In this episode of "20VC: The Memo," host Harry Stebbings explores the quick commerce (q-commerce) landscape in emerging markets, contrasting it with Western models. Founders from Zepto (India), Airlift (Pakistan), and Joker (Latin America) share insights on their unique challenges and advantages, such as lower labor costs, higher average order values (AOVs), and the importance of fresh produce in driving customer retention and margins. They discuss the impact of infrastructure issues, the necessity for local sourcing, and the strategic use of delivery fees post-customer acquisition. The panel also touches on the potential of advertising revenue as a significant business lever, with emerging markets offering a new advertising outlet for major CPG brands. The conversation reveals the nuanced and dynamic nature of q-commerce in emerging markets, where operational excellence is key to success and profitability is achievable through various paths.
"Today we're going to do an examination of the world of quick commerce in emerging markets." Harry Stebbings highlights the focus of the episode on quick commerce in emerging markets.
The quote establishes the central theme of the episode and the intent to explore the nuances of quick commerce in these markets compared to established ones.
"The reason we're so excited about emerging markets in particular is because the path to free cash flow is actually extremely straightforward." Usman explains the financial advantage of operating in emerging markets.
The quote emphasizes the economic benefits and efficiency of quick commerce in emerging markets, which contribute to a faster route to profitability.
"Roads are just not as smooth as you want them to be... Routes are not as well planned. When it rains, things flood for quite some time." Adit describes the infrastructural challenges that impact quick commerce operations.
This quote highlights the logistical hurdles that quick commerce companies face in emerging markets, which can affect delivery times and customer satisfaction.## Quick Commerce in Emerging Markets
"In emerging markets, you have to be, to a very big degree, a supply chain and procurement company."
This quote emphasizes the necessity for quick commerce companies in emerging markets to invest heavily in their own supply chain and procurement processes, rather than just focusing on the consumer-facing aspects.
"We are always choosing and trying to find ways of like local procurement, trying to reduce the dependency on global brands."
This quote highlights the strategic move towards local sourcing to meet customer demand for local products, reduce reliance on global brands, and improve profit margins.
"We're in a position where we've got buy sell margins in fresh fruits and vegetables at scale when you source directly."
This quote illustrates how focusing on fresh produce and direct sourcing can significantly improve profit margins due to high buy-sell margins.
"Our picking cost averages in between, like two to 3% of revenue."
This quote provides a benchmark for picking costs as a percentage of revenue and suggests that there is potential to reduce these costs through various operational improvements.
"We haven't seen much drop-off in terms of user retention rates post implementing delivery fees post the user's fifth order."
This quote discusses the impact of implementing delivery fees on customer retention and indicates that, when timed appropriately, delivery fees do not necessarily lead to a drop-off in user retention rates.## Customer Base and Delivery Fees
"All mature customers across the country currently have a fee attached to their orders, right."
This quote indicates that all established customers are being charged delivery fees, which is a part of the company's current business model.
"Month on month, we're still seeing delivery fees constantly being added. In fact, our fee construct doubled the past two months consistently."
The company's delivery fee structure is increasing, having doubled in the previous two months, reflecting growth in this revenue stream.
"So that's essentially the very high level strategy is post maturity users get hooked up to the fifth order and after that, as you should have incrementally increased delivery fees, we really haven't seen drop offs as much, at least on the buyer side."
The strategy is to increase delivery fees incrementally after customers reach maturity, which is defined as past the fifth order. This increase has not led to a significant drop in customer retention.
"Average order value is an incredibly high impact driver of the P&L, like in the month of January."
AOV is emphasized as a major factor influencing the profitability and financial health of the company.
"The aov for qcommerce, right, for delivery hero and some of these other players is actually around $6. The average for India is about $5.70."
Comparative AOV figures are provided, highlighting the platform's higher AOV relative to its competitors and the market average.
"The average group aov is currently at around like $25, which is already representative of a bigger grocery basket, instead of just like a fill up basket."
The speaker mentions their platform's average AOV, which indicates customers are purchasing larger grocery baskets, contributing to higher profitability.
"And we're on track to be in a position where we can continue growing and have about 60 70% of our overall customer base paying fees, with that remaining 20 30% being in that early sub five order category, and eventually that will trend to 90 95% over time."
The company is aiming for the majority of its customer base to pay delivery fees, with a smaller percentage in the early stages of ordering.
"So if you're paying a rider rs80 per hour and he's doing one delivery per hour, then your cost for every delivery is rs80."
The quote explains the cost calculation for delivery based on rider payment and the number of deliveries per hour.
"But if you're paying him rs80 per hour and he's doing two deliveries per hour, your cost for every delivery is rs40. If he's doing three deliveries per hour, your cost for every delivery is rs27."
This quote further elaborates on how increasing the number of deliveries per hour reduces the cost per delivery.
"We have now built our own advertising business."
This quote introduces the launch of the company's advertising business, which is expected to become a significant revenue stream.
"There are very, very limited advertising capabilities in Latin America."
The speaker highlights the gap in the market that their advertising business is aiming to fill, particularly in terms of geo-targeting and limitations of offline advertising.
"We launched our Joker media proposition only some few weeks ago and already in the first month it's almost contributing 5% of our global revenue."
The rapid success of the Joker media proposition is emphasized, showing its potential impact on the company's revenue.## Q-Commerce Platform Development
"No, we are building our own SKU set. We are entering into contracts with producers and brands directly, and hence we can always navigate in between the way, how we are basically dealing and having commercial relationships in place with each of those individual producers."
The quote explains the strategic approach of developing a q-commerce platform by creating unique SKU sets and forming direct relationships with producers and brands, allowing for better control and management of commercial interactions.
"So we're seeing between 1.3% to 2% of revenue from the advertisements platform... We believe this can get to 45% and hopefully over time, up to 10%."
This quote indicates the current and potential future revenue from advertising on the q-commerce platform, suggesting growth expectations and benchmarks.
"The barrier, or the threshold of having something attractive in place is relatively low, because again, all other existing platforms are not sufficiently attractive for the big brands to spend on media."
The quote highlights the opportunity for q-commerce platforms in markets where current advertising options are limited or unattractive, allowing q-commerce platforms to capture a significant share of advertising spend from big brands.
"For us, we've been in a position where when you include brand, it's not just monetization, by the way, that's significant."
This quote reflects the multifaceted approach to monetization in q-commerce, which includes not only direct ad revenue but also brand partnerships that contribute to overall financial performance.
"Because we deliver in ten minutes, because we're incredibly fast. We're seeing brands that have historically been underrepresented... are now doubling down and tripling down on Zepto."
The quote emphasizes the competitive advantage of q-commerce platforms in offering rapid delivery, which attracts brands looking for immediate consumer reach and higher sales through smaller, more frequent purchases.
"Biggest misnomer is around challenging economics... there's a very kind of clear, fast and straightforward path to profitability that does not require immense levels of order density or a lot of capitalization."
This quote addresses the misconception about the economic challenges of q-commerce, explaining that there are clear and attainable paths to profitability in this sector.
"There will be many players that win and some players that don't. Some players might fall in the bag of consolidation. Some people might just not make it."
The quote suggests that the q-commerce market is diverse and not necessarily prone to consolidation, with various players achieving success based on their operational capabilities.
"It's not only about Quickcommerce, it is ecommerce 3.0."
This quote proposes a rebranding of "quick commerce" to reflect its broader capabilities and innovations beyond just speed, encompassing a new generation of e-commerce with multiple advantages.
"The most important thing I've learned it's very important to discern the business that you're building from what investors are also seeing in the west."
The quote emphasizes the importance of clear communication with investors about how a q-commerce business in an emerging market differs from similar businesses in the west, which can influence investor perceptions and funding.
"Single biggest difference is the severe inefficiency in supply chain management that we see in emerging markets."
This quote identifies a critical difference in business mechanics between western and emerging markets, highlighting the opportunity for q-commerce platforms to address supply chain inefficiencies and achieve profitability.