Small restaurants, cloud kitchens heating up competition: Zomato's Rakesh Ranjan

Rakesh Ranjan, CEO, Food Delivery, Zomato.
Rakesh Ranjan, CEO, Food Delivery, Zomato.


  • As the food-delivery platform focuses on profitability and efficiency, it also has a front seat to a significant shift in India’s restaurant landscape

New Delhi: Zomato has now chalked up two successive profitable quarters, focusing on improving efficiency as it handles more orders and a wider network of restaurants. The online food-ordering platform still has a number of challenges on its plate – getting restaurants to agree with its policies, driving up customer acquisition in a country that still loves to cook at home, and ensuring the overall well-being of its delivery riders.

At the company headquarters in Gurugram, Rakesh Ranjan, CEO, Food Delivery, Zomato, spoke at length on the evolving restaurant landscape, inflation, the company’s plans to get more customers to order more frequently, and on chasing profitability. Edited excerpts:

You’ve had two quarters of profitability. What measures are you taking to drive that?

There are a few things that have happened right. One is that our internal efficiency has improved significantly. For example, because now we are doing more orders than what we were doing a few quarters ago, we are operating with a dense network of delivery partners and a more dense network of restaurants. When the density of orders increases, you run shorter distances, delivery times reduce, (and) delivery partners are able to do more orders in the same amount of time, and that improves the overall efficiency of the system.

But for that to happen, our systems need to be really good. What really impacts the cost economics is whether we find the best possible rider for a particular order in the shortest possible amount of time.

Earlier this year the Zomato management said that in 10 years Blinkit (quick commerce) would drive more value for shareholders than Zomato. Does that mean food delivery as a business will plateau?

Just looking at the overall addressable market, everyone has to have food – whether they cook at home, go out, or get food delivered. We do know a large part of our country will continue to cook food at home. And that means that they will be ordering or buying groceries — so that remains a larger set of the market.

(But) saying that grocery is a larger addressable market does not necessarily take the sheen off food delivery. If you talk about the next 5-10 years, food delivery might see some plateau. But again it might be able to reinvent itself in a different way. If you look at other markets, for example, China, or if you look at the US—these continue to be very high food-delivery markets. There will be different phases of growth that will come in at different points in time.

There are very distinct trends playing out in the food-services market. Fast-food chains reported dull September-quarter numbers, while for Zomato, food delivery GOV, or gross order value, was up 20% year-on-year. What explains this divergence?

There is a slight shift in the restaurant landscape that’s been happening over the last few years. If you were to look at the scenario 5 years ago, large quick service restaurants (QSRs) would command a large portion of food delivery. There weren’t as many brands that customers could choose from.

Now, post-pandemic, cloud kitchens have become a big business. More restaurateurs, corporate professionals, etc., have started entering the food business. The funding landscape has also evolved. All of this has led to a scenario where you get a lot of good quality food that is not necessarily coming from the large QSRs. In effect, competition from small restaurants has gone up a lot.

Food aggregators have been struggling with differential pricing — prices listed on Zomato are much higher than on the restaurant menu because restaurants say they need to hike prices given the high commissions on your platform. How do you solve for this?

Differential pricing does impact restaurants to a certain extent, but that impact is not fully traceable. For example, we see that for a large number of restaurants their funnel conversion — i.e., how many customers come onto their page and how many customers end up buying from their page — is actually worse off when the price differential exists between online and offline. However, if you look at some new-age brands, they have a very clear thinking that they don't want to have any price differential between different channels.

Having said that, are we doing anything about it? No. There are not any strict measures that we can take. What we have largely been doing is talking to restaurants and helping them understand how their conversion drops.

How does inflation impact eating out?

The restaurant industry tends to absorb price shocks a lot more. Most restaurants tend to have fixed price contracts for price fluctuating commodities. Certain sets of restaurants also substitute products fairly efficiently… Usually restaurants are a little hesitant to quickly show the impact of inflation on their menus. On the customer side, we don't see a lot of shift in brands unless someone has taken a large price increase.

However, we do see a little bit of shift towards value-buying. Food is still largely a celebration use case in India; it hasn't reached a point of utility yet. Having said that, of course, eating out has become slightly more expensive and that is why we are focusing on value meals. We launched Zomato Everyday, which is focused on home-style, value (food, eg., thalis priced at Rs129). We are working with a partner who has set up dark kitchens for us in Delhi-NCR and Bengaluru. This is still in a pilot phase.

Let’s talk about Zomato Gold — you now have 3.8 million members who contribute 40% of GOV in the food-delivery business. But the original Gold program faced so much resistance from the industry.

I started Zomato Gold when I came here some 7 years ago. If you look at what the Gold program was initially and what faced resistance, it was largely a dine-out program. It had certain offers for our customers, which were palatable for a few restaurants but not palatable for many.

There are two parts to Gold now. The larger value proposition rests on food delivery, where you get all delivery charges waived off. The waiver of delivery charges is borne by Zomato. There's no burden of delivery charge on the restaurants per se; versus in the earlier avatar where the onus of giving out discounts was on restaurants.

(Also), a few restaurants believe that Gold customers are better because their average order values are slightly higher, their repeat rate is higher. Hence, (the restaurants) dole out small, completely voluntary flat discounts (in the range of 10-20%) to some of our Gold customers. So that has taken the friction off completely. When you dine out, a similar construct exists for dine-out restaurants as well.

In general, the restaurant association has multiple issues with food aggregators. Where has the dialogue reached today?

We continue to engage with the National Restaurant Association Of India (NRAI) on several things, but there doesn't seem to be any large point of difference. I think when the earlier Zomato Gold campaign happened, there was a significant difference and I felt it was a lot more to do with our ability to hear them very well versus having a product that was so-called “notorious". It wasn't the case. It is just that the quality of engagement wasn't that good, which we've been able to solve to a large extent now.

Do you plan to bring down commission rates on the platform?

We do not plan to take it up or take it down.

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