Zomato shuts down grocery delivery, to push Grofers

Bengaluru: Food delivery major, Zomato Ltd., said on Sunday it has shelved plans to operate in the consumer grocery delivery segment for the second successive time in two years, citing infrastructure gaps in a highly competitive e-grocery market. It will, instead, rely on its investment in Grofers to compensate for the same.

In a letter to its grocery partners on Friday evening, Zomato said, “Over the last 2 months of operations, we have had a few important realisations...Store catalogues are very dynamic and inventory levels change frequently. This has led to gaps in order fulfilment, leading to poor customer experience.”

“In the same period, the express delivery model with under 15-minute delivery promise and near perfect fulfilment rates, has been getting a lot of traction with customers and expanding rapidly. We have realised that it is extremely difficult to pull off such a model with high fulfilment rates consistently. In a marketplace model (like ours),” added Zomato in the letter.  

Zomato first dabbled with the e-grocery category in April last year, in a bid to exploit a surge in demand for e-groceries during the first wave of Covid-19. It had recently announced plans to restart grocery offerings on its app and began pilots in the Delhi NCR region in August.

“We have decided to shut down our grocery pilot and, as of now, have no plans to run any other form of grocery delivery on our platform. Grofers has found high quality product market fit in 10-minute grocery, and we believe our investment in the company will generate better outcomes for our shareholders than our in-house grocery effort," said a Zomato spokesperson.

Zomato will, however, continue to operate its business-to-business (B2B) essentials and grocery delivery service offering for restaurants through Hyperpure, the Zomato spokesperson added in response to Mint's queries. 

Zomato recently invested $100 million in e-grocery unicorn Grofers and its wholesale unit Hands on Trades Pvt. Ltd., which also recently pivoted to the under 10-minute delivery model. It has a 9.3% each in Grofers and Hands on Trade (wholesale entity). While announcing its maiden quarter result, post the public listing, Zomato said that losses for its Hyperpure business expanded in Q1 fiscal year 2022, due to investments in growth.

The move comes at a time when Zomato’s arch-rival Swiggy is ramping up its grocery and essentials service, Instamart in the Delhi NCR region as well as in key metros of Mumbai, Hyderabad and Chennai. Instamart also continues to have a strong presence in its home market of Bengaluru and was first started in August last year.  

Instamart continues to create ‘dark (online orders only) stores’ with partners in areas of operations to execute more control over their grocery inventory, as it begins 15- to 30-minute deliveries on the platform. 

Zomato announced that its revenues grew in April-June quarter this year to Rs 844 crore, from Rs 266 crore in the corresponding period last year. While losses also rose to over Rs 356 crore from Rs 99.8 crore in the year-ago period.