Companies

Zomato shuts down its grocery delivery pilot

Yatti Soni Bengaluru | Updated on September 13, 2021

File photo   -  REUTERS

Zomato has said that their marketplace model has had moderate success

Zomato has shut down its grocery delivery pilot even as it bets on its investment in Grofers to generate better outcomes than the company’s marketplace model of grocery delivery.

Zomato started its grocery delivery pilot in July which offered a 45-minute delivery to the customers. The pilot operated on a marketplace model which means customers were ordering groceries from their neighbourhood stores. The company intends to stop this pilot service from September 17, 2021.

"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," a Zomato Spokesperson told BusinessLine.

In a note to grocery partners, Zomato has said that their marketplace model has had moderate success. However, the two months of operating this pilot had also made the company realise the challenges with this model. BusinessLine has reviewed a copy of the note.

“In the marketplace model, store catalogues are very dynamic and inventory levels change frequently. This has led to gaps in order fulfillment, leading to poor customer experience. We have realised that it is extremely difficult to pull off such a delivery promise with high fulfillment rates consistently, in a marketplace model(like ours),” the note added.

In the same time period, Zomato’s investee company Grofers has launched express grocery delivery service promising under 10-15 minutes deliveries. Grofers’ model is powered by a network of dark stores (mini-warehouses) which are run by express partners.

These express partners are required to have a ground floor commercial property with over 2500-3500 sq. ft., parking space for about 20 bikes, and space to park a 14ft truck or canter. The 2500-3500 sq. ft. micro-fulfilment centres of dark stores are characteristic to companies operating in quick delivery space.

Zomato’s competitors in this space, Swiggy and Dunzo have also tried grocery delivery service through a marketplace model but both the players have later launched dark store model-led deliveries (Swiggy launched Instamart and Dunzo started Dunzo Daily).

Talking about the key factors that would help any player to establish dominance in the quick commerce segment, Mukesh Kumar of RedSeer had earlier told BusinessLine that “speed, selection, and reliability are the key aspects to win the market in this segment.”

Dark stores or micro-fulfillment centers are an important aspect of any quick commerce business, as they allow the company to control the availability and quality of their product catalogue, he added.

According to the latest report ‘Quick Commerce: A $5 billion market by 2025’ by consulting firm RedSeer, the market penetration of quick commerce is estimated at $0.3 billion in CY2021 and is expected to grow 10-15x in the next 5 years, that is $5 billion by 2025.

Published on September 12, 2021

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