Zomato and Blinkit: The Shift Toward Quick Commerce and Its Financial Implications

Table of Contents

1. Key Highlights:
2. Introduction
3. The Rise of Quick Commerce
4. Bistro: A New Front in the Food Delivery War
5. Transitioning to an Inventory-Led Model
6. Blinkit's Focus on Core Markets
7. The Consumer Experience: Balancing Speed and Satisfaction
8. Financial Performance: A Mixed Bag
9. The Competitive Landscape: Challenges Ahead
10. Future Outlook: Navigating Uncertainty
11. FAQ

Key Highlights:

• Blinkit, Zomato's quick-commerce arm, has nearly equaled its food delivery counterpart in net order value, indicating a significant shift in business focus.
• The company reported a dramatic 90% year-on-year drop in profit after tax, largely attributed to losses from its Bistro initiative, which emphasizes ultra-fast meal delivery.
• Blinkit continues to grow by deepening its presence in existing markets while maintaining a commitment to ultra-fast delivery models, despite challenges in tier-2 and tier-3 cities.

Introduction

The food delivery sector has witnessed transformative changes in recent years, driven by evolving consumer preferences and the rise of quick-commerce platforms. Zomato, a leader in the food delivery industry, is at the forefront of this evolution, particularly through its subsidiary Blinkit. As the company navigates the complex landscape of food delivery and quick commerce, it faces both opportunities and challenges that could redefine its business model. Recent reports reveal a pivotal moment for Zomato as Blinkit approaches parity with its food delivery service, raising questions about future profitability and strategic direction.

The Rise of Quick Commerce

In a striking development, Blinkit has reached a remarkable milestone, nearly matching Zomato’s food delivery service in terms of net order value (NOV) for the first time. For the quarter ending June 2023, Blinkit accounted for approximately ₹10,000 crore of the total ₹20,183 crore order value reported by Eternal, Zomato's parent company. This shift underscores a broader trend where quick commerce is becoming a dominant force, accounting for nearly half of Eternal’s $10 billion annualized NOV.

Quick commerce, characterized by rapid delivery of groceries and essentials, caters to a growing consumer demand for convenience and speed. This shift is particularly evident in urban areas, where busy lifestyles necessitate quick access to various goods, including food items. As consumers increasingly seek out platforms that can deliver everything from household essentials to gourmet meals, Zomato's move to bolster its quick-commerce capabilities through Blinkit is a strategic response to market demand.

Bistro: A New Front in the Food Delivery War

Despite the optimistic growth in quick commerce, Zomato's food delivery service faces significant challenges. The company has invested heavily in Bistro, a 10-minute meal delivery service that operates under the Blinkit brand. However, this investment has not come without consequences. In the recent financial quarter, Zomato reported a staggering 90% year-on-year drop in profit after tax, largely due to the financial strain from the Bistro initiative.

Bistro represents a shift from Zomato’s previous aggregation model to a first-party delivery system. Unlike traditional food delivery services that partner with restaurants, Bistro operates its own kitchens, allowing for greater control over the delivery process. While this approach could enhance customer experience, it has also resulted in increased capital expenditure, leading to mounting losses. The company’s management acknowledged the need to balance customer traction with the imperative of achieving profitability, indicating a critical juncture for Zomato's food delivery strategy.

Transitioning to an Inventory-Led Model

As part of its strategic pivot, Blinkit is transitioning from a marketplace model to an inventory-led approach. This shift aims to streamline operations and improve control over supply chains. However, it poses challenges for existing partnerships, particularly affecting Eternal's B2B platform, Hyperpure. Many of Hyperpure’s non-restaurant clients were previously sellers on the Blinkit platform, and as Blinkit becomes a supplier rather than a marketplace, revenue from these clients is expected to decline.

The transition to inventory ownership is a significant operational change that impacts various aspects of the business. While it might strengthen Blinkit's position in the long run, the immediate effects could lead to revenue fluctuations for Hyperpure and necessitate adjustments in their business strategy. The management has indicated that while the restaurant-facing segment of Hyperpure remains robust, the non-restaurant revenue will soften as the inventory-led model scales.

Blinkit's Focus on Core Markets

Another key aspect of Blinkit's growth strategy is its emphasis on deepening market presence rather than pursuing aggressive geographic expansion. CEO Albinder Dhindsa highlighted that most of Blinkit’s growth comes from existing markets, with less than 5% attributed to newly launched areas. For example, despite being well-established, Delhi saw a 70% year-on-year growth in customer transactions.

This strategy allows Blinkit to enhance its operational efficiency and optimize resources in already saturated markets. However, it also reveals challenges in tier-2 and tier-3 cities, where the upfront infrastructure costs often outweigh the benefits. Dhindsa noted that the company is investing in supply chains in these regions, but the initial margin pressures can hinder profitability.

The Consumer Experience: Balancing Speed and Satisfaction

In the competitive landscape of food delivery and quick commerce, consumer experience plays a pivotal role. Zomato's management acknowledges that while customer traction for Bistro appears strong, there is an ongoing need to refine the business model to ensure profitability. The emphasis on ultra-fast delivery, particularly in the case of Bistro, raises questions about the sustainability of such a model in the long term.

The company’s approach to customer service and satisfaction will ultimately determine its success. The balance between delivering meals quickly and ensuring quality is delicate; any missteps could lead to customer dissatisfaction and harm the brand's reputation. As Zomato navigates this landscape, understanding consumer preferences and adapting to changing demands will be crucial.

Financial Performance: A Mixed Bag

The financial implications of Zomato's strategic shifts are evident in the company's recent performance metrics. The food delivery segment reported a 13% year-on-year increase in NOV to ₹8,967 crore, although this growth slowed significantly compared to previous quarters. The management noted that while there was a slight decline in the number of transacting customers and app openings, recent weeks showed signs of recovery, suggesting a potential turnaround.

However, the company's overall profit decline starkly contrasts with its revenue growth. The significant investment in Bistro and the transition to an inventory-led model have contributed to rising operational costs, ultimately impacting profitability. For FY26, Zomato has allocated ₹150 crore in losses for Bistro along with its other initiatives, illustrating the financial strain of its aggressive expansion strategy.

The Competitive Landscape: Challenges Ahead

Zomato’s journey through the evolving food delivery and quick-commerce landscape is marked by fierce competition. Rival platforms are also adapting to changing consumer needs, intensifying the race to capture market share. The rapid growth of competing services in quick commerce, along with the established presence of other food delivery platforms, presents both challenges and opportunities for Zomato and Blinkit.

The ongoing battle will require Zomato to remain agile and innovative. As the company invests in new initiatives and refines its existing services, it must also keep a close eye on market trends and competitor strategies. Understanding the dynamics of consumer behavior and adjusting offerings accordingly will be key to sustaining growth in this competitive environment.

Future Outlook: Navigating Uncertainty

Looking ahead, the future of Zomato and Blinkit remains uncertain, particularly as the company grapples with the complexities of its strategic pivot. The commitment to ultra-fast delivery through Bistro is a bold move, but it raises questions about the economic viability of such a model in the long term. The financial pressures from ongoing investments and the transition to an inventory-led approach will require careful management.

Additionally, as Blinkit continues to grow, the company must address the challenges posed by tier-2 and tier-3 markets while ensuring that its operational model remains sustainable. The focus on deepening market presence is a step in the right direction, but it will require ongoing evaluation and adaptation to ensure that Blinkit can capitalize on opportunities without compromising profitability.

FAQ

What is Blinkit?

Blinkit is Zomato's quick-commerce arm, specializing in the rapid delivery of groceries and household essentials. It has recently gained significant traction, nearly equaling Zomato's food delivery service in net order value.

How did Zomato's recent financial report impact its food delivery segment?

Zomato reported a 90% year-on-year drop in profit after tax, attributed largely to investments in its Bistro initiative, which has increased operational costs and affected profitability.

What is the Bistro initiative?

Bistro is a 10-minute meal delivery service launched by Zomato under the Blinkit brand. It focuses on providing ultra-fast food delivery, operating its own kitchens for greater control over the delivery process.

Why is Blinkit focusing on existing markets rather than expanding geographically?

Blinkit aims to deepen its presence in established markets to optimize resources and enhance operational efficiency, rather than pursuing aggressive expansion that could strain resources.

What challenges does Zomato face in the tier-2 and tier-3 markets?

Zomato faces significant upfront infrastructure costs in tier-2 and tier-3 markets, leading to margin pressures and challenges in achieving profitability in these regions.