Online meat delivery in India is a tricky business, thanks to an expensive cold storage infrastructure and a highly unorganised market.
This is why quick-commerce players have typically stayed away from sourcing meat on their own.
Instead, they deliver meat from industry players such as Licious and FreshToHome (FTH). But now, on-demand delivery unicorn Zepto wants to take a crack at it.
Zepto launched in-house meat brand Relish last year to take on the likes of Licious, the biggest startup in the space. The attempt is despite knowing that several startups have struggled to crack the meat-delivery market.
Players like Swiggy, which tried running a meat marketplace, had to shutter the business. Companies like Good To Go acquired smaller peers, such as TenderCuts, underscoring how difficult it is to run meat businesses.
Zepto, however, says its story is different. Started less than six months back, Relish is already clocking Rs 150 crore in annual recurring revenue (ARR), as per co-founder and CEO Aadit Palicha. ARR is calculated by multiplying the monthly revenue into 12. It is a metric typically used to indicate the pace of revenue growth.
In the next 18-24 months, Relish alone can be a Rs 1,000-crore business, considering the meat brand's consistent growth trajectory, as per Zepto.
Behind the bet
Zepto's bet on private label meat is understandable for two primary reasons: it wants to be similar to DMart. Hence, it is housing all essentials under one roof.
Next, it wants to push up average order values (AOVs) and also increase its market share in a fiercely competitive quick-commerce market.
Zepto currently has an AOV of around Rs 450 and is the third-largest player, behind Zomato's Blinkit and Swiggy Instamart, with a market share of around 20 percent, analysts at Bernstein said in a note to clients in January.
"...because we do meat as an add-on category to core grocery…the majority of meat orders are clubbed with grocery orders which gives us a higher AOV," a spokesperson for Zepto said while adding that the sales per square foot in its dark stores is significantly higher than standalone meat stores.
Its cost-to-sales ratio is lower than players like Licious and FTH, primarily because quick-commerce players have thousands of other stock keeping units (SKUs), spread across categories, which people order along with their meat needs.
The assortment is only increasing as smaller startups look to give Amazon and Flipkart a run for their money. While Licious and FTH have a deeper presence, their categories are limited, which reduces use cases.
Trials and tribulations
While the larger view is that Zepto will pull away some customers from Licious and even retain some of them, companies have overestimated the potential and missed targets, going by past trends.
For instance, Licious overestimated the market potential and missed its revenue target by as much as 50 percent in FY23. Even in the first few months of the current fiscal, Licious' revenue had flatlined while its cash burn remained unchanged, as reported by Moneycontrol earlier. It has also laid off employees and restructured to put itself on a profitable path.
Vegetarian turn
Competition is also making some meat delivery startups do things they wouldn't have imagined venturing into earlier: sell vegetarian products.
Amazon-backed FTH's co-founder and CEO Shan Kadavil in June 2022 projected the company would clock a revenue of Rs 1,500-2,000 crore in FY23, but the company ended the year with a revenue of just Rs 110 crore, according to media reports.
Known for its hold over meat and seafood products, FTH has now resorted to selling vegetarian products such as dosa batter and parottas to urgently shore up revenues. FTH's move to sell parottas and dosas can also be seen as a complementary business to support FTH's core offering (meat). Dosa, along with chicken or parottas and meat, is a staple meal in several Indian states.
It's this space that Zepto now finds itself in, and believes it can crack it. A Zepto spokesperson attributed this to a change in consumer preferences. People are now more inclined towards buying all their groceries in a single order from a particular platform instead of having to switch between different apps to order meat and also paying for delivery twice.
"Most meat-consuming households plan their cooking with meat and grocery ingredients together, not separately," Zepto's spokesperson said, when asked what sets Relish apart from the rest.
Selling products beyond meat is especially helpful in a market like India where religious considerations influence the demand for meat during different times of the year.
There are about 100 days in a year when Indians do not consume meat, as per industry estimates. And since the non-meat days are staggered between months, inventory management becomes a challenge for companies, analysts said.
Additionally, demand isn't consistent for what are perishable items.
"It is hard to support meat delivery because the demand is extremely spiky during weekends. What does the company do with that investment on weekdays?" an executive, who has raised hundreds of millions for his meat venture, said.
"It is very hard to build a formalised high capex business to service end customers, particularly in the perishable category…when you end up with an inventory loss, the entire division becomes a loss proposition," he added.
Zepto, however, says it is already using in-house tech capabilities to accurately predict demand.
"We are using our back-end supply chain muscle and forecasting algorithms, which we had already developed in-house for other highly perishable categories like fruits and vegetables, to drive further efficiency with Relish," a spokesperson for Zepto said.
They also claim that Relish has been a profitable brand for the company in less than a year and is contributing positively to Zepto's EBITDA, but did not provide more details. EBITDA is earnings before interest, taxes, depreciation and amortisation.
Growth headroom
Companies like Licious and FTH have largely catered to the top 16-20 million meat-eating households so far. From an e-commerce point of view, this cohort is from the top 20 cities and their monthly income exceeds Rs 1 lakh, according to industry estimates.
With that particular base of users there are some signs of saturation, and companies are now looking to tap newer consumers who are outside these regions and increase revenue streams, which is only pushing up costs in what is already a high-investment business.
Licious, for instance, has increased its spend on TV advertisements from near-zero last year to around Rs 4-8 crore this year, people in the know told Moneycontrol. The increased TV ad spends came at the cost of social media and digital ad spends in calendar year 2024.
The online-first company is also expanding its offline footprint with retail stores and small restaurants (The Licious Kitchen) to create a better brand recall.
The targeting is understandable as 70-80 percent of India, or about 200-250 million households from rural and urban regions, consumes meat as per National Family Health Survey - 5 (NFHS-5). The differential only shows that e-commerce companies, especially in this space, have the potential to go after a larger customer base beyond the top 20 cities.
However, Zepto will be fighting for market share in the same cities where others are also doing it. "New cities can be added to look good, but growth will be slower," said Satish Meena, advisor to Datum Intelligence, a market research firm focused on consumer technology.
"Zepto will take away some of Licious' customers with Relish. A customer, who has always ordered on Licious, suddenly craves for meat and sees a new brand being promoted on the app, will definitely try the new brand at least once. The convenience of meat being delivered in 10 minutes only helps Zepto's case," he added.
Why not everyone is convinced about Relish's plan
"Zepto's entry surely expands the total addressable market (TAM) which is largely a positive for the industry. We've seen several players enter and exit the market. While the initial traction is decent, customers do not stick for long. They eventually gravitate towards the market leader, which means the private label scales to one point and then stagnates or shuts down," another industry executive said.
At the end of the day, all of Zepto's decisions at this point can be traced back to one goal: turning EBITDA profitable by May 2024.
A key move towards that target will be to increase its margins. Quick-commerce players typically have a margin of around 8-10 percent when they sell meat from other companies, but with Relish, the margin doubles to around 16-20 percent, thanks to greater control over costs.
A key cost centre for Zepto is the opening of dark stores. In FY23, the company saw expenses jumping over 6X year on year (YoY) to Rs 3,350 crore because it opened more dark stores. The decision to increase its footprint led to losses. During the same period, its revenue from operations jumped from Rs 141 crore to Rs 2,024 crore.
Mumbai-based Zepto did surprise the industry with its execution capabilities that helped it post that kind of a revenue jump and the company is confident it can pull off something similar with Relish.
With incumbents showing clear sings of stress, CEO Palicha's task is an uphill one. The job only gets tougher because Relish will be a Zepto exclusive brand and will also have to compete with the local wet markets, apart from startups that have investors with deep pockets backing them.