Amid quality & customer service concerns, Zepto raises $665 mn at a $3.6B valuation

Zepto, country leading consumer internet company, has raised $665 million at a $3.6 billion valuation in a highly oversubscribed round – just nine months after the company raised $235 million at a $1.4 billion valuation. Co-founder & CEO, Aadit Palicha hinted at going public soon.

Avenir, Lightspeed, and Avra (Anu Hariharan’s new fund) joined the company’s cap table as new investors, among others, said the company in the statement. Existing investors Glade Brook, Nexus, and StepStone co-led the round with Goodwater and Lachy Groom doubling down as well.

This subsequent round of funding comes at a time when multiple incidents across the country have sparked discussions around Zepto's quality control and its customer service issues.

In February, a Zepto customer found a live worm wriggling inside an orange. The customer's plea for assistance was met with frustration as he was unable to connect to its customer service. In another case, a resident of Delhi received a 10 kg packet of wheat flour from Zepto, only to find that it was set to expire in just eight days. The customer later received a call from Zepto's customer care, advising him to consume the flour within seven days.

Another customer took to social media with graphic images of a dead mouse found in a bottle of chocolate syrup that was ordered on Zepto. A doctor from Mumbai found a human finger in ice cream ordered from the platform.

But Zepto is not the only q-comm brand in trouble over service and quality. The Commission of Food Safety raided the Zomatao-backed Blinkit facility in Telangana only to find a lack of basic hygiene protocols, an absence of Food Safety Training and Certification (FoSTaC) and medical fitness certificates of food handlers. It also found infested and expired food items.

These disturbing incidents come at a time when quick commerce in the country has managed to create a big share in a post-pandemic world and is currently valued at around $2.8 billion. Blinkit currently commands a substantial 45 percent market share, followed by Instamart at 27 percent and Zepto at 21 percent, as per reports.

Read more: Dark side of dark stores: Q-comm brands like Blinkit, Zepto are quickly losing consumer trust

Storyboard18 earlier reported how these platforms are risking their brand trust and credibility in the rat race of delivering items faster than lightspeed. The deprioritisation of quality in service and basic hygiene is a major concern, say experts.

"It is true that in the phase of rapid expansion, the entire industry is focusing on building capacities on-ground, and trying to do at low cash burn; It is almost like building a ship while you are already sailing in the rough seas", said Santosh Sreedhar, Partner (Consumer & Retail), Avalon Consulting.

“Although the focus on valuation is significant, neglecting operational standards can be detrimental. It's essential for all companies to balance growth with responsible practices,” said another expert.

A Zepto minute

In terms of business performance, Zepto’s GMV has multiplied year-on-year to a base of $1 billion+, and ~75% of the company’s stores are fully EBITDA positive as of May 2024.

Commenting on the company’s trajectory, Co-founder and CEO, Aadit Palicha, said, “We plan to continue operating with fiscal discipline as we scale from 350 stores to 700 stores by reinvesting the capital generated from mature stores back into the business. If we are able to achieve this while continuing to delight customers, I believe we will be ready to go public relatively soon.”

Co-founder & CTO, Kaivalya Vohra, added, “The most exciting part about this next phase of Zepto’s journey are the major new projects that will 10X customer experience, from launching new categories to expanding initiatives like Zepto Pass. To build out this roadmap, we plan to hire talent across engineering, product, growth, finance, operations, and category management.”

Paul Hudson, CIO of Glade Brook Capital Partners, said, “Zepto is redefining e-commerce in India, with uniquely strong product-market fit and world-class execution and innovation. The Zepto team embodies what is possible for the next generation of Indian founders, and Glade Brook could not be more excited to continue our partnership.”

Founded in 2021 by Stanford University dropouts, Palicha and Vohra, Zepto is headquartered in Mumbai and delivers over 10,000 products, ranging across categories in 10 minutes through a network of delivery hubs across the country.