Foodtech unicorn Zomato, which is expected to make a more extensive foray into the quick commerce segment, has revealed its playbook which could set it apart from the rest of the 10-minute delivery players currently operating in the market.
In a recent call with analysts, Zomato CFO Akshant Goyal said its B2B supply business Hyperpure, which currently sells fresh produce such as vegetables and fruits to restaurants, could be a leverage for its upcoming q-commerce foray.
Hyperpure’s existing sourcing partnerships, which allow Zomato to purchase fresh produce in bulk rates from farmers, mills, producers, and processors would, in turn, be used for supplying to dark stores under the 10-minute delivery mode, according to Goyal.
On a question regarding Hyperpure’s synergies with Zomato’s 10-minute grocery delivery, Goyal said there are several elements that could be integrated to drive “better unit economics”. “…That’s one of the elements, of synergy in our business which is not very obvious, but it’s going to be a big driver of better economics for us because Hyperpure is a business that we have built now in the last 4-5 years and its become meaningful in size and growing well. And yes, there are synergies there which is what excites us and gives us confidence about the economics of q-commerce business as and when we get into it,” Goyal said.
Zomato’s Hyperpure unit, which was launched in 2019, is currently available across 10 cities. It posted a revenue of `190 crore in Q4FY22 and has been growing at over 140% y-o-y steadily since Q4FY21. The Hyperpure business also registered a healthier Ebitda margin compared with its food delivery unit. In addition, Hyperpure has supplied to over 34,000 unique restaurants in Q4FY22, up from around 27,000 in Q3FY22, according to Zomato’s recent earnings release. This implies penetration of around 17% out of the 205,000 restaurants currently live on Zomato’s food delivery platform.
Goyal said that a Zomato delivery partner in the future will be assigned to pick up both food and groceries on the same day without a differentiated fleet for either product. In this way, the company would be able to drive up the average frequency of Zomato customer who currently orders only 10 times a year from the platform, according to Goyal. Zomato is betting on driving up order frequency from the existing base of customers to earn more revenue, rather than spending more money on acquiring new customers, Goyal said during “The delivery partner’s job is picking up items from point A to point B, and whether point A is a dark store or a restaurant will eventually not matter in a more matured stage of the (hyperlocal deliver) market…Over time, the real value of the business will unlock when we integrate all of this in a fashion which makes it really fungible, from a delivery fleet perspective,” he added.
Most of the leaders in the 10-minute grocery delivery segment, including Dunzo, Swiggy, Zepto, and Blinkit, acquire inventory from multiple brands, manufacturers and wholesalers. This is stored in a distributed network of dark stores set up within city limits, usually referred to as ‘hyperlocal’ areas where population density is higher. However, due to the bulky capital requirements in this model, coupled with wafer-thin margin in online grocery, some start-ups like Dunzo, Blinkit and BigBasket upsell their own private labels to realise better unit economics.
Many of the online grocery delivery players initially started off as online marketplaces, aggregating nearby grocery shops and supermarkets to source inventory. But due to unpredictability over inventory availability and pushback from supermarkets for eating into their revenues, these start-ups moved entirely to an inventory model. However, none of these platforms have been successful in achieving profitability or positive unit economics in the grocery delivery market.
Responding to a question on sustainability of the q-commerce model, Goyal said that Zomato’s earlier grocery experiments business itself went through many “U-turns” before it arrived at an adaptable product-market fit, and the new quick commerce model is also currently going through a similar phase.
“We have also had our U-turns on online grocery as business twice…Before IPO, everyone used to pester to get into that biz, but we could not see any light at the end of the tunnel on the basis of unit economics, and the product-market fit. We tried grocery delivery twice and shut it down both times. (With quick commerce) the customer value proposition became much stronger than kiranas for the first time compared with the last 7-8 years in this industry,” Goyal added.
Zomato is already deeply invested in the quick commerce industry and had previously announced a capital allocation of $400 million over the next two years (CY22 and CY23) for its foray into the segment. In March, Zomato had announced an investment of $150 million into Blinkit (formerly Grofers) in form of debt to help the grocery delivery start-up meet its dues to vendors and other creditors, However, the company said it is now slowing its accelerated approach into the segment with a brake on minority investments.
