While Zomato has diversified into grocery business amid falling food orders, the company will face even bigger threats from kirana stores and JioMart once the lockdown lifts.
As more people shun ordering food online amid the increasing spread of Covid-19, Zomato is all set to double down on its grocery business, Zomato Markets. The grocery segment already makes up nearly 15% of the order volumes generated by the firm’s delivery business and is expected to “grow very rapidly”, Mohit Sardana, COO, food delivery, told FE.
“Home delivery will continue to be the safer option for some time. We will continue to evaluate grocery delivery and make sustainable investments to fuel its growth,” Sardana said in an e-mail interview.
Zomato Market is currently present in more than 180 cities across the country and has scaled up enough to be able to cater to over 80 lakh households. Fruits, vegetables, staples, snacks and beverages are the top categories for the grocery store.
Zomato and rival Swiggy have seen a considerable dip in order volumes (food delivery) since the outbreak of the virus — while a shift in consumer preference for hygiene over convenience contributed towards the crushing volumes, corporate India’s move to work from home also hammered businesses. Office-goers form a major chunk of food aggregators’ customer base. Operational restrictions in various cities also added to the woes. Current order volumes for Zomato are merely 30%-35% of what it used to be in pre-Covid times.
Swiggy too has forayed into grocery delivery. While BigBasket and Grofers lead the online grocery market, what gives Zomato and Swiggy a competitive edge is their swift two-hour delivery service.
Sardana said the grocery business has synergies with its food delivery vertical. The Gurgaon-based company can capitalise on its strong network of more than 2 lakh delivery partners to service the grocery orders.
“Zomato Market has not only added another use case for ordering from us but also helped us utilise our hyperlocal network, especially in cities where food delivery is either not allowed or has seen a decline in demand,” Sardana said.
Zomato, which is backed by deep-pocketed investors like AntFinancial, has the financial muscle to strengthen its foothold in the grocery market, although the pandemic has delayed firms’ fundraising efforts. In January, the company announced that it will raise a chunky $150 million from AntFinancial. Reportedly, Zomato is in preliminary discussions to acquire Grofers. “We continue to work with Grofers for Zomato Market. We are not aware of any other conversation with them,” Sardana said.
Satish Meena, senior analyst at Forrester Research, said Zomato is getting orders at this point of time as Amazon and Flipkart are struggling to deliver. But the problems for Zomato may surface six months from now when the crisis gets abated to a certain extent.
Zomato will face the issues of low ticket size and cracks in the supply chain which was the case with Grofers when they first started operations with a similar 90-minute delivery model. “At present, Zomato’s order volumes will be high as customers are buying in bulk. Once shops open and people are able to venture out, orders will dip. So, the merger with Grofers makes sense as they will be able to solve the two problems. Also, in the long run, Zomato has to fight JioMart,” Meena said.