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Zomato looks to bet big money on startups, especially ones with a quick commerce focus

Zomato has been on a clean-up drive over the past few months to focus on its core food-related businesses.

Zomato is planning to invest nearly $1 billion in startups in the next couple of years with a sizeable chunk reserved for quick commerce, its CEO Deepinder Goyal wrote in a blog post. Goyal also shed light on Zomato’s investments in four companies amounting to $275 million in the past six months. 

Goyal’s post touched upon the company’s long-term strategy and its priorities such as the core business— food ordering and delivery, dining-out, and Hyperpure (B2B supplies for restaurants).

We are currently in talks with various restaurant point-of-sale (POS) players, e-vehicle fleet operators, among others, to evaluate investments in these companies keeping the long term in mind — Goyal

The post provides a glimpse of the inner workings* of Zomato and elaborates on how the company plans to use the capital at its disposal.

Where is Zomato investing?

Zomato has been busy in the recent months by trimming the fat from its books and picking up stakes in hyperlocal e-commerce companies such as:

Curefit: The food delivery platform will be investing $100 million in fitness firm Curefit, picking up a stake of 6.4 percent. The plan is to sell Fitso, its subsidiary, for $50 million and the rest will be done in cash. With this investment, Curefit will become the 36th unicorn this year with a valuation of $1.5 billion, according to Livemint.

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Shiprocket: The company is also spending $75 million for an 8 percent stake in Bigfoot Retail Solutions Pvt Ltd, the company behind Shiprocket. Goyal describes Shiprocket as a B2B logistics-tech company that enables online commerce by providing shipping and fulfillment services to direct-to-consumer (D2C) brands and omni-channel sellers. “We are choosing to back a platform play for all D2C brands,” read the post.

Magicpin: There is also an investment of $50 million in Samast Technologies Pvt Ltd, the parent company of hyperlocal discovery platform Magicpin, for a 16 percent stake. “Magicpin has a network of 170,000+ paying merchants in categories including fashion, food, electronics, grocery, pharma, entertainment across 50 cities in India,” as stated in the post.

Grofers: Zomato is betting big on the quick commerce (delivery of products in less than 30 minutes) category believing it to be “one of the most promising ones”. The company has invested $100 million in Grofers. Zomato decided against building the category on its platform as it chose to shut down its grocery business. “We are likely to invest more in this space in the near term,” said Deepinder Goyal.

We would want to be the provider of additional capital to these businesses and consolidate our stake leading to a potential merger at some point (at least in some cases, if and when the founders of these companies want to). In the worst case, we would want these investments to generate huge learnings and great financial returns for Zomato. — Goyal

Hyperpure: A sum of more than $50 million has been kept aside to be used in the next 18-24 months. The company revealed that the revenue in Hyperpure grew by 49% QoQ to Rs 1.1 billion ($15 million) in the quarter which ended on September 30, 2021. Hyperpure is present in 8 cities and supplies to over 12,000 restaurants every month.

Moving away from non-core businesses

The blog post also details why the company shut down its international operations, most recently in Lebanon which was the only international business operational apart from the dining-out business in the UAE. These subsidiaries contributed less than 1 percent to revenue but comprised 13 percent of their EBITDA loss in the September quarter, Goyal said. 

Here’s a look at some of its recent closures:

Lebanon: The Lebanon unit of Zomato Ireland Limited, a wholly-owned subsidiary of Zomato, will shut down by December 15, 2021, according to a disclosure made by the company with the Bombay Stock Exchange. The company said that the political chaos and economic uncertainty in Lebanon ever since it plunged into a debt crisis in 2019 made its business unviable.

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United States: The food delivery firm first dissolved its table reservation business in the US, NexTable, by entering into a stock purchase agreement with Justin Doshi, Thusith Desilva, and Robert Tyree for the sale of its stake at $100,000. The company then shut down its US subsidiary— Zomato US LLC (ZUL) — to focus on its India operations. It was known as UrbanSpoon earlier. ZUL’s contribution to Zomato’s turnover stood at nil.

UK and Singapore: The next two closures came in the form of Zomato’s two international subsidiaries in the United Kingdom and Singapore. Zomato UK Limited (ZUK) and Zomato Media Private Limited (ZMPL) had a net worth of Rs. 16.4 lakh and Rs. 6.5 lakh respectively.

India: Zomato exited the grocery business by ceasing operations on September 17 this year. The reasons cited by the company were gaps in order fulfillment, poor customer experience and increasing competition from rivals promising express delivery. The firm also shut down its nutraceutical business without elaborating on its reasons. The term “nutraceutical” means medicinally or nutritionally functional foods such as yogurt and supplements, among others.

Understanding Zomato’s performance in the last quarter

Goyal wrote that customer traffic on its platform registered 59 million average monthly active users in the September quarter from 45 million in the June quarter. It must be one of the reasons behind the growth of its consolidated revenue by 22.6 percent to ₹1,420 crore from ₹1,160 crore in the previous quarter.

The company’s consolidated EBITDA loss was ₹434.9 crore from ₹356 crore. Goyal detailed that the reasons behind the loss were down to an increase in the following:

  • Spending on branding and marketing for customer acquisition
  • Investments and share of emerging geographies
  • Delivery costs due to unpredictable weather and increase in fuel prices.

He revealed that there was a rise of Rs 5 in the cost of delivery but the company does not expect them to go up anymore. 

Most stock market analysts are unperturbed by the widening losses as they believe the investments would lead to a growth in Zomato’s core business. Many brokerages continue to recommend a ‘Buy’ rating for its stock, buoyed by the increase in the revenue and the number of users on its platform. 

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*Disclaimer: This author was allotted shares in Zomato’s IPO.

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I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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