the distribution cost for suppliers. It reduces the, the procurement cost for, for Airlift. Um, the second thing is obviously distribution centers, right? So enabling a consolidated model. So specifically the metric we track is the quantity per shipment. Uh, that is an extremely important metric in, in terms of procurement efficiency because the larger the delivery, the lower the distribution cost and, and the better the rate that you get from suppliers. And the third thing is what basically Aadit was saying, which is inventory turnover, which drives wastage, right? So if you have a model where inventory throughput is extremely high, uh, and in- inventory turnover is extremely healthy, then you can have less wastage. And then that obviously adds to procurement efficiency. So those are kind of the three things we, we look for. You know, buying local, having the right distribution centers, and then having a really healthy inventory turnover rate.

   9. HSHarry Stebbings23:44

      Usman, with your lists, you are literally born for TikTok, just to give you a little content hint. But, uh, (laughs) I do, I do wanna ask, you know, so we, we've got the warehouses there. One thing that people forget before they jump to delivery is picking costs. Picking and fulfillment in that respect is really, really hard. And I'm often, again, chastised for not going deep enough on numbers. So I do want to go deep here, and I think the way that we also dispel myths and bullshit about the space is by opening up a little bit more on our numbers.

6. 24:16 – 30:56

   Picking Costs

   1. HSHarry Stebbings24:16

      So when we think about like public market picking costs, when I did my research, it was 4 to 8%.... I wanna start with, like, honesty. What's your picking cost, and what are you doing to improve it and think will change the game there? Ralf, why don't we start with you?

   2. RWRalf Wenzel24:32

      Yep. Happy to- happy to- happy to take that. So first and foremost, um, we think that, uh, as you know, the biggest lever for generating margin in this business model is the ability on how you procure, how directly you procure. What is your share of fresh? What is your share of, uh, local products and local brands? And again, on the product margin side, um, at least in Latin America, you have the opportunity to get anywhere between, like, 40 to 50%, depending on the product category, without surcharges, and without, like, considering, like, delivery fees, or, like, advertising revenue. So that is the biggest lever, and this is the one that we are concentrating on. However, obviously, there's significant potential for increasing efficiency on the delivery side, um, on the delivery cost side, and on the picking cost side. At this point of time, our picking cost, um, averages in between, like, 2 to 3% of revenue. We believe that over time, we can bring that down further, to approximately half of this. We also obviously consider that there's significant opportunity to automate on the picking side. There is warehouse automation. There are ways to basically at least semi-automate, uh, the way picking is being done. And there are technologies that we're evaluating and, uh, and testing. And overall, in terms of the combined delivery and picking cost, we're currently averaging about, like, 12 to 15%, depending on the market. Both together, as a percentage of revenue, what we believe that's, uh, to go down, and, like, converge towards, in a combined way of delivery and picking crossed together, uh, towards, like, the 10% of, uh, uh, 10% of revenue.

   3. HSHarry Stebbings26:14

      What would move the needle in bringing down your delivery and picking costs?

   4. RWRalf Wenzel26:19

      Moving the needle would be, uh, reaching, like, just further scale in every single neighborhood that we're in. Uh, at this point of time, we just started operations across our, like, 200 areas, 200 neighborhoods in which we're in, as you know, about a year ago. We know from our previous experiences, uh, as part of Foodpanda, Delivery Hero, uh, that scale moves the needle. If we, uh, reach a business volume and a penetration in each of our neighborhoods that is twice as high as it is today, I think we can increase delivery efficiency by another 50%. I think, um, with increasing, um, order density and with increasing, uh, penetration and scale, um, you create yourself the ability for order stacking as well, which we're not leveraging at this point of time. At this point of time, every delivery rider goes to the customer, returns to the hub, and waits for the next order to arrive. Um, so order stacking, increasing penetration, increasing scale, and warehouse automation, um, are potentially three of the most important, uh, levers in order to, um, increase the delivery efficiency even further.

   5. HSHarry Stebbings27:27

      Ardent, I'd love to hear your thoughts. We- we had that 2 to 3% on the picking costs, and then, like, 12 to 13 fully blended with delivery and picking. What does it look like for Zepto and you in India?

   6. APAadit Palicha27:37

      Yeah, I think for us right now, it's roughly about 3, 3.5% on picking, and then blended with, uh, last mile, goes to about 10, 11%. Uh, but when, when it comes to, you know, when it comes to mature, uh, micro-markets, and mature s- uh, mature s- uh, delivery centers, we're seeing that number go lower. And, and I, I personally believe, uh, (laughs) you know, pushing the team on this, but I personally believe we can get to 2.4, 2.5%. We already slightly touched 2.7-ish in mature, uh, in mature sort of delivery centers and micro-markets. So yeah, I think on an absolute basis, you know, right now, our picking cost is minuscule. I mean, cents, right? If we had to convert it into US dollars, it's like, it's a handful of cents. I won't go to absolutes. But I think right now most of the lever for us will be just in terms of like, you know, right now, I think at- on an absolute basis, our picking cost is close to half of regular e-commerce on Amazon, on Flipkart, on- on their picking cost, at least in sort of their grocery verticals. But when it comes to reducing that 3, 3.5% to 2.5%, I think most of that lever is gonna go up on, uh, on average order value increase, right? We're- we're seeing right now roughly a, uh, you know, 5%, 5 to 7% month-on-month growth every month just on AOV, right? So that's also significant. And not, and it's also not because we're, we're implementing specific interventions, right? We're seeing that as customers get more and more mature in the platform, our end state AOV ends up being, you know, 40 to 45% higher by month six to month eight in the customer's journey with us, right? So yeah, I think, uh, right now on- on tightness within the facility, uh, I'm pretty happy with where the absolute number is. It's half of where e-commerce is at. It's already at 3, 3.5% pan-Indian. I think we can get that in mature dark stores to 2.5% right now, or 2.7, 2.8. But eventually, uh, a lot of that goodness will also come in from AOV continuing to go up, as it has over the past couple of months.

   7. HSHarry Stebbings29:38

      Azman, Azman, what are your thoughts before we move on on this one? What are the picking and packing costs like, and what are the delivery costs like for you, and how do they compare in your mind to some of the bigger players that I mentioned?

   8. UGUsman Gul29:48

      Yeah. So we're currently doing between 3 and 4% on picking costs, and we're doing about 6 to 7% on delivery costs. So our total comes down to about 10 to 10.5% for delivery and picking inclusive. We're planning to get this to about 7% by the end of the year. Uh, but I do believe, Harry, that that is really an output metric. And the input metric here, right, is actually your labor efficiency, uh, and your capacity planning, and your order density, right? So for example, we could have extremely poor labor efficiency, uh, and we could have so much order density that we, you know, come out really good on picking costs, right? And so I think the question really is how do we measure labor efficiency? How do we measure capacity planning? And the way, you know, Airlyft does that is we define labor efficiency as...... the hourly output in terms of orders picked. Um, and, and we define capacity planning as the average idle time for a worker, uh, in a, in a given day. Uh, and so those are the two input variables that we really obsess over. And then, you know, if you get those right, the outputs will follow over time.

   9. HSHarry Stebbings30:50

      I, I, I really like the input versus output, and I totally agree with you in terms of the way you broke those down. I, I do wanna ask, one thing that changes

7. 30:56 – 37:34

   Delivery Fees

   1. HSHarry Stebbings30:56

      a lot of the economics around this is delivery fees. Um, a, a lot of providers have them. How do we all ... And I'm, I'm doing this as an open one for the crowd (laughs) . 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 dis-incentivize users? What do we think? Open for everyone.

   2. APAadit Palicha31:17

      So to, to jump in there, what we've seen post the fifth order in Zepto, the user's likelihood to retain ... Oh, sorry, even post the third order, the user's likelihood to retain indefinitely is post 95%. Post the, uh, 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, and, uh, you know, today all mature customers across the country currently have a fee attached to their del- uh, 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 trend to 90, 95% over time. So that's essentially the- I mean, the, the very high level strategy is post maturity, you know, users get hooked after the fifth order, and after that, as you should have been incrementally increased delivery fees, we really haven't seen drop offs as, you know, as much at least on the buyer side. Yes, there is a little bit less frequency, but the frequency that's, you know, in, in the matter of single digit percentage point drops in frequency, but not really something that really shows up in, in, in GMV because average order value also goes up, right? So you end up having slightly less frequency, slightly higher AOV. Um, but yeah, I mean, that's how we think about delivery fees. The last thing that I'll just say there to add, is counterintuitively for us, the faster we're delivering, the cheaper our last mile gets. Because we're able to do, like Usman mentioned, with input metrics, we're able to do significantly more orders per hour per rider, right? And that brings down your cost because effectively, you know, your last mile cost is the ratio of how much are you paying a rider per hour divided by how many orders he's doing per hour. So if you're paying a rider 80 rupees per hour and he's doing one delivery per hour, then your cost for every delivery is 80 rupees. But if you're paying him 80 rupees per hour and he's doing two deliveries per hour, your cost for every delivery is 40 rupees. If he's doing three deliveries per hour, your cost for every delivery is 27 rupees, right? And as a result of that, we, we actually have really solid, you know, order per hour metrics, which gives us, you know, a lower last mile cost than anyone else today in hyper, hyper-local commerce in India for our mature markets. As a result of that, you know, we think our end state delivery fee will actually be lower than, let's say, what you might see on a food delivery platform, and we'd still be, you know, free cash flow positive in that market. In fact, in our first markets that have gone free cash flow, uh, positive, and some of them that are on the verge of also doing that as well, we're seeing that the fee structures that we need are in sometimes 30, 40% lower than what you might see on food delivery platform or other hyper-local commerce platforms in India because our last mile cost is lower because we do significantly more orders per hour per rider.

   3. HSHarry Stebbings34:18

      Ralph, I'm super intrigued to hear your thoughts on this. I mean, he mentioned that kind of the different, again, kind of the different variants within the same bucket of quick commerce, but what are your thoughts on delivery fees, how they impact usage, and actually how much one can charge? I'm intrigued, like, how much can one charge in delivery without dis- dis-incentivizing?

   4. RWRalf Wenzel34:35

      Look, I think delivery fees are a little bit of concept of the past, right? It sounds a little bit like Yahoo in the '90s. So when we got together to build this, um, basically next generation retail platform, right? We ourselves don't refer to it as quick commerce. We say we want to build a new generation of an e-commerce platform that resolves things differently, that resolves on the shortfalls of other, um, basically e-commerce companies, um, that don't have an attractive pricing, that don't have an attractive assortment, that take too long in terms of doing the delivery, that are not sufficiently personalized. So that's why I think in order to really be perceived as an alternative to any type of other shopping, be it offline or online, you have to have a incredibly attractive pricing. And more than focusing on charging delivery fees or identifying, uh, whether or not we put a markup or surcharge on, um, the actual food price or on the SKU price, we are focusing much more on what we call, like, basket building, right? The increase in AOV, the increase in average order value. How much you get customers to do not, to not only order like one or two items, but indeed order like 5, 10, 15 items per order has a significantly higher impact on profitability than, uh, charging like any type of markup or delivery fee, which is like counterintuitive to driving usage and to driving adoption and to basket building. Now, you could encourage basket building by charging a delivery fee below a certain order value. And that is that what we are, what we are trying out to say, uh, if customers only use our platform to order like one or two items, um, then we might charge, uh, a delivery fee. But overall, um, our philosophy, our vision and also what we're adjusting for is to, um, increase our assortment to focus on-... assortment, quantity, quality, and availability. And by the increase and, and improvement in assortment, uh, drive AOV, drive average order value, which we have seen consistently going up as a function of customer lifetime. And AOV has a significantly bigger impact on overall profitability and unit economics than just by the pure application of, uh, delivery fees, which at one point of time, caps your ability to grow. And especially in emerging markets, you do not want to create a proposition that is limited to the middle class or, uh, upper income type of, uh, um, uh, segment of the, of the population. But we have the possibility in a vertically integrated way, to create a platform, to create an e-commerce proposition that is there for everyone, no matter which income level.

   5. HSHarry Stebbings37:29

      Uh, I, I, I, we said AOV multiple times here. Usman, I, I wanna dive to you.

8. 37:34 – 46:45

   Average Order Values

   1. HSHarry Stebbings37:34

      Um, again, we're being open with our numbers here. What are the AOVs and how have they changed over time?

   2. UGUsman Gul37:39

      Yeah. Great. Um, eh, so one of the big things, you know, uh, there's... On, on the economic profile, right, of our Q-commerce platform, there's two kind of broad areas here that we obsess a lot about, right? One is the operating efficiency and the cost efficiencies. The other part is the AOV. Uh, and as, you know, Ralph rightfully pointed out, uh, average order value is an incredibly, incredibly high impact driver of the P&L. And so for... Like in the month of January, so we've had a lot of exchange rate devaluations, valuations, shifts in, in, in, in Pakistan. But as of January of this year, our average order value was about $9.20. On average, in Pakistan, the, the A- AOV for, for Q-commerce, uh, right, for Delivery Hero and some of these other players is actually around $6. The average for India is about $5.70 just based on, you know, what I'm reading on, on TechCrunch, and Aadit probably can add more, more perspective here. But... And the reason we have a higher order value is because of our assortment advantage and because of our mothership warehouses and our distribution center network that enables us to replenish our dock stores in a really efficient way, which in turn enables us to have a larger assortment of SKUs. Um, so that, that's actually one of the big reasons for why, you know, we, we, uh, you know, are marching towards free cash flow very, very quickly. Uh, it's because of having an average order value that's about 30% to 40% higher than the next best benchmark in our respective market.

   3. HSHarry Stebbings39:08

      Aadit, hit me. We, we heard there about kind of $5.70 for, for India. I- is that what you're seeing and what are your AOVs today?

   4. APAadit Palicha39:15

      Yeah. Look, we're seeing, we're seeing in, you know, mature micro-markets AOVs that 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, uh, you know, less heavy in fresh, AOV is one of the more critical, uh, metrics. But in reality, what we, when we look at our AOV, you also have to look at category penetration rate. And so if you've got a high penetration of, 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 margin structure of the fresh product would be, you know, in some cases, 2 to 3X higher, right? And so at the end of the day, you're, you're optimizing on take rate, which is how much money are you actually making net of margin when you have, you know, certain AOV in front of us. When we look at AOV, we don't obs- obss- obsess about it too much, more so on the north star, which is how much are we actually taking in gross profit from the customer. And that doesn't always move in tandem with AOV per order, right? So gross profit per order isn't always correlated with AOV per order, because if you have a high penetration of fresh fruits and vegetables, the average selling price of a fresh fruits and vegetable would be lower, but the amount of margin that you make would be much higher than the delta in AOV. And so I think, you know, one of the mistakes we made early on was optimizing for AOV per order. And when in reality now, the north star to be focused on is (coughs) um, gross profit per order, right? And that's net of margin, net of anything else, in which, which is where the mature markets were touching around, uh, you know, 100 rupees. And that's actually what ends up paying for the logistics, uh, you know, below, uh, below CM1 and CM2. So, yeah.

   5. HSHarry Stebbings41:03

      A- A- Aadit, hit me. What's your blended AOV today across models, mature and...

   6. APAadit Palicha41:10

      Blended AOV... Blended AOV would be today... I wouldn't go to new markets. I'll talk about mature markets, it'll be between around $6.

   7. HSHarry Stebbings41:19

      $6? Got you. Okay, listen, totally makes sense and I really appreciate that in terms of like gross profit per order being the new kind of, uh, north star. Ralph, hit me. AOV, what, what are, what are we at?

   8. RWRalf Wenzel41:31

      The average group AOV is currently at around like 25 US dollars, which is already representative of like a bigger grocery basket instead of just like a fill up basket.

   9. HSHarry Stebbings41:41

      Yeah.

   10. RWRalf Wenzel41:42

       Uh, but depending on the maturity of the markets, um, and depending on, uh, the penetration level in each of the neighborhoods that, uh, we're in, we're already seeing AOVs going up to like 35 towards like 40 US dollars.

   11. HSHarry Stebbings41:56

       Wow. Okay. Fuck. That's a lot.

   12. UGUsman Gul41:58

       And, uh, Harish, I just wanna add a perspective here. So, uh, I think there's two broad Q-commerce models we're seeing coming up, right? Um, like true quick commerce, right? There's a 10-minute delivery where you have a lot of stores, right, in a given city and, and you're doing, you know, like really rapid delivery, you're seeing really strong retention and overall revenue, uh, and all of that, right? Uh, and in that model, you have lower AOVs on a per market level. So we have a new competitor in Pakistan. They're doing 10-minute delivery and their AOV is about $3.80, right? So there's this Q-commerce model where you have extremely fast delivery times, 10 minutes, 15 minutes, and then you have a lower AOV. And then you have a latter model, which is where our model is, which is where we do 30-minute delivery, uh, but our AOV is slightly higher, uh, you know, and, and higher than the market. Our AOV is, you know, close to nine.And so, in these two models, you know, our perspective is that in the former model, where you have ultra-fast delivery and a lower AOV, you can get to profitability, of course. But it's just gonna take you way more order density, right? So, you're gonna have to raise multiple hundreds of millions of dollars, if not billions of dollars, to build the order density that is required to make that AOV profitable ultimately, right? And so I think it's just two different models. I think both of them will be successful, but one of them is just extremely, extremely capital-intensive, whereas the other one is- is a slightly different value proposition, a slightly different model.

   13. APAadit Palicha43:20

       Uh, go ahead so I'll actually ... so I'll, I'll jump in there, right? Because I think, uh, you know, although definitely, uh, Usman has got insights here. The reality is, you know, what we're seeing right now is- is the opposite because, you know, for us, when you talk about A, like I mentioned, penetration of categories, what actually ends up getting penetrated in faster delivery, and B, the logistics cost associated with that, right? Where, you know, in mature micro-markets we can go to, you know, 7%, 8% fully-loaded, uh, cost structures and fully-loaded packing and last mile costs inclusive of wastage as well, uh, you know, in like fulfillment costs with sort of a Q-commerce model. I think the- the one counterintuitive reality is that when you're doing deliveries faster, not only do you get, let's say, a better penetration of fresh categories, higher propensity to pay among customers, but you also get logistics costs that are- that are lower and can be managed, like you mentioned as well, get better throughputs, which means your wastage is also lower. But you also have logistics costs like last mile, like packing costs which get optimized because you're able to do more orders packed per hour, more orders delivered per hour. And so I think, you know, for us, we've seen even compared to, let's say, players that are delivering in 24 hours or 12 hours or even four hours, right? The timeframe to, you know, cashflow positivity, which we've done for multiple of our- of our dark stores, the timeframe that we've seen there was even traditional e-commerce has been lower, at least in India, because we're seeing all these other net positive benefits on them. And in terms of, you know, in terms of, let's say, (coughs) assortment, you know, one thing that at least I've noticed in- in high density markets, second India, again, uh, there are definitely nuances in, let's say, Pakistan. But in high density markets like India, when you've got, you know, es- especially in, let's say, all Tier 1 cities like a Mumbai or Bangalore or Delhi, when you've got literally hundreds of thousands of people in like a three kilometer or five kilometer circle, at that point you can actually do 3,000, 4,000 SKUs, which covers 90, 95% if you look at Nielsen's data ... 90, 95% of the Indian grocery basket, while doing a 10-minute delivery proposition because your density is so easy to manage. And so for us, I think when we look at high density markets, we look at this model, at least for us, making a lot more sense. And we've experimented with models, I think similar to longer- longer delivery times, but it makes more sense because of all the- the second order benefits and penetration of categories that you want a higher penetration of the- the higher margin, you get, you know, better last mile costs because you're doing more orders per hour, better packing costs because you're doing more orders packed per hour, and better throughput across the board, which is why I think in a matter of a few months, we've been able to actually get to positive in multiple stores. So there is some nuance there, and I think, you know, even if you look at AOV in, uh ... you know, if you look at AOV in isolation, it's actually a very low-nuance metric because today, you know, you might have an AOV in- in our market or in other players in e-commerce in India, but you also know that for offline retail in India, we've got a gross margin structure that's already 90%, nine and a half percent higher than even the best in class offline retailers in the country, which is something that you wouldn't- wouldn't know if you didn't go beyond AOV, right? And that would not be possible if we didn't have a faster delivery model because customers wouldn't be buying fresh as much as they do from us.

   14. HSHarry Stebbings46:43

       Guys, any thoughts that I've missed?

9. 46:45 – 1:00:19

   Advertising Revenue

   1. HSHarry Stebbings46:45

   2. RWRalf Wenzel46:45

      I think something to add, um, and would love to hear also, uh, Usman's and Aadit's perspective on that, but we have, uh, recently launched our Joker Media proposition. So on the back of like a high frequency, high retention type of business model that keeps on growing, um, at- at least 20% month over month, we have now built our own advertising business. There are very, very limited, uh, advertising capabilities in, uh, Latin America. The majority of other basically online advertising platforms have limited geo-targeting possibilities in Latin America. Um, offline marketing in terms of out-of-home advertising has its limitations in Latin America. In some markets, you're not, uh, allowed to put, uh, billboards or, uh, to do basically taxi, bus or public transport advertising. So there's a limitation in terms of, um, online advertising capabilities. And with a model that is, uh, hyper-local, that understands customer consumption on a per SKU level, um, and with the ability of, uh, really creating stickiness with our high retention rates and our high, uh, frequency of ordering, we thought we have the perfect foundation to build, uh, a scalable and highly attractive and very targeted, um, retail advertising business. Uh, we launched our Joker Media proposition, um, only some few weeks ago, and already in the first month, it's almost contributing 5% of our, uh, global revenue.

   3. HSHarry Stebbings48:26

      Wow.

   4. RWRalf Wenzel48:26

      And we believe that in the future, uh, for that to reach, um, basically 10 to 15% already in the near term to be seen where and how it converges over the long term. But I think other than, um, basically similar platforms in- in Europe or, uh, in other parts of the world that already have like an advertising share of their business in and around like the 10%, uh-... we, we see a huge opportunity in emerging markets, and in our context especially, in Latin America, for there to become, like, a significant additional revenue stream. And even though we're able to turn the business profitable, not only on a per-unit basis, but on an overall cash flow basis based on how we vertically integrate and everything that we talked about, this becomes an additional profit lever, and an additional, um, basically, um, differentiator, um, that we, uh, want to focus on, uh, more and more. And I think it's, uh, uh, it's worth highlighting but again, would love to hear, like, Usman's and Adit's perspective on that as well for other parts of the world.

   5. HSHarry Stebbings49:29

      Can, can I just jump in 'cause I do wanna touch on that. Just quickly, we've, before we chatted about kind of you reducing the power of large CPGs a- and some of the biggest players in the business. Does that not go against running an effective media and advertising engine when they are likely the ones who will be paying you? Kraft, Heinz, Cadbury's are the ones who will be spending the big dollars, not local procurement partners.

   6. RWRalf Wenzel49:52

      It is-

   7. HSHarry Stebbings49:52

      Do they not go against each other?

   8. RWRalf Wenzel49:53

      It is, it is very category specific, and it is very SKU specific. Imagine, for instance, our big focus on fresh. On fresh, right, you don't have much basically, um, much branding. You don't have basically, like, the farmers trying to advertise throughout your platform. And we've talked about, like, fresh being, um, one of the most important, if not the most important categories for us, in terms of vegetables, fruits, fish, meat, and everything that belongs to that category. Milk, eggs, and so on. So all of those are procured locally at very, very high margins. Um, and that part of the business does not conflict with the CPGs, um, that you are sourcing from the CPGs respective channels, and obviously also as efficient and as direct as possible. But here, with the additional revenue stream of adding, uh, an advertising, um, basically an advertising revenue generation, um, on top of what you're doing. So it's very, very basically category specific, and if basically tailored and if adjusted in the right way, does not create a conflict because again, we're not a marketplace where we work with existing supermarkets, or where we're just basically sending riders to pick from existing stores. No, we're building our own SKU set. We're entering into contracts with producers and brands directly, and hence we can always navigate in between, like, um, the way how we are basically dealing and, and having like commercial relationships in place with each of those, uh, uh, individual producers.

   9. HSHarry Stebbings51:28

      Usman, I do wanna move to you on the advertising side. I know that Airlift's introduced an advertising part of the business. How much does it account in terms of revenue, and what have you seen here?

   10. UGUsman Gul51:38

       No, uh, so, we're, we are seeing between 1.3 to 2% of revenue, uh, uh, from the active (...) platform. We've just got into this space, right? And, uh, the benchmark for Delivery Hero is about 3%. So Delivery Hero does about 3% of revenue in markets where, where they're going all in on adverti- advertisement revenue. We believe this can get to, you know, 45% and then hopefully over time, up to 10%. Uh, but I, I do wanna, you know, comment that, you know, Ralph and I spoke earlier and, and you know, it's just extremely impressive to see, you know, Q-commerce platform already at 5% on advertisement revenue as a percentage of total revenue, um, when we, we... Yeah.

   11. HSHarry Stebbings52:17

       What, what- what has driven that effect... Sorry, and then we'll do a quick fire after hearing from Adit. But what's driven that effectiveness? 5% is a lot. What worked?

   12. RWRalf Wenzel52:26

       I think it has to do, um... And again, curious to understand how it's, um, basically how it works in, in, uh, in other parts of the world, and especially in other emerging markets. But again, in, especially in Latin America, there are, as I said before, limited, um, limitations in terms of how publishers, how the big brands can conduct advertising campaigns at this point of time. The limited possibilities to do, like, out-of-home advertising in certain markets it's restricted, it's banned, it's forbidden to actually do out-of-home advertising, and again, the existing online platforms have very, very limited, uh, targeting possibilities. Um, and that's why, um, the barrier, or like the threshold of having, like, something attractive in place is relatively low. Because again, yeah, all other existing platforms, um, are not sufficiently attractive for, uh, the big brands, uh, to spend on media. Um, the other thing is that especially in Latin America, it is a very, very large CPG-dominated type of, uh, ecosystem. Um, so, it is at this point of time not, uh, an environment where a lot of, like, local brands, uh, and local producers, um, um, got, like, to a sufficient, uh, exposure relative to other markets of the world, and hence the big CPGs are fighting for customers potentially in a bit more concentrated way than in other parts of the world. And hence, uh, there is more, uh, appetite and more money, uh, from the big players to be spent and, um, they're searching for scalable, uh, highly effective and, and, um, uh, and very targeting capable, uh, type of, type of platforms out there. And the other thing is that we have, uh, Hari, as you know, established, um, a LATAM-wide footprint relatively early on. So we're not only in, like, single cities, and not only in, like, one or two countries, but especially, like, from an advertising perspective, you make yourself relevant if you have a specific reach. We are in, uh, five countries in Latin America at this point of time. We're in a variety of different cities in each of those countries, so we do have a penetration and we do have a size of the business that matters, and you need to get to a certain penetration and to a certain geographical coverage, and to a certain size of the overall business in order to matter for an advertising business. And I think once certain platforms have unlocked that size and that geographical coverage, I think you can immediately tap into quite an attractive and over-proportional, uh, advertising revenue pool.

   13. HSHarry Stebbings55:02

       Aadit, do you have any last thoughts here before our quick fire round?

   14. APAadit Palicha55:05

       Yeah. And I think, uh, you know, similar sort of effects exist in other emerging markets that Ralph mentioned, right? Like, we've got m- massive CPG brands (clears throat) that really haven't had an outlet f- outlet for targeted advertising at the point of purchase for customers, right? The closer you are to the point of purchase, the more valuable the, the advertising property is. And we've seen that the CPGs have been deprived of that, at least in India for many, many decades, right? I mean, we, we see in India the percentage of spend for CPG on, let's say, TV, and billboards, and highly (clears throat) untargeted forms of media is much higher than anywhere else in the world because in the US with Walmart, and Target, and 7-Eleven, they've 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, these CPG brands really have no outlet today. They are 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 much, and, and how much you ended up getting in, in ROI. And, you know, (coughs) 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 brand-funded discounts and other things that... and off-invoice margin (clears throat) when you (clears throat) Sorry. It's brand-funded discounts, off-invoice margin, and monetization income that you wanna get from brands other than just the, the, uh, the plain, uh, ad revenue, right? And so, you know, for us, we're looking at today, um, when you include all the different off-invoice margin that we get from brands, you know, around 4% of revenue, uh, India. And we'll probably increase that to 5% by, uh, July, August is what we're looking at right now. In terms of the, in terms of the actual... Just to give people a sense of, of how much this actually, you know, matters to the business, right? That is, you know, in, in real terms, uh, we'll probably be, you know, north of, at, at this current growth rate, north of, you know, 20, 25 million by the end of this calendar year and, and, you know, significantly more at the end of it, right? So this is actually just cash that hits our balance sheet. And if we can get that to 7, 8%, there's no reason why, uh, you know, this business can't be close to a double-digit EBITDA business, right? Uh, I think it's very, it's very possible in the long term. And you've got players actually that we don't really talk about as much that have cracked monetization and ad revenue in their respective markets and are operating at FCAI positive in Q-commerce, which a lot of, you know, other hyperlocal play-... hyperlocal commerce plays like food delivery didn't have for many, many years. So yeah, we're in a position where we're just, you know, we're able to raise less money because we're actually generating cash that we can reinvest in the business through things like monetization, income, ad revenue, uh, brand-funded and other mar-... uh, off-invoice margins that really make a difference. And we're also doubling down on that from a product perspective, right? We're building in-house targeted search, we're building, um, you know, pretty sophisticated, uh, you know, pretty sophisticated banner targeting at the homepage level as well that's really driving value. Uh, and, and the last thing that I'll add is that, you know, we've... None of this would also be possible without the Q-commerce play, right? Because, because we deliver in 10 minutes, because we're incredibly fast, we're seeing brands that have historically been underrepresented, right? Brands like for example, Red Bull. On... Red Bull can't advertise on Amazon because their most, their fastest-selling product in offline stores is like a two, three-can of Red Bull or one can of Red Bull. But Amazon, you can only buy a six-pack, right? You can't buy, like a, you know, Amazon 24 hours from now or two hours from now will not give you one can of Red Bull. Uh, ne-... neither do we, but (clears throat) the, the, the s- the smaller units and higher frequency actually gives Red Bull much higher sales as a percentage of revenue that they even get from an Amazon, right? And as a result of that, all these brands that could not touch any other e-commerce platforms, and it's, it's huge, Red Bull, Coca-Cola, Pepsi, all your other sort of, uh, uh, uh, Frito-Lay, like all your other sort of snackables, beverages, you know, cooking essentials and other critical categories that have very high volume and high throughput in Indian households had never had any outlet that existed even in traditional e-commerce, they're now, now doubling down and tripling down on Zepto. So if you, you know, if you look at the percentage of spends that brands have for... that they earmark for advertising that, that a CPG has versus how much they're spending on Zepto, they're spending almost 2X like proportionately than they would spend on a platform on Zepto versus other pl- ver- versus other platforms. So yeah, we're really incredibly excited about that and it's, it's just generating cash that we can reinvest in the business.

   15. HSHarry Stebbings59:58

       Uh, listen, I, I totally agree and I share the excitement. I also love the kind of market creation play that you said, Ralph, there, in terms of offering to advertise as something they've never had before in terms of the access and reach. I wanna do a quick fire round. So I'm gonna say a short statement, you give me your immediate thoughts, and it's 60 seconds or less, and I'm gonna give very targeted directions on who answers what.

   16. APAadit Palicha1:00:16

       (laughs)

   17. HSHarry Stebbings1:00:16

       So, Usman, we're gonna start with you. What is the

10. 1:00:19 – 1:01:04

    Biggest misnomer about quick commerce?

    1. HSHarry Stebbings1:00:19

       biggest misnomer that pisses you off (laughs) about quick commerce?

    2. UGUsman Gul1:00:23

       Biggest misnomer is around challenging economics, uh, because unlike delivery, uh, food delivery and ride sharing in previous megatrends in, in the logistics technology, uh, Q-... The, the number one thing that's different about Q-commerce, in particular in emerging markets, is that there's a very kind of clear, fast, and straightforward path to profitability that does not require, you know, uh, immense levels of order density or, or a lot of capitalization. And there's no one path that gets there, there's multiple paths that can get us there, as Aadit has, uh, you know, kind of pointed out. And so I think that's the biggest misnomer from, from my perspective.

    3. HSHarry Stebbings1:01:00

       Aadit, is this a market of many players or a market of consolidation?

11. 1:01:04 – 1:02:10

    Is this a market of many players?

    1. HSHarry Stebbings1:01:04

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

    2. APAadit Palicha1:01:15

       I think this is a market of a few players, right? Uh, 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 pl- players like food delivery and even e-commerce, right? There will be many players that win and some players that don't. Uh, so some players might, (coughs) you know, fall in the bag 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 kind of market. Because like, like, uh, 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 and some players that don't make it, and at the end of the day, it'll boil down to operating excellence, right? Uh, 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.

    3. HSHarry Stebbings1:02:04

       I totally agree with you in terms of operating excellence. Ralf, tell me, what would you most like to change about the world of quick

12. 1:02:10 – 1:02:50

    What would you most like to change about Q-Commerce?

    1. HSHarry Stebbings1:02:10

       commerce?

    2. RWRalf Wenzel1:02:11

       I think the thing that I want to or would like to change most about the world of quick commerce is to give it a different name, because it's not only about quick commerce. It is e-commerce 3.0. It's not e-commerce of the '90s. It is a new generation of an e-commerce platform that has the ability to deliver quickly and fast, that has the ability to personalize more, that has the ability to vertically integrate, that has the ability to offer attractive pricing, and that has the ability to be both economically as well as ecologically more sustainable.

    3. HSHarry Stebbings1:02:44

       I totally agree with you in terms of changing the naming around it. Uh, Usman, at what point do we see these businesses

13. 1:02:50 – 1:04:01

    When will Q-Commerce businesses become free cash flow machines?

    1. HSHarry Stebbings1:02:50

       becoming free cash flow machines?

    2. UGUsman Gul1:02:53

       I think it really depends on how you build a business and what order density specifically is required to achieve cash flow positive, right? So if you're doing, you know, kind of ultra-fast delivery, low AOV, right, like, you need a bit more order density. And maybe, you know, you can, you can, you can get there, uh, you know, in, in, in a bit more time, uh, versus, you know, I think if you're doing, uh, kind of 30-minute delivery, high AOV, broad selection, right, like, maybe you get there faster, uh, because you, you don't need very, very high levels of order density. You don't need to deliver 100,000 orders a day from a given city to get to, you know... So I think, uh, that will ... How fast you get to free cash flow will depend on two factors. One is the market kind of dynamics, developed versus emerging, cost structures, cost efficiencies. And second is, uh, the, what order density is required based on your business model. For us, specifically, Harry, we're looking at free cash flow across all markets across the country, uh, in our, in our first market in, in Pakistan, uh, sometime between Q4 and Q1, um, within the next six to nine months.

    3. HSHarry Stebbings1:03:58

       Ardent, what do you know now that you wish you'd known when you started

14. 1:04:01 – 1:05:07

    What do you know now that you wish you'd known when you started?

    1. HSHarry Stebbings1:04:01

       Zapto?

    2. APAadit Palicha1:04:02

       I think probably most (laughs) the, 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, (laughs) 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 your way, uh, out of that. So I think the, the biggest, most important thing is just to let, I think, institution, uh, to have institutional investors clear about... To make institutional investors clear about the fact that this is a very complex business. And it will be built successfully by some players and not successful 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, uh, (laughs) a little bit of, of value today.

    3. HSHarry Stebbings1:05:04

       Ralf, what's the single biggest difference in the business

15. 1:05:07 – 1:06:15

    Biggest difference between the West and emerging markets?

    1. HSHarry Stebbings1:05:07

       mechanics when comparing West and emerging? It could be AOVs. It could be labor costs. It could be real estate costs. What's the single biggest difference in the business mechanics as a final one?

    2. RWRalf Wenzel1:05:17

       The single biggest difference between emerging markets, um, and basically some of the so-called, like, Western countries is the severe inefficiency in supply chain management that we see in emerging markets. And when going as direct as possible to the producer, by really literally being vertically integrated in a very consequent way, um, we can be incredibly, um, profitable companies. And we can adhere to a more sustainable agenda. Because only by procuring directly, only by opening up your supply chain, by democratizing it, can we really make a difference to the world, both in an economic sense, as well as in an ecological sense.

    3. HSHarry Stebbings1:06:01

       Listen, chaps, I've absolutely loved doing this. I so appreciate all the time. Uh, I so appreciate you running over to the slightly d- wrongly called 20 Minute VC. It's been such a pleasure, and thank you for joining me.

Episode duration: 1:06:15