The pilot test integrates grocery delivery via Blinkit on Zomato’s main app
To “accelerate” Blinkit’s journey to profitability, Zomato has started a pilot test in Delhi-NCR that will deliver groceries via Blinkit.
We are currently conducting the pilot test in a select number of Delhi-NCR circles. In response to feedback, the company plans to expand to other cities.
Zomato’s main app only offers delivery for Rs 49, while Blinkit’s main app offers delivery for Rs 150.
Zomato’s founder and CEO Deepinder Goyal has stressed that his company will cross-leverage its customer base for Blinkit and vice versa after the acquisition.
According to the letter to shareholders, “We will continue to support the Blinkit app independently. We will also at some point integrate the back-ends for our delivery fleets, which may lead to higher delivery efficiency in the future.”
Both companies will benefit from technology integrations.
In July, Blinkit’s losses returned to Rs 929 million ($12 million), down from Rs 2,040 million ($26 million) in January 2022.
In addition to shutting down unprofitable dark stores, Blinkit will continue to evaluate non-performing stores.
Despite being present in fewer than 15 cities, Blinkit has grown to 20% of Zomato’s food delivery business in six months.
We expect that the overall customer base, average order value, and monthly order frequency of Quick Commerce will be higher than for food delivery since the company sells groceries, fruits, fruits and vegetables, beauty and personal care, and OTC medications.
Blinkit announced last week that printouts will be delivered right to your door in a matter of minutes.
Blinkit, a quick commerce company owned by Zomato, offers black-and-white printouts for Rs 9 and color prints for Rs 19.
For every such order, the company will charge Rs 25 for delivery.
Providing services that help our customers live better lives remains at the core of our mission at Blinkit. We intend to be an organization that is constantly innovating. Earlier this month, Blinkit launched its print pilot program at Sector 43 and Golf Course Road in Gurgaon,” said a spokesperson for Blinkit.
As soon as we observe the service being useful for our customers, we will launch it in more locations (including Delhi).
Currently, Blinkit focuses on fulfilling the academic printing needs of students and providing emergency documents for families like passports, visas, and rent agreements. Plans include expanding the service’s target audience.
Food delivery major Zomato recently acquired a quick commerce company for Rs 4,447 crore. As of last year, it had switched from delivering groceries to delivering other consumables quickly.
Earlier, Deepinder Goyal, Zomato’s CEO and co-founder explained why the deal would strengthen customer engagement and wallet share.
In addition to beauty & personal care, electronics, OTC pharma, stationery, other gifts, and other categories of quick commerce, the company believes that quick commerce naturally extends to a variety of different categories. Quick commerce businesses can also make higher margins and achieve higher AOVs (Average Order Values) by focusing on categories other than groceries.
Earlier, Goyal said that the value of the total commerce market in India is $1.3 trillion. He anticipates quick commerce to grow substantially in the future, especially in the largest cities.
According to Zomato, Blinkit delivered approximately 8.3 million orders in July. In January, the first month after the pivot, the company delivered 5.1 million orders, an increase of 63 percent. July’s revenue reached Rs 75 crore, an increase of around 239 percent.
A total of Rs 263 crore was turned over by Blinkit in FY22, Rs 200 crore was turned over by Blinkit in FY21, and Rs 165 crore was turned over by Blinkit in FY20.
Why did Zomato acquire Blinkit?
With a proposed all-stock acquisition of Blinkit (formerly Grofers), Zomato will pay $4,000 crore for the company, which looks to gain a slice of the rapid commerce market that analysts at Kotak Institutional Equities believe will reach $20,000 crore by FY2025 and $60,000 crore by FY2030.
Over the last two trading sessions, Zomato’s stock has shed over 13% – a sign that traders are visibly unhappy with the company. A quick commerce model consumes a lot of cash; lower AOVs (average order values) and high delivery costs create unfavorable unit economics.
Also, Blinkit is still losing money per order despite its AOV being about $500, 28% higher than Zomato’s. The company burns $165 million in cash annually. “We expect Blinkit to lose more per order because of a lower order throughput per dark store (613 orders per day). According to Edelweiss analysts, Blinkit’s scalability will be lower than food delivery because it will only operate in 15 cities.
According to Kotak analysts, Zomato’s investment in Blinkit is ‘fairly substantial, especially since it is expected to increase further due to intense competition. They believe that Blinkit will require more investment than Zomato’s $400 million.
Now that we know why Zomato is buying Blinkit, we have to ask: What is the reason? In acquiring the company, Deepinder Goyal is building a long-term strategy. “Food delivery revenue growth is slowing down. What is your strategy for continuing to grow? Food delivery is much smaller than the grocery market, so quick commerce opens up new markets. According to an analyst who requested anonymity, a small share will increase a company’s revenue.
Unless quick commerce can become a significant channel of demand for customers in major cities, Zomato sees it as a long-term opportunity. Despite its name, quick commerce doesn’t just revolve around groceries. During the company’s announcement of the deal last week, it said Quickcommerce extends across multiple categories, such as beauty and personal care, electronics, OTC, pharmaceuticals, stationery, and other gift items. The possibility of Zomato acquiring a fresh meat and seafood company such as TenderCuts shouldn’t surprise me. Analysts say Zomato will look at other segments as food delivery growth slows.
Consumer wallet share increases
By acquiring Blinkit, Zomato can gain a larger share of consumer wallets. Atit Danak, partner and head of Zinnov’s CoNXT practice, believes food delivery customers are likely to accept quick commerce. People with high disposable incomes typically subscribe to food delivery apps and quick commerce apps because the consumer profile is similar: people who enjoy the convenience and don’t mind extra charges. It is not uncommon for food outlets and grocery stores to be located near each other in neighborhoods. As Rajat Tuli, a partner at Kearney, points out, an integrated food and grocery app may also be able to exploit delivery synergies.
The same will be done by Zomato as well. The company claims to be looking forward to experimenting after the deal closes with some ideas and to see which one bears fruit, including integrating Blinkit into the Zomato app. In addition, groceries have a high repeatability rate. Amit Nawka, partner deals and India startup leader at PwC, says that food delivery is not something people order every day of the week.
Managing tough times with better synergies
Consolidation may be one way to navigate the crisis in the delivery business. As a result of high fuel prices and a shortage of delivery personnel, the economics of the business has fundamentally changed over the last six months. Eventually, this results in higher AOVs and higher prices for customers,” says Danak.
Additionally, the average number of deliveries per person has decreased due to the opening up of cities and the return of traffic to the roads. Last year, it would have taken ten minutes, but now it takes 15-17. Faster deliveries can only be achieved by establishing more dark stores, which requires capital expenditures.
Based on the density of the orders and the proportion of benefits retained by the platform, higher fleet utilization can reduce delivery costs by 5-10%. By integrating delivery fleets, Zomato will be able to increase order density and reduce delivery costs per order.
An example is Swiggy’s model
As Danak points out, Swiggy has already demonstrated how easy commerce and food delivery can work together. In Swiggy’s case, as people began eating out more, food orders began to decrease, but Instamart growth kept them growing numerically,” says Danak. Due to Swiggy’s efficient delivery fleet, other needs can be met with the same fleet.
In addition to driving high customer engagement, Swiggy’s integrated app also lowers customer acquisition costs. Analysts argue that Instamart has a larger delivery area and higher SKUs than pure play quick commerce players, resulting in higher fill rates, higher AOVs, and longer delivery times (35-40 minutes).
Blinkit, formerly Grofers, has been in talks with online food delivery company Zomato about a share swap deal, multiple sources said. As a result, Zomato has acquired approximately 10% stake in the Gurgaon-based quick-commerce startup.
It has been predicted that the merger would eventually take place ever since Zomato invested in Blinkit. A deal between the two companies was reported by ET in 2020.
The contours of the deal are still being finalized, but, according to the people, shareholders will receive ten Blinkit shares for each Zomato share they own. Based on Zomato’s current market capitalization, Blinkit is valued somewhere between $700 and $850 million. Blinkit had previously been valued at just over $1 billion.
Albinder Dhindsa, the founder of Zomato and Blinkit, did not respond to ET’s inquiries.
Blinkist’s Indian subsidiary Grofers India Pvt Ltd is receiving a $150 million loan from Zomato, according to an exchange filing on Tuesday. A 12% annual interest rate will be charged for a maximum of one year.
SoftBank Vision Fund, Blinkit’s largest investor, would gain a stake in the firm as part of the share swap deal. Zomato’s existing investor, Tiger Global, will increase its stake.
With an investment of $450 million last year, SoftBank invested in Zomato’s rival, Swiggy. During the deal, the Japanese group will own 4-5% of Zomato, the people said.
Deepinder Goyal called Zomato’s investment in Blinkit a “strategic bet” in an interview with ET in October last year. In the future, we will decide whether merging is a good idea or not. Currently, it is too early to speak,” Goyal told reporters.
As part of its stated intention to invest up to $400 million in India’s quick-commerce sector, Zomato invested. A 16.66% stake in Mukunda Foods will also be acquired by the food tech giant.
Quick-commerce troubles
Talks about Blinkit’s sales come as the company has been struggling to gain market share in the quick-commerce space. Zepto has built a war chest of $160 million, while Swiggy invested $700 million in its Instamart service last year. Besides raising $240 million from Reliance Retail, Dunzo is also running pilots with Ola in this space.
Furthermore, Blinkit has been hit by a double whammy due to geopolitical instability combined with a fall in the share price of Zomato and other tech companies.
In November, ET reported that Zomato was interested in investing $500 million in Blinkit, but that deal has not yet been closed. The investment terms of Zomato were renegotiated due to market volatility, according to people aware of the discussion.
In addition to burning $6-8 million per month at least, Blinkit has been trying to scale in a highly competitive quick-commerce space. Since funding opportunities have dried up for Blinkit, the quick-commerce company has closed nearly 40 warehouses and dark stores.
To scale its quick commerce plans, Blinkit has opened 450 new warehouses and dark stores. It has an on-ground workforce of 30,000.
According to Ajay Garg, managing director of Equirus Capital, an investment bank, “It is interesting that Zomato is making these investments when they could be investing in their core operations.” The investor, Info Edge, found new-age companies profitable. Stocks in these (tech) sectors are under pressure due to the current meltdown in public markets. In today’s market conditions, investments must show profitability first before acting as a distraction.
The BSE closed Tuesday with Zomato shares at Rs 76.60, down 3.4%.
edited and proofread by nikita sharma
