Zomato's rise: Here's why the food delivery major is banking on Blinkit and Hyperpure to fuel its new phase of expansion

As the company moves to generate revenues outside food delivery, the proportion is starting to shift. It is now banking on businesses like Blinkit and Hyperpure to power its growth

(Photos: Bandeep Singh)

(From left) Albinder Dhindsa, Founder & CEO, Blinkit; Deepinder Goyal, Co-founder & CEO, Zomato; Akshant Goyal, CFO, Zomato; and Rakesh Ranjan, CEO (Food Delivery), Zomato

Deepinder Goyal was ready to put everything on the line. It was a blistering May afternoon in 2022, and the Zomato Co-founder & CEO was engrossed in discussions about a potential buyout of quick commerce player Blinkit with CFO Akshant Goyal at the Co-founder’s farmhouse in Delhi. If the deal went through, the Gurugram-headquartered company would gain a foothold in the growing quick commerce space. The hitch was the asking price.

“Akshant and I knew investors would not like it, but we decided to go for it. Our logic was if someone else did it three years later, it would have hurt since we had the money but succumbed to investor pressure,” says 41-year-old Goyal, an IIT Delhi alumnus. The duo thought that the worst that could happen would be that they would get fired. But it made sense to go all in. “It was a paradoxical situation since we could see the opportunity but did not want people to know since the competition was bigger than us,” says Goyal. What complicated matters further was that the Zomato stock was down by a third since its listing in July 2021. “Our necks were on the line, and we were doing this right in the middle of a downturn,” says Akshant, 40, an IIM Bangalore alumnus, who has been with Zomato for nearly seven years. The all-stock deal was sealed in June 2022 at $569 million (then Rs 4,447 crore).

Deepinder Goyal
Co-founder and CEO
Zomato

'Blinkit will be larger than Zomato': Read the exclusive interview with Deepinder Goyal where he breaks down the food delivery major's future growth strategy

It has been one and a half years since. Both have retained their jobs; Zomato has posted three consecutive quarters of profit (for Q3FY24, it posted net profit of Rs 138 crore and total income of Rs 3,507 crore); and investors are loving the stock (it has gained more than 30% since its listing). And, the new-look Zomato is expanding beyond its core online food delivery space, banking on businesses like Blinkit and Hyperpure (a B2B platform for kitchen supplies).

Bringing it together

Consumer insights power Zomato’s growth. Per the company, it has a customer base of 30-40 million across its businesses. The management says sound knowledge of how customers think leads to a right to win. “That knowledge is intangible. It is not about synergy-first, but rather being in different businesses and building that common thread,” says Akshant. That insight came in 2021 when there were many 10-minute delivery businesses globally. While the opportunity for quick commerce in terms of scale was clear, the hitch was the limited share of organised retail in India. “Buying behaviour is different here since we don’t stock but buy daily. The concept came from the West but was more applicable here,” he explains. So, the service had to be reimagined.

Albinder Dhindsa
Founder & CEO
Blinkit

When Blinkit (known as Grofers in its earlier form) was bought, it was losing Rs 150 on each order. Selling at a discount brought in demand, but a decision was made to charge for delivery. Insights from the food delivery business helped: four years ago, Zomato was losing Rs 120 on an order with a ticket size of Rs 300. Despite charging for delivery, demand sustained and so did the customer base; it now makes a profit of Rs 10 per order. For Blinkit, data showed 100 new customers stayed back after three to four months and that was better than Zomato—plus the order magnitude was 2x and the three-month retention was at 45% compared to 20-25% for food delivery. This led the management to open more dark stores—a large facility that houses goods used to fulfill online orders. While the initial expectation was 1,200 orders per day, the number is in the range of 3,500-4,000 now, and they are serviced by a network of dark stores that are replenished three to four times daily.

Higher volumes meant the stores could be redesigned, and slowly, the financial returns began looking better. “You have to sweat the asset completely since there is physical infrastructure. In food delivery, restaurants pay the fixed costs,” says the CFO. That has paid off and the loss per order is down to Rs 10-15.

According to Albinder Dhindsa, Founder & CEO of Blinkit (he founded online grocery delivery service Grofers with Saurabh Kumar in 2013), quick commerce was thought of as far back as 2015, but the backend proved to be an issue. And when it emerged, it was not entirely planned. “We opened stores during the pandemic since the supply chain had collapsed. To overcome that, we disaggregated the facilities and instead of one large warehouse, we had to go for smaller ones,” he recalls. Now, there was an opportunity to deliver faster with a very efficient supply chain. “Inventory must move fast and if you sweat the asset and increase the width of products, the number of places where you get operating leverage (proportion of fixed costs to overall costs) takes off. Quick commerce (apart from Blinkit, there is Swiggy Instamart and Zepto) may give you lower revenue per item, but it also moves quickly and assortment between stores must be different,” says Dhindsa, 41. In terms of a strategic fit, Zomato understood areas such as how much to charge and the service parameters, while Blinkit had grasped the nuances of brands, apart from sourcing, warehousing, and replenishment.

Akshant Goyal
CFO
Zomato

The quick mantra

The 10-minute delivery concept was initially to address urgent needs like Band-Aid. Now, besides groceries and household goods, it also offers things like printouts, passport photographs and even kurtas! “A lot of it comes down to prioritisation and the outcome of customers telling us what they want,” says Dhindsa. Blinkit is more commerce and less about services, adds Akshant. “The product assortment is key and that means we may not sell a mobile [phone] but will offer a mobile charger.”

The idea of quick commerce is simple, but execution is the key. And execution is oft repeated when Zomato is discussed. Sanjeev Bikhchandani, Founder & Executive Vice Chairman of Info Edge, the holding company of jobs portal Naukri.com—the first investor in Zomato—picks execution as a differentiator for the Goyal-led company. “It is also true in the case of Blinkit and it is clear that there is a very good understanding of delivery networks,” says Bikhchandani. Blinkit was initially a model based on same-day delivery before moving to the 10-minute concept. “It managed to reorient the business and the next phase for Blinkit will be about scaling up. Execution for Zomato and its businesses will remain critical, and they must continue to do that well.”

Bikhchandani recalls that when he invested in Zomato in 2010, what clinched it was Goyal’s down-to-earth approach with clarity on both the product and the customer. “We put in a small amount of money initially (Rs 4.5 crore) and went solo for the first four rounds before Peak XV (then Sequoia) came in. For the first 10 years, Zomato did only restaurant listing, and credit must be given to [them for] getting it right on food delivery (they ventured into this in 2018) after coming from behind.”

This flexibility of strategy is another of Zomato’s strengths. K.S. Narayanan, an independent food advisor, also mentions how it pivoted to food delivery. “They have successfully built their main business around it and are one of the two players present nationally (Swiggy is the other one),” he says. With an advanced data analytics platform, there is a better understanding of customer preferences. “As a result, they brought in Hyperpure as a platform to assist restaurants in their food and non-food purchases. As the food services sector gets more organised, the emerging business opportunity is what Hyperpure is looking to fulfil,” he says. In developed markets, the likes of Sysco and US Foods operate with scale in this space. Of course, a larger Zomato with multiple businesses gives it the strength to negotiate harder. “With Blinkit and Hyperpure, they should have better terms of trade with their supplier partners, utilise delivery networks in more concentrated geographies and derive more efficiency from the dark stores,” says Narayanan.

Food delivery and more

Coming back to food delivery, it has been a difficult business in the best of times. Over the past 15 years, the likes of Just Eat, Tasty Khana and TinyOwl shut shop, while Zomato acquired Uber Eats and Swiggy gobbled up Scootsy. Rakesh Ranjan, CEO (Food Delivery) at Zomato, believes the next frontier will come from outside the top 15-20 cities, which today bring in 50-60% of the business. “The 280 cities in the long tail (Zomato operates in 685 cities in all) give me another 10-12%,” he says. On a recent visit to Lucknow, for instance, he met a restaurant owner who clocks revenues of around Rs 18 lakh per month through his cloud kitchen. “In Delhi, doing Rs 10-12 lakh [per month] is healthy. Our top three or four cities have grown by 30-40% each year and it is clear that the middle set will now take off,” the 39-year-old adds.

Rakesh Ranjan
CEO (Food Delivery)
Zomato

Going by research reports, Zomato has a 55% market share and leads Swiggy at 45%. The latter is still in the red—for FY23, on a consolidated basis, income stood at Rs 8,265 crore while the net loss was at Rs 4,179 crore; the food delivery business turned Ebitda positive. The space is effectively a duopoly. Ranjan says there aren’t too many identifiable niches in food delivery, and the differentiator is order or customer experience. The rub for most customers is the hidden or incremental charges. For instance, in the US, for a $15 pizza, you end up paying upwards of $40 by the time it is delivered. As a solution, Zomato Gold, that offers free deliveries, was relaunched in India in January 2023 (with an introductory price of Rs 149 for three months). “Customers don’t like the friction of delivery charges. From a business point of view, it was a difficult decision, though we have seen a spike in order frequency by 2-3x,” says Ranjan. Though this impacted profits, he says Gold is “margin dilutive but not margin negative”. In the past, Gold was a dining-in property where discounts were offered at certain restaurants. The insight was that customers wanted a 2.5-3x return on investment. So, the amount saved with Gold is visible on the app. It seems to be working. He says 40% of the gross order value today is on account of Gold customers.

“Look at the number of players in food delivery who have come and gone. There are just two left today and even Dunzo with Reliance’s backing has not found it easy,” says Vinit Bolinjkar, Head (Research) at Ventura Securities. Zomato, with a war chest of Rs 8,000-10,000 crore, he feels, can look at more acquisitions. “There are massive adjacencies it can move into. The online pharmacy business, setting up its own product label or creating a kitchen for its own food service are low-hanging fruits,” he adds. One big advantage is its access to consumer data. “With that, pursuing any opportunity is possible.”

The recent hike in take rate (the commission that Zomato charges from restaurants for an order) during the New Year saw little impact on the business. “Demand was huge, and volumes took off. The game is really about a gradual increase in business,” says Bolinjkar. After the buyout, Blinkit has scaled up and time has gone into building efficiencies, he says. “It is now clearly structured for growth.” Zomato’s recent forays into live entertainment and getting the nod to operate an online payments aggregator business could also strengthen the overall consumer piece, say experts.

What Zomato may not have is a very compelling story about the origin of its name. Earlier called Foodiebay, someone alerted Goyal of a potential issue since the last four letters could be mistaken for eBay. “We finally zeroed in on Zomato after name generators threw it up,” he says. Maybe not that interesting a story, but customers and investors certainly seem interested, especially as Zomato looks to get it right on value and convenience.