ZopNowtakesacrackatonlinegrocery

RohinDharmakumar
Firstpublished:August30,2013,12:09PMIST|Updated:August30,2013

"Don'tforgettoget
mea2kilopackof
BabaRamdev's
detergentpowder,"
saidthevoiceon
theotherendof
thephonetoBal
KrishnBirla.
Birla,asheis
knowntomost
peoplein
Bangalore's
Fewcompanieshavemanagedtocracktheonlinegrocerychallenge.Can
closelyknitstartup
Bangalore'sZopnowbreakthejinx?
ecosystem,isa
jovial40yearold
whodefiesclassificationbyvirtueofbeinganIITgraduate,formerCTOat
onlineclassifiedscompanyAsklaila,onetimerestaurantowner,brainchild
behinda20,000memberstrongglobalcommunityofoldHindimusic
aficionadosandthesourceofanunendingsupplyof'PJs'ofdubious
antecedents.
ThepersonBirlawastalkingtowasaformercolleagueandfriendwhohe
wasgoingtomeet.Thedetergentwasn'ttobepickedupatPatanjali
YogpeethinHaridwar,whereRamdev'sbusinessempireisheadquartered,
butfroma2,500sqftwarehouseinKudlu,Bangalore.
ThewarehousebelongstoZopnow.com,atwoyearoldBangalorestartup
operatinginthatinfernalhellofecommerce:Groceries.
BirlaiscofounderandCEO."Westockover100SKUs(stockkeepingunits)
ofBabaRamdev'sproductsandheisoneourfastestsellingbrands,"he

says.Fromsoapstospicestoflourtocosmetics,theseproductsare
apparentlygivingcompetitorsfromthelikesofHindustanUnilever,Nestleor
ITCarunfortheirmoney.
Ironically,andsomewhatserendipitously,Zopnowendedupunearthinga
hugemarketforproductssoldunderayogaguru'snameinwhatisarguably
India'smostmodernretailmarket.
"Becausetheyarenotavailableeverywhere,BabaRamdev's(products)are
whatIwouldcall'lowdistribution'products.Sothestoreloyaltyyoucanget
bysatisfyingafanofBabaRamdev'sAmlaCandy,you'llnevergetbyselling
someoneMaggi,"saysDamodarMall,theheadofcustomerstrategyfor
RelianceRetail'svaluebusiness.
NoCountryforSlowMen
Thegroceryspacehaslongheldamythicalstatusamongecommerce
entrepreneursbecauseofitssheersizeandrepeatability.Everyhousehold
needsgroceries.Andveryfewderiveenjoymentfrombuyingthem.
It'sacategorythatisidealtobe"disrupted"bytheinternet.
Exceptthatdoingsoisdamnnearimpossible.Veryfewcompanieshave
managedtocracktheeconomicsofthislowmarginspaceanywhereinthe
world.EveryoneknowsofWebvan,oneofthe'stars'ofthedotcom
implosion,byvirtueofgoingbellyupafterspendingandraisingoverabillion
dollarsby2001.EvenAmazon,acompanypossessedofalmostboundless
ambitionandcapital,spentnearlyfiveyearsdeliveringgroceriesinjustafew
SeattleneighbourhoodsbeforeexpandingintoacoupleofmoreUScities
earlierthisyear.
InIndia,thelastthreeyearshaveseenamushroomingofgrocery
ecommercesitesinmanymetros.Everyoneisblindedbythesizeofthe
overallmarket:$3540billionworthofFMCGsacrossthecountry,ofwhich
modernretailaccountsforaround5percent."IncitieslikeMumbai,almost
40percentofgroceryordersalreadyhappenoverphone,sothecustomeris
readyfornonstoreofferings,includingtheinternet,"saysMall.
Thoughnoneoftheplayersgivesoutrevenuenumbers,researchindicates

thatthelargestplayerinthespaceisBigBasketwithanestimatedrevenue
of$4million,followedbyZopnow,whichisaround$2millioninrevenue,and
MyGrahak.
Byandlarge,themajorityofplayersrestrictthemselvestoprepackaged
foodandconsumergoods,stayingclearofeasilyperishableproducelike
vegetables,fruitsormeats.Thosethatdodeliverfreshvegetables,like
BigBasketorTownEssentials,haveamuchmorecomplexsupplychain.
Yet,sellinggroceriesonlineisquiteunlikemostotherformsofecommerce.
Forone,youcannotcreateeconomiesofscaleacrossthecountry.Grocery
retailingmakessenseonlyata"hyperlocal"level,becauseproductsneedto
bestoredandshippedatasminimaladistancefromthecustomeras
possible.Eventheassortmentofproductsisspecifictolocaltastesand
preferences:WhatsellsinBangaloremaynotinGurgaonorPune.
"Ingroceryretail,thereislittleadvantagegainedfromanationalpresence
becausethesupplychainandassortmentineachcityneedstobelocalised.
Soeachcityendsupbeinglargelylikeanindependentbusiness,"saysMall.
Marginsareoftenrazorthin,anddeliveriescannotbeoutsourcedtothird
parties.
"Raisingmoneyturnedouttobeverytoughforus.ManyVCstoldusthey'd
writeusachequeonlyifwedecidedtostartanyotherecommerce
business,"saysBirla.ButheandMukeshSingh,Zopnow'sothercofounder,
persisted,drawntowardsgroceriesbecauseitrepresenteda"multibillion
dollardomain"andbecausetheyfiguredthatsoonerorlaterIndianswere
goingtowanttospendtheirweekendsvacationingorentertaining,insteadof
worryingaboutgroceries.
Andthoughtheresultsarestilltentativeandconfinedtoonecity,theyare
promising.
Zopnow'saverageordersizehasgonefromapproximatelyRs700whenit
startedtoaroundRs1,300today,claimsBirla.That'saboutthesame
ballparkasmostleadingecommercesitesinIndia.
Butthe"stickiness"ofthegrocerycategorycombinedwiththeloyaltyofits

customers,threeoutoffourofwhichorderregularlyfromZopnow,allowitto
generatemuchmorerevenuefromeach."Manyofourcustomersorderas
oftenasthreetimesamonthfromus,"hesays.Thatmeansarevenueof
nearlyRs47,000perloyalcustomerannually.
"Whenwestartedout,weweretoldbymanypeople,includingventure
capitalists,that67percentwaswhatwecouldexpectintermsofgross
margins,"saysBirla.
Whileit'struethatmanystaplesandfoodsofferonlylowsingledigitmargins,
concedesBirla,theobjectiveshouldalwaysbetosellthecustomeramore
profitable"basket"thatcombines,say,sugarat6percentalongwithorganic
staplesat30percentandsteelutensilsat60percentmargin,respectively.
Freefromtheconstraintsofinstoredisplayandcheckoutformats,Zopnow
usescustomanalyticstogetcustomerstoaddmoreproductsintotheir
virtualbaskets.
Andastheaveragenumberofitemsinitscustomers'basketshasgoneup
from89whentheystartedoutto2022now,BirlaclaimsZopnow'sgross
marginhasrisentoahealthy15percentwithaddedscopetoriseupto20
percentoverthenextyear.
Thatgrossmargincaneasilytranslateintoanetprofitmarginof67percent,
saysSingh,38.
Mostlargegroceryretailers,includingWalmart,operateatnearlyhalfthat
figure.Mall,aveteranofthemoderngrocerytrade(beforeRelianceRetail,
heworkedwiththeFutureGroup'sBigBazaarandFoodBazaar,and
HindustanUnilever),sayshedoubtstheabilityofanygroceryretailerto
generatemorethan3percentintermsofnetprofits.
"Anonlinegrocerybusinessneedstotrackitsprofitabilityatfourlevelsthe
SKU,thebasket,thewarehouseandfinally,thecompany,"saysBirla.He
saysZopnowhasalwaysbeenprofitableonthefirsttwocounts,andissix
monthsawayfrombecomingprofitableonitsfirstwarehouse.
Birlaexpectsthenewerwarehousesthatheputsup,beginningwithonein
northBangaloreinacoupleofmonths,tobecomeprofitablein12months

comparedtothe24monthsittookhisfirstone.Thereason,hesays,is
volumeswillpickupmuchfasterbecausepotentialcustomersalreadyknow
ofhisbrand.
InJulylastyear,Accel,QualcommandTimesInternetinvested$2millionin
Zopnow,accordingtoVentureIntelligence,aresearchservicefocussedon
PEandM&A.BigBasket,itslargercompetitorthatalsostartedfrom
BangaloreandhasnowexpandedtoHyderabadandMumbai,raised$10
millioninventurefundinglastyear.
ButtheaceupZopnow'ssleeveisthe"threehourdelivery"promiseeithera
strokeofgeniusoramillstonearoundtheirneck.
ThethreehourDelivery
Sixto12hoursistheaveragedeliverypromiseformostofZopnow's
competitors,withafeweventakingupto24hours.Tobeabletodeliver
orderswithinthreehours,Zopnowhassolvedquiteafewsupplychain
problems.
Tobeginwith,theplacementofproductsinitswarehousehasbeen
optimisedforthefastest"pickingtime"thetimetakenbyoneofitsstaffto
assemblealltheproductsorderedbyacustomer.Aninhousedesigned
software(almostalloftheIThasbeendesignedinhousethesideeffectof
havingtwoCTOsasfounders!)automaticallygenerates"pickingsheets"
whichtellanemployeetheexactsequenceandlocationofproductstobe
collected.
"WetakearoundoneminutetopickanSKUcurrently,comparedtotwoto
threeminuteswhenwestartedout.Ourgoalistobringthatdownto2030
secondssoon,"saysBirla.
Ifthatsoundsunimpressive,considerthefactthatitcurrentlyclaimstostock
over10,000SKUs."Anaveragekiranastorestocks1,500SKUswhileaBig
Bazaarusuallyhas7,0008,000SKUs,"headdsbywayofcomparison.
Postpicking,abarcodebasedcheckoutprocesseliminatesanymanual
errors.Thebagsfilledwithproductsarethenassignedtooneofthe35
deliveryemployees,onceagainbasedonanalgorithmdesignedinhouse,

whichtakesacustomer'spreciselatitudesandlongitudesintoaccount.
Deliveriestofarthersuburbsaredonethroughvansthatcancarryenough
ordersfortwothreehourslots(Zopnowoffersfourdistinctthreehourslots
fordelivery).
"Unlessyouhaveanetworkofphysicalstores,doingathreehourdelivery
profitablyisimpossible.Becauseitmeansyou'reshippingeveryorder
withoutgettingthetimetoaggregate.Andsmallorderssentoverlong
distancesneverworkouteconomically,"saysMall.
ButBirlaclaimsthatthankstovolumesandtechnology,Zopnowtoday
"clubs"nearlythreetimesasmanyordersperdeliveryroutethanwhenit
started.Asaresulttheaveragedistancetravelledperorderhasfallennearly
60percentduringthesameperiod.
Toevenouttheordersacrossslots,Zopnowclaimsit'shadgoodsuccess
throughtheuseofproprietaryrewardpointscalled"Zoppies".Many
customersareokaytradingtheirdeliveryslotsinlieuofextrapoints,says
Birla.Andoncetheorderisonitsway,acustomercantrackthelocationof
Zopnow'sdeliverystaffliveonherbrowserormobileapp.
Meanwhile,backatthewarehouse,anothersoftwareautomaticallysends
outreplenishmentorderstomanufacturersordistributorsbasedondepleting
inventoryduetoorderfulfilment.Birlaclaimsathreehourdeliverywindow
helpsZopnowturnoveritsinventorymuchfasterthancompetitors."We
currentlyturnoverourinventoryin21days,butwanttoimprovethatto15
days.Oursuppliersgiveustwotothreeweeksofcreditinturn,"hesays.
Addedwiththefactthatcustomerspaycashthesameday,Zopnowisclose
toachievingazerocashflowstatusoninventory,thusfreeingupitscashfor
moreproductiveuses.
"AftercoveringallofBangalore,ournextfocuswillbeonPuneandGurgaon
twocitieswithhighinternetpenetration,highrisesandpeopleworkinginthe
ITsector.Overthenexttwoyearswewanttobeinfivecities,goingupto20
citiesinthelongrun,"saysBirla.
Bigdreams,those.Butwhattheworldwillbewatchingissomethingelse:

Howthebusinessmodelforonlinegroceriesgetsestablished.Thereismore
atstakeinZopnowthanmerelyitsbusinesssuccess.