Zepto streamlines structure ahead of IPO with new marketplace entity

“Zepto’s current model is very confusing and it is likely that the company wants to make its business model more clear and transparent to all investors ahead of its IPO,” one of the persons cited above said. “By registering a different entity, Zepto Marketplace Pvt Ltd, the company will likely rejig operations to ensure that its business model is the same as rivals Blinkit (owned by Zomato) and Swiggy Instamart (operated by Swiggy) since these business models are known and already understood by investors,” the person added.

Once a uniform business model is in place, it will help investors, especially the public market ones, evaluate Zepto’s operating metrics better against its rivals and draw parallels with competitors, sources told Moneycontrol.

However, another source familiar with Zepto's workings clarified that the new entity has been registered only to move the internet platform and the intellectual property (IP) the company has created on the tech side. This person said the move, of having its tech business on a different balance sheet, will help separate out different units of the business from each other. 

"The company is anyway running an e-commerce platform with that IP. The business model, despite a new entity, doesn’t fundamentally change," the person added.

Zepto did not reply to Moneycontrol’s queries.

The current model

Under the current structure, Zepto licenses its brand name and operations to three companies: Geddit Convenience, Drogheria Sellers and Commodum Groceries. These three companies purchase their stock from Kiranakart Technologies Pvt Ltd, and sell to end consumers via the Zepto platform.

In essence, Kiranakart Technologies is a B2B company that sources and buys products directly from brands and sells it to Geddit Convenience, Drogheria Sellers and Commodum Groceries, Zepto’s three licensee companies. These companies then sell to the end consumer. For every sale that the three companies make using Zepto’s platform, they pay a licensing fee to the latter.

Sources also suggested that Zepto will look to reduce concentration on the three companies (Geddit Convenience, Drogheria Sellers and Commodum Groceries) and has already added more sellers, and will continue to expand its seller and distribution base, with the help of the new entity.

In the coming months, it is likely that more seller other than Geddit Convenience, Drogheria Sellers and Commodum Groceries, will also sell on the Zepto platform.

Zepto’s rivals, however, follow a different approach.

In the case of Blinkit, companies such as Hands On Trade, 90Minutes Retail and several others purchase from brands and then sell the goods to B2B wholesalers who then further sell to other companies (B2C sellers) that are listed on the Blinkit platform.

Blinkit’s holding company, Zomato, seems to have designed its business structure in a way that ensures compliance with the foreign direct investment (FDI) norms while keeping itself away from the scope of consolidation or Related Party Reporting.

In India, global e-commerce companies can operate independently as marketplace businesses. However, foreign direct investment (FDI) regulations prohibit global retail companies from operating independently in offline retail. FDI in multi-brand retail is allowed only up to 51 percent and that too with local partnerships. Even then, government approval is required.

However, 100 percent FDI is allowed in food retail (under the government approval route) to run and operate both online and offline for food produced and manufactured in India.

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Even Swiggy Instamart has designed its business structure in a similar fashion where it has companies such as Scootsy, Lynk Logistics and others that act as B2B wholesalers. These companies then sell products to other firms that act as dark store operators which then further sell to the B2C sellers listed on the Swiggy platform.

Simply put, both Blinkit and Swiggy Instamart have an additional layer of sellers and distributors. Zepto does not have this extra layer but is likely that the structure may change after Zepto Marketplace Pvt Ltd is set up.

Revenues not comparable

Zepto recorded revenues of Rs 4,455 crore in FY24 which was significantly higher than Blinkit’s Rs 2,301 crore and more than 4X of Swiggy Instamart which had recorded Rs 1,100 crore during the year.

A gap that wide, despite Zepto having a lower market share, and lesser average order values (AOVs) than industry leader Blinkit, raised a few eyebrows.

However, Zepto, because of the structure of its business, reports the gross merchandise value (GMV) from its B2B business, and not the final revenue it earns from the transactions, as per sources. The accounting style is widely followed by other e-commerce companies as well, they added.

However, both Swiggy Instamart and Blinkit report the final revenue they earn from the transactions, based on their take rates, and not the GMV, because of which there is a big difference in the financials.

In FY24, Zepto recorded a GMV of around Rs 5,500-6,000 crore, the source close to the company, cited above, said.

“So, Zepto’s comparable revenue would be 15-20 percent of Rs 5,500 to Rs 6,000 – which is roughly Rs 870-1,150 crore, more in line with rivals” the source said.

15-20 percent is the take rate or commissions that quick commerce companies typically get from the total GMV. GMV is the total value of goods sold over a period of time, before deducting other items like discounts, fees, or returns. It only measures sales volume, and not the revenue generated by those sales.

Zepto has registered a new entity at a time when it is preparing to go public in a $500 million IPO, as reported exclusively by Moneycontrol. The company is also diversifying revenue streams by launching a separate food delivery app and entering new geographies as it looks to race past rivals and gain more market share in a red-hot $6 billion market.