Deepinder Goyal’s Strategic Move: Zomato’s Quick Commerce Pivot

In a recent earnings call, Zomato, the food delivery giant, hinted at scaling back its instant delivery ambitions. This move marks a significant shift in the landscape of quick commerce, a sector that was red-hot in the venture capital circuit not too long ago. In a post-pandemic world, the urgency for 10-minute deliveries has waned, and financial realities have set in. Zomato’s CEO, Deepinder Goyal, revealed the company’s intentions to be more cash-conscious, signalling a strategic shift without abandoning quick commerce altogether.

Quick commerce, with its goal of delivering groceries within 10 to 20 minutes, garnered substantial investments globally, totalling around $12-13 billion within a year. In India, start-ups like Zepto, Dunzo Daily, and Swiggy’s Instamart quickly jumped on the bandwagon, attracting massive funding and consumer attention. Zomato itself made a foray into quick commerce, even acquiring a 9.3 percent stake in Blinkit (formerly Grofers), a 10-minute grocery delivery service. This strategic investment stirred speculation that Zomato might take over Blinkit and integrate its operations, although Zomato has been evasive about confirming such a move.

Deepinder Goyal explained in a shareholder letter that Zomato’s focus is currently on conserving cash. The company will not make fresh investments beyond the $400 million earmarked for quick commerce in 2022 and 2023. However, Goyal remains optimistic about quick commerce’s long-term prospects, stating that this model is more efficient than the traditional kirana model. Pranav Kshatriya, an equity analyst at Edelweiss, lauded Zomato’s decision to limit its investment in quick commerce. He emphasized the importance of prudent capital allocation to prevent any deviations that could defer profitability. Zomato’s non-committal stance on the Blinkit takeover was also viewed favourably.

Several factors have contributed to this shift in the quick commerce landscape. Quick commerce gained prominence during the pandemic when people required rapid grocery deliveries while confined to their homes. However, in a post-pandemic world, the need for immediate delivery has diminished. Some even questioned the practicality and ethics of 10-minute delivery services. Additionally, the macroeconomic environment has transformed. During the height of the quick commerce trend, capital was readily available, and valuations soared. This prompted many to make opportunistic bets in the sector. However, the capital-intensive nature of quick commerce and less compelling unit economics compared to traditional food delivery have brought about a change in investor sentiment.

The tightening of capital availability and a shift towards more sustainable businesses has raised questions about the future of quick commerce startups. While players like Swiggy’s Instamart seem well-positioned due to synergies with their core food delivery business, others like Zepto, Dunzo, and Blinkit might face challenges. Despite these headwinds, quick commerce is not disappearing. RedSeer expects the market to grow 15 times, reaching $5.5 billion by 2025. Customers, habituated to the convenience of quick grocery deliveries during the pandemic, are shifting their habits from traditional kirana stores to quick commerce platforms. The sector has witnessed significant adoption in cities like Bengaluru, Chennai, and New Delhi.

In conclusion, while Zomato takes a cautious approach to quick commerce, the sector itself remains promising in the long run. The industry is evolving, with companies adjusting their strategies to improve margins, rationalize discounts, and explore high-margin product categories. Despite the challenges, quick commerce is here to stay, and its growth trajectory is set to continue.