Zomato hits pause on Blinkit integration to focus on building super brands

Super apps don’t work in India as well as they do in China … Indians prefer super brands — this is the message passed down from Zomato founder and chief executive Deepinder Goyal to the top management of the Gurugram-based company, people in the know of the matter said.

This view also reflects in the company’s strategy of keeping its food-delivery platform at an arm’s length from its quick-commerce unit, Blinkit, which is being built as an independent brand.

When Zomato acquired the online grocery firm for $570 million in an all-stock deal in 2022, sector analysts and investors were watching out for how Blinkit would get integrated with its food-delivery parent. Soon after the acquisition, the management told analysts that Blinkit’s integration with Zomato, especially of the delivery fleet, would drive better efficiencies as the publicly listed firm charted its path to profitability.

But that plan has changed now, according to multiple people aware of the goings on within the company. Zomato has decided that the extent to which Blinkit integrates into the firm would be through sourcing synergies with its business-to-business supplies vertical Hyperpure, and a tab on the Zomato app that directs users to the Blinkit app.

Zomato’s chief rival, Prosus-backed Swiggy, however, has integrated its quick-commerce vertical Instamart into the main app, while leveraging its loyalty programme and delivery fleet for the business where it has invested over $700 million.

“At a corporate level, the message is to build brands and the most meaningful synergies are being driven — between not just food and Blinkit but also among the different verticals that the broader organisation runs — are happening mainly on the backend to ensure it doesn’t impact customer experience,” a senior executive in know of the company’s operations said.

Analysts said integrations must not come at the cost of business simplicity.“From an investor point of view, the independent business reporting gives a better insight into how the food-delivery and quick-commerce businesses are doing…any synergies that drive down costs are good but the management also has to be mindful about not adding operational complexities. We have seen that play out with certain other new-age businesses,” a Mumbai-based analyst tracking the consumer internet sector said.

The analyst highlighted that any further integration between Zomato and Blinkit must be looked at from three different lenses: operations, customer experience and fixed-cost leveraging.

Zomato did not respond to queries sent on email.

Also read | How Blinkit is integrating with Zomato’s Hyperpure after its long-awaited acquisition

Delivery fleet

In terms of operations, particularly delivery fleets, Zomato believes that food delivery and quick commerce work differently.

“If you go a little skin deep into how Blinkit operates versus how Zomato operates, Blinkit is ultra-hyperlocal. The riders who service orders out of dark stores are way more familiar with the locality…They are tied to a store and know exactly where to go. If you were to tell them house number 1401, tower X, they don’t need to even look at the map,” Zomato’s food delivery CEO Rakesh Ranjan told ET during a recent interaction.

“The entire ecosystem is developed very differently, versus the food-delivery ecosystem, which is floating riders across a large area. And they don’t have one point to come back to. So just the very basic nature of these two jobs is very different,” he said. “One could say that it’s the same company. But these are very two different roles. Hence on the rider side, we see very limited possibilities of integration.”

As of September 30, 2023, Zomato had over 400,000 delivery partners in India.

Ranjan said on driving synergies from customers, the redirection to Blinkit from the Zomato app was as far the company was going in terms of customer integration at this point.

There is also no plan to add Blinkit offerings to Zomato’s Gold loyalty programme as of now, he added.

In contrast, Swiggy offers benefits of its loyalty programme, Swiggy One, to its customers ordering food as well as groceries from Instamart.

Also read | 2023 Year In Review: quick commerce was lapped up by the urban public, but has a long way to go

Operational leverages

By integrating Blinkit and Hyperpure at the sourcing end, Zomato is deriving operational leverage on top of a common cost, thereby driving additional cost efficiencies for both businesses, analysts said.

This plays out for the company primarily in two ways.

Firstly, Blinkit’s larger warehouses that were earlier used to supply its dark stores were merged with Hyperpure, and secondly several other costs on account of procurements, transportation and human resources at the backend came down, thereby improving the expense profile at a group level.

“Quick-commerce companies have spent heavily in their expansion phase on setting up dark stores and establishing supply chains…for them now a path to profitability means leveraging these fixed costs that they incur. This means making more revenue on the same amount of recurring spends,” the analyst cited above said.

Mumbai-based Zepto launched quick deliveries of snacks and beverages like tea and coffee. Similarly, Swiggy piloted Instacafe in Bengaluru in a hunt for better margins and an improvement in order sizes. Blinkit is also pushing its order value upward by having several non-grocery items on its platform.