Home / Companies / Start-ups /  Zomato scales back grocery as food delivery recovers

NEW DELHI: Online food delivery company Zomato that saw its business plummet as India entered into a protracted lockdown in March will now focus on reviving its core food delivery operations as it has seen order volumes recover significantly over the last few weeks.

Zomato had pivoted to groceries with the launch of Zomato Market in April, during the early days of the lockdown, as demand for online groceries surged nation-wide. It also inked partnerships with several fast moving consumer goods companies, onboarded local grocery stores and expanded grocery deliveries in over 185 cities. Zomato also partnered with Grofers for last-mile delivery of essentials.

However, the business is now being scaled back as the company refocuses on reviving and driving online food ordering, according to several people familiar with the development.

The country's efforts towards "Unlock 1.0" are also likely to help restaurants, that had temporarily shuttered, to re-list and, consumers to commence ordering again as movement of people relaxes further.

“As the country opens up basis Unlock 1.0 relaxations, we are going to spend a large proportion of our time making our food delivery service the safest, and the most loved one in town. We have witnessed a strong recovery in these last two weeks since Lockdown 4.0. Now with Unlock 1.0 and restaurants opening up from 8th June, we anticipate the business to recover further in the coming weeks," a company spokesperson said in a response to a query to Mint. The development was first reported by The Ken.

During the covid-19 induced lockdown, food aggregators witnessed a 60-70% slump in food deliveries, which were averaging at a run rate of 2.5 million to 3 million orders per day during pre-covid times.

However, India’s fourth phase of the lockdown, that commenced 18 May, saw several restaurants resume takeaways and scale up home delivery in locations where they received permits to open business, Mint reported earlier.

Recently, Zomato stated that 50% of its restaurant partners have started offering delivery compared with 30-35% during the second and third phases of lockdown in April, indicating a steady supply of restaurant partners.

Now as the company builds back its core business, grocery will exist, but as a peripheral business.

“We started delivering groceries to offer easy and quick access to essentials in the safest manner possible. Zomato Market will continue to operate and service users who need on-demand delivery of essentials," the company spokesperson said.

Another Zomato employee, aware of the discussions confirmed that Zomato might be scaling down its grocery operations completely.

"It will take a lot of effort for Zomato to fully build its supply chain for grocery operations, something which the company isn't looking to invest in at present, considering it might be conserving cash to boost its liquidity runway," said the above employee.

For food aggregators, like Swiggy and Zomato, grocery delivery accounts for only 20% of their business, with almost 80% of their operations and revenues focussed on food deliveries.

"Grocery continues to be a high volume and low margin business. With neighbourhood stores opening up and multiple online players now offering grocery deliveries, Zomato might want to focus its limited delivery strength on high margin food orders and choose to scale down on groceries, keeping unit economics in mind," said a partner of a management consultancy, who didn't want to be named.

The person added that other online delivery players could replicate the move.

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