Zepto's DRHP underlines the inevitable cost at the heart of quick commerce

**Rachel Varghese** (0:00)
A couple hundred meters away from the Indranagar metro station, between a juice shop and a car and bike service center, is a Blinkit dark store. It's not very big and it's not for any of us to browse through. Right outside it, delivery drivers wait on their bikes. Some chat, some scroll, some grab a quick bite before the next delivery. And every few minutes, some go inside and leave with brown paper packages.
In about 10 minutes, someone in a PG or an apartment building will receive their orders of late night ramen or cold meds. Different flavors of cures for the rainy chilly nights right now. Now, we've all heard about and know in theory what dark stores are. There are thousands of them sprinkled across the country, but most of them are concentrated in dense urban residential areas. Most of the time, consumers like you and I don't really give them a second thought. Out of sight, out of mind. But as Zepto's DRHP filed early this month showed, it's one of the most cold infrastructure for a quick commerce company to scale. Now, Zepto's proposed public issue includes a fresh issue of shares worth 8,010 crore rupees and an offer for sale of nearly 11.35 crore shares by existing shareholders. And as Outlook Business reports, a substantial portion of the fresh issue proceeds is directly going to fuel the expansion of Zepto's dark store network. The company has earmarked more than 1,600 crore rupees to open 1,900 new dark stores across existing and new markets. That's on top of its existing 1,139 stores, by the way. Now, that's a staggering total number of 3,039 stores. It's clear that Zepto is planning on going neck and neck with the current market leader, Blinkit. Blinkit's current CEO, Albindar Dhinsa, said last October that the company plans on increasing its dark store count to 3,000 by March 2027
And that's saying something, because Blinkit is the sector's only profitable player with more than 2,200 stores right now.
And it is still expanding aggressively. Because that's what the model demands. These small warehouses are an integral piece in the quick commerce puzzle. Scale and success for companies in this space is incredibly dependent on their dark store density. But there's an uncomfortable truth here that's rarely discussed. Dark stores are a fixed cost. No matter what happens, whether demands are slow or high or workers are striking, rents have to be paid, warehouse workers have to be salaried and shelf space has to be filled. The more dark stores that open, the more these fixed costs soar. And there's still no clear case that exists that proves that the returns are as inevitable as a cost. But there is, in fact, a cautionary tale.
You must remember Danzo, one of India's first hyperlocal delivery apps, which had pretty much become a verb. Just Danzo it was a thing people actually used to say. But despite its popularity, the company shut down its operations in early last year. And analysts believe that part of the reason for its failure was its foray into quick commerce as we know it now. At its peak, it had 120 dark stores operating in 15 cities. But despite its strong brand and clear popularity, it couldn't afford to keep up with operating and financing this kind of a distributed inventory model.
Even though Danzo was beaten out by the biggest quick commerce companies of today, they are essentially running the same playbook because they can afford to with their deeper pockets. And it's no secret that quick commerce as a sector operates with pretty thin margins, a problem that is supposed to be solved when they hit scale. But a large part of the scale bet, which is the dark store model remains largely unproven. And rising real estate costs, product costs and a narrowing room to scale is only threatening those thin margins further.
Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese. And every day of the week, my co-host Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 17th of June.
Dark stores aren't very big. Most of them range from about 600 to 2,000 square feet. And they're usually densely located close to or in the hearts of residential areas, where the affluent customers who order repeatedly are. Think Juhu or Andheri in Mumbai, Indranagar or Whitefield in Bangalore, or Greater Kailash or Saket in Delhi. The list goes on. The ideal quick commerce customer is someone who lives in a high-rise or a gated community in any of these locations, with enough money to spend on both groceries and a delivery fee, a smartphone and the unwillingness to go downstairs.