Zomato has been making waves in recent months with its strategic business restructuring decisions in a bid to strengthen its dominance in India’s fiercely competitive food delivery sector. A crucial part of this strategy involves making Blinkit, its quick delivery segment, an independent brand and dissolving all its international subsidiaries.
Following Zomato’s acquisition of Blinkit for $570 million in an all-stock deal in 2022, industry analysts and investors wondered how Blinkit’s operations would be integrated with Zomato’s existing infrastructure, particularly in terms of delivery logistics. Amidst these speculations, Zomato’s leadership expressed their confidence that amalgamating Blinkit’s delivery capabilities with Zomato’s food delivery operations would potentially optimize the combined delivery fleet, reduce overhead costs, and enhance overall service quality.
However, there appears to be a pivot in this strategic direction. Sources familiar with the matter indicate that Deepinder Goyal, the founder and CEO of Zomato, has communicated a shift in approach to the company’s top leadership in Gurugram. Goyal’s perspective emphasizes a nuanced understanding of the Indian market dynamics: “While the super app model has seen success in China, Indian consumers exhibit a preference for super brands.”
Swiggy Integrates, Zomato Separates
In response, Zomato has re-evaluated its integration strategy for Blinkit. Rather than a full-fledged merger, the focus now is on sourcing synergies with its business-to-business supplies vertical, Hyperpure. A user-friendly tab on the Zomato app will direct users to the Blinkit app. This revised approach aims to leverage Blinkit’s strengths in a way that aligns with the preference for distinct brand identities in the Indian market.
In contrast, Zomato’s chief rival, Swiggy, has adopted a different approach. Swiggy has seamlessly integrated its quick-commerce segment, Instamart, into its core app. This integration is complemented by leveraging Swiggy’s robust loyalty program and expansive delivery fleet, creating a cohesive user experience within a single platform.
“At a corporate level, the message is to build brands and the most meaningful synergies are being driven — between not just food and Blinkit but also among the different verticals that the broader organisation runs — are happening mainly on the backend to ensure it doesn’t impact customer experience,” a senior executive in know of the Zomato’s operations said.
A Mumbai-based analyst specializing in the consumer internet sector commented on the strategic moves by Zomato and Swiggy, emphasizing the importance of transparent business reporting for investors. The analyst noted that separate reporting for food delivery and quick-commerce segments provides clearer insights into the performance of each business vertical. While acknowledging the potential benefits of synergies that can lead to cost reductions, the analyst also cautioned against the unintended consequences of adding operational complexities. Drawing from observations in other new-age businesses, the analyst highlighted the need for a balanced approach that maximizes efficiencies without compromising operational agility or transparency.
Furthermore, the analyst suggested that any further integration between Zomato and Blinkit should be scrutinized through three critical lenses: operational considerations, the impact on customer experience, and leveraging fixed costs.
Rakesh Ranjan, Zomato’s food delivery CEO, provided the operational differences between Blinkit and Zomato in a recent discussion with ET. He highlighted Blinkit’s ultra-hyperlocal model, where riders, stationed at dark stores, exhibit profound familiarity with specific locales. This stands in stark contrast to Zomato’s broader delivery approach, where delivery guys cover a large area, which means they might not be as intimately familiar with each specific location. Unlike Blinkit’s riders, Zomato’s delivery personnel don’t have a centralized base or point of reference. Therefore, differing operational models translate into fundamentally different job roles.
As of September 30, 2023, Zomato boasted a substantial network with over 400,000 delivery partners actively serving in India.
Zomato’s approach to driving synergies from customers primarily involves guiding them towards the Blinkit platform through the Zomato app, suggesting a cautious or limited approach to deeper customer integration at this juncture.
From a strategic standpoint, Zomato’s integration of Blinkit and Hyperpure epitomizes a concerted effort to enhance operational efficiency, and leverage shared costs, resulting in additional cost efficiencies for both businesses. This integration unfolds in two key ways. Firstly, the consolidation of Blinkit’s larger warehouses, previously used for supplying its dark stores, with Hyperpure. Secondly, streamlining various costs related to procurement, transportation, and human resources at the backend will contribute to an improved expense profile at the group level for Zomato. This approach demonstrates Zomato’s efforts to optimize resources and enhance the overall operational effectiveness of its diversified businesses.
Zomato Liquidates International Subsidiaries
Zomato has officially begun the liquidation proceedings for its Vietnam-based business entity, Zomato Vietnam Company Limited (ZVCL). This decision was communicated through a regulatory filing on the Bombay Stock Exchange (BSE). According to the disclosure, Zomato clarified that ZVCL doesn’t significantly contribute to its revenue streams, and hence, its dissolution won’t impact the company’s turnover. This recent move comes shortly after another regulatory filing where Zomato announced initiating the liquidation process for its Polish subsidiary, Gastronauci, on December 2.
It’s noteworthy that Zomato has been streamlining its international presence, having previously closed down most of its international subsidiaries, including those in Singapore, the United Kingdom, the United States, and South Africa.
Zomato generated an operating revenue of Rs 2,848 crore and a net profit of Rs 36 crore during the second quarter of fiscal 2024, ending September 30, 2023.
Zomato’s recent strategic initiatives, including establishing Blinkit as an independent platform and streamlining international subsidiaries for cost efficiency, underscore the ever-evolving nature of India’s online food delivery market. It would be interesting to see how these decisions will help the food delivery giant maintain or strengthen its dominance in India’s fastest-growing online food delivery market.