10 minutes. That is all the time food-delivery platform Zomato plans to take to deliver the most popular items on the menu such as bread omelette, maggi, poha, chai, biryani and momos, according to the company’s CEO Deepinder Goyal. This is in a bid to capture the quick commerce market. “Nobody in the world has so far delivered hot and fresh food in under 10 minutes at scale, and we were eager to be the first to create this category, globally,” Goyal said in a blog post. Analysts say the company’s new strategy may not create as much value as it claims to be. Zomato’s stock was mixed on Tuesday and was trading at Rs 80.75 apiece at 2:20 pm.
“The company’s plan of 10-minute delivery seems more like a marketing ploy. In terms of ergonomics, don’t think 10-min delivery is viable for delivering food. They have limited margins (which is facing pressure) even from regular deliveries, and don’t think opening dark kitchens, just like its competitor Zepto did with dark stores for quick commerce, will help it cut its costs,” Aditya Kondawar, Chief Operating Officer, JST Investments told FE.com.
“In fact, it may increase costs for the company. The 10 min delivery for select items only still raises concerns on the food quality and the delivery personnel’s safety,” he added.
According to Zomato, through its quick delivery service – Zomato Instant – it will be able to reduce costs to the end customer by at least 50 per cent. The company also said it would not compromise on delivery partner’s safety as it does not put any pressure on them to deliver food faster or penalise them for late deliveries.
For the 10-minutes delivery – which will largely be for fast selling food items – Goyal posted the breakdown of delivery time in a tweet Tuesday. It will take 2-4 minutes to prepare the item, and 3-6 minutes to deliver the item and this will be done through its finishing stations. These stations will be 2 kms away from the delivery location and will house bestseller items (about 20-30 dishes) from various restaurants based on demand predictability and hyperlocal preferences. Company plans to launch this new service from Gurugram, Haryana with four stations in the city.
High valuations
Shares of the new-age tech platform led companies, such as Zomato, were listed on higher valuation and they had a costly launch. I think no matter what the company does, its valuation was costly and in a year or two there will be consolidation in the stock, Vishal Wagh, Head of Research at Bonanza Portfolio said. Year to date, the stock has fallen by over 40 per cent and is down nearly 50 per cent from its all time highs in November last year. The stock is currently trading above IPO price of Rs 76 apiece. There has been mixed perception of the Zomato stock so far, JST Investments’s Kondawar said.
Zomato had earlier entered quick commerce by delivering groceries in 2020, right after pandemic hit, but then it withdrew the service citing logistical problems. It re-entered the quick delivery business in July last year but ended the venture two months later. At the same time, it invested in a grocery delivery platform Grofers, now Blinkit. And is now reportedly planning to buy the venture.
Amit Jain, Chief Strategist – Global Asset Class, Ashika Group told FE.com last week that Zomato’s reported acquisition of Blinkit would further strain the company’s finances. “As of now the market cap of Zomato is close to $8 billion, which looks expensive as with Blinkit acquisition it will burn more cash and it will put further strain on the balance sheet of Zomato, hence medium-term investors may wait for more price and time correction,” he said.