Food ordering platform "Zomato", whose Rs 9,375 crore IPO opened on July 14, had planned to launch a grocery section on its app. The company also invested USD 100 million (around Rs 745 crore) for obtaining a minority stake in the grocery delivery platform "Grofers".
But, Zomato changed its mind within two months and opt out of the online grocery business. Zomato had entered the grocery business in July anticipating good demand thanks to the continuing restrictions due to the Covid pandemic and growing digital adoption among consumers.
But, the company soon realized that there were many gaps in fulfilling the orders, especially within the quick timeframe customers wanted the groceries to be delivered.
Zomato, which went public in July, also feels that it will be better off concentrating on its core business of restaurant aggregation and food delivery to deliver greater value to its shareholders.
Possible Reasons for the same can be:
According to industry experts, grocery is the largest e-commerce sector in India and also the toughest to handle. It does not handle typical goods such as mobile handsets and televisions; the supply chain is hyper-local and awfully difficult to master; FMCG products are standardized goods and everyone wishes to start in that segment and then consider diversifying into other vital commodities.
The fruits and vegetables segment and meat, on the other hand, are very hard as they are fresh and have to be delivered fresh to consumers. The supply chain is often broken, there is a lot of seasonal fluctuations, the preferences change from region to region, and quality is extremely tough to control.
The biggest challenge in the online grocery business is that competition is severe from local Kirana stores to branded offline stores to established online players such as BigBasket, Grofers, JioMart, and Dunzo.
The Indian consumer is price sensitive and is aware of the daily prices of all products. The products are also big and heavy. The delivery has to be rapid, i.e., within two hours as consumers want the products immediately.
Now, some people are confused about Zomato’s stake in Grofers.
Well, there are many developments that may have prompted Zomato to bet on Grofers rather than building the online grocery business itself. Like, the food delivery business had taken a massive hit because of the pandemic. The restaurants picking was completely out since most states had banned dining in restaurants and even if it was allowed, there were restrictions on seating.But now, the food delivery business has picked up and is almost back to 80 percent of the pre-Covid levels and Zomato will be better off focussing on that.
In an email to its grocery partners earlier last Sunday the company said, “At Zomato, we believe in delivering best in class services to our customers and largest growth opportunities to our merchant partners. We don't believe that the current model is the best way to deliver these to our customers and merchant partners. Hence, we intend to stop our pilot grocery delivery service effective 17 September 2021.”
Meanwhile, Swiggy had launched “Instamart” for grocery delivery within 45 minutes last month and continuing with the same.