Zomato has only been a listed entity for eight months, but it’s safe to say the foodtech giant is far removed from the startup that went public.
For one, at the time of its initial public offer (IPO), Zomato was a food delivery company that occasionally invested in, among other areas, quick commerce. But now, with a reported reported Bloomberg India’s Zomato Nears All-Stock Takeover for Blinkit Read more all-stock acquisition of cash-strapped quick commerce grocery business Blinkit, Zomato will be both a food delivery and quick commerce company—much like its rival Swiggy.
Complicating matters is Zomato’s desire to pull off a Blinkit—which promises users 10-minute delivery—in its mainstay. Recently, Zomato co-founder and chief executive Deepinder Goyal announced announced Zomato Zomato Instant – 10-minute food delivery (Coming Soon) Read more the launch of a 10-minute food delivery service called Zomato Instant. The concept will be piloted in the north Indian city of Gurugram, Zomato’s home base, next month. Goyal went so far as to say that with Zomato Instant, Zomato’s average delivery time of 30 minutes would “become obsolete”. The move was met with considerable public backlash public backlash The Economic Times Zomato CEO Deepinder Goyal defends 10-minute food deliveries after backlash Read more , but Zomato seems wedded to the idea.
With both these moves, whatever timeline investors had for Zomato’s profitability is now redundant. “If somebody was reasonably confident Zomato would turn profitable in FY24 or FY25, now that’s not true,” says an analyst with a large domestic brokerage. They and several others quoted in the story requested anonymity since they are not authorised to speak to the media.
With 10-minute food delivery, a sharp reduction in Zomato’s average order value (AOV), which is currently at Rs 400 ($5.2), is all but inevitable. Most of Zomato Instant’s offerings—tea, coffee, momos, and instant noodles—are foods ordered between meals rather than meals on their own.
A drop in Zomato’s AOV below a certain threshold could result in its contribution margins—revenue minus expenses per order—turning negative. In fact, Zomato posting a contribution profit in the year ended March 2021—a first for the company—is what gave investors the confidence that Zomato could be in the black sooner than later.
Then there is all the dough Zomato will have to spend to scale express grocery delivery. The company said in February it would invest $400 million in the space over the next two years.