Zomato said the future of ultra-fast food delivery does not indicate poor customer experience and limited incremental value is a key reason to shut down its fast and day-to-day services. The company emphasized in its 4th quarter yield meeting Thursday that the model is inconsistent with its long-term vision and is no longer a strategic focus.
Management quickly explained the rationale for shutting down its ultrafast food delivery service; said the plan was designed to drastically reduce lead times, but the company found it to be at the expense of customer experience and operational viability. Importantly, the expected growth in demand has not been achieved.
“…I think fast is an attempt to lower the lead time from the average (i.e., 30 minutes of the platform) to 10 minutes. We realized that it was very difficult and we wouldn’t see any incremental demand, especially given the poor customer experience… Our view is that we should try to lower the 30 minutes to 20-25 minutes, which will make our overall transport force more stable and thus make our overall transport mode more stable. We think it’s a very fast service, without end-to-end control of the supply chain, which we think is difficult to do,” said Akshant Goyal, Chief Financial Officer of Zomato.
This shift reflects a more sustainable and scalable approach, especially without full control of the supply chain, and without any meaningful improvement in demand.
Rising competition
Goyal also explained its decision to close every day, noting: “… Given that it is a stronger business with different business models, etc., we just don’t see the value of continuing to run, and when we don’t really see an opportunity beyond a certain scale.”
Goyal further acknowledges the structural limitations of its market model, especially in this case when end-to-end control of customer experience is more feasible than fast commerce.
“We are a market business. So, unlike a fast business business, we have no control over the end-to-end experience of our customers. In some ways, on these three metrics (allocation, delivery time and affordability), as a business, we can’t actually do anything to these three media, but try anything in the last two years, but with the effort, we can’t actually make any meaningful dents on these three vectors. Vectors…,” added Goyal.
Albinder Dhindsa, founder of Blinkit, also pointed out that strengthening competition is a key factor to increase profit margins. It faces challenges not only the established players, but also the challenges of new entrants, with pressures in many forms – discounted prices, aggressive marketing activities, free delivery products, and a rapid expansion of service coverage.
This multifaceted competitive landscape increases the challenges of maintaining profit margins and growth, especially in already crowded and highly burning categories such as fast commerce, which also limits companies’ ability to increase delivery fees or drive higher gold fruit products in certain regions.
Strategic Pivot
Zomato reported its Q4 fiscal year profit fell 77% year-on-year, with net profit falling to ₹390 million. Revenue increased by 64% ₹$58.33 billion, powered by performances from fast business (Blinkit) and B2B supplies (Superpri). On a continuous basis, the net profit is from ₹590 million in the third quarter, while revenue rose 7.9% in the quarter ₹54.05 million.
“I think the impact of competition is visible in the absence of the substantial expansion we would have expected. Both are because there are more players now and obviously there is more competition in various categories that can push to the same customers, which leads to a certain profit pressure, which leads to a certain gap, which can charge higher delivery fees in some geographical locations and higher ranges on higher platforms.
Goyal has increased its strategic shift in its expansion focus to smaller cities, noting that new store openings are now growing outside the top eight city centers.
This marks a significant hub in the early stages, during which Zomato exited from 225 smaller cities in early 2023, due to soft performance in Level 2 and Level 3 cities.
Key Points
- Zomato shut down its “fast” and “day-to-day” services, citing poor customer experiences, operational challenges and a lack of massive demand as reasons.
- Instead of focusing on ultra-fast delivery, the company aims to optimize delivery times to 20-25 minutes using improved logistics, rather than focusing on ultra-fast delivery, in line with its sustainable growth strategy.
- Zomato faces fierce competition from rapid business due to aggressive marketing, major discounts and competitor expansion, which leads to challenges in profit growth and delivery fees.
- Zomato’s fourth-quarter FY25 profit fell 77% year-on-year ₹390 million, while revenue increased by 64% year-on-year ₹Rs 583.3 crore, powered by blinking and superblicular operations.
- Zomato shifted its expansion focus to Level 2 and Level 3 cities after leaving 225 smaller cities in 2023 due to performance.
