How Will Zomato Benefit By Acquiring Blinkit’s Grocery Delivery Business?

 

Zomato has joined the frantic race for quick commercial success by acquiring Blinkit. It's trying to catch up with Swiggy and a host of other younger fast-trade startups to expand its core grocery delivery business.

After announcing the $569 million stock deal, Zomato's current guiding principle seemed to be "experiment a lot and keep what works".

In announcing the deal, Deepinder Goyal (Founder and CEO of Zomato
) stated that expedited trading had been a priority since the previous year and that the delivery business was totally synergistic with Zomato's grocery delivery, which is good and bodes well for both in the long run.

Albinder Dhindsa (CEO, BlinkIt) will continue to run the business and the company will remain separate.

This follows the logic that 'super brands' tend to outperform 'super apps' in India.

While customers associate Zomato with 'food', BlinkIt stands for 'food and supplies. . ” For future growth and profitability, both will benefit from each other's visibility and customer base.

What is Blinkit?

• A fast -faster On-demand market that promises to deliver groceries and household items in 15 minutes.

Founded in 2013 as Grofers, it quickly rose to become BigBasket's competitor in overnight delivery.

It switched from fast trading to overnight delivery the next day and renamed itself in BlinkIt around. Its mission is to deliver groceries "on the fly".

In August 2021, it became a unicorn. Although Blinkit is still a loss-making company, Blinkit has shown rapid growth since its turn.>

  Quite a long trajectory that Zomato has made in recent years, some early ones were MagicPin, UberEats India, Shiprocket, Curefit, etc. The acquisition is a huge relief for Blinkit, which is operating at a loss, laying off several employees, delaying payments, and closing some of its shady businesses.

The Fast Trade has been heating up lately. With the mantra of “10-minute delivery” 24/7, it seems to have struck a chord with consumers. Of course, as demand increases, competition will come and there is now a multitude of players vying for market share in this highly competitive space.

Some popular names include Dunzo, Instamart, and Swiggy.

Zomato believes that since the fast trade space is a natural extension of their grocery delivery business and they both operate on a hyper-local model, Fusion offers the synergies, which are required to achieve greater portfolio share and customer retention.

How will Zomato benefit from the BlinkIt acquisition?

1) Asset Utilization (Delivery Fleet): The acquisition of a food delivery company was intended to expand Zomato's reach, it has a larger product portfolio (offering), covering a higher percentage of a 24-hour window, and more use cases. Grocery delivery is something that peaks around meal times, weekends (etc.), while grocery delivery has its own peak and off-peak times. This improves profitability, better utilization of assets (fleet) and this improves the cost-benefit ratio.

2) Convenience of "15-minute delivery": The monthly frequency of orders on Blinkit in May 2022 was 3.5 times that of Zomato's grocery deliveries.

Customer metrics have revealed clear trends where customers, spurred on by the convenience of "15-minute delivery", are motivated to buy spontaneously, even impulsively. Therefore, the market that Zomato can address should see healthy expansion with the addition of
Blinkit Fast Trading.

3) Build vs. Buy: Blinkit has built key infrastructures such as a robust technology platform, strong third-party partnerships, a sophisticated dark storage network, and a business that has reached a credible scale.

Now Zomato would have to invest an enormous amount of time and money, not to mention energy! –when building something like Blinkit. Therefore, they have decided to follow the often-trodden path of "buying" instead of "building". Equipment and speed seem to be the two main reasons that would have motivated  Zomato to do this.

In addition, the Blinkit acquisition brings with it an existing and appropriately experienced team already operational, rather than creating an additional loss of resources that would have been required to operate the grocery delivery business.

4) Synergetic: Zomato's management team has made it clear that success in fast trading cannot be driven by hyper-local delivery alone. Blinkit would complement Zomato's extensive hyper-local delivery network with its deep understanding of supply chain networks, the extensive customer base of a sophisticated network of dark shops, supplier and vendor relationships, and its strong technology stack.

5) Ad Revenue: Zomato believes that Blinkit's ad revenue potential, a very important revenue stream for companies like it, is greater than its own. 

Zomato also believes that ad revenue is higher in quick trade than in grocery delivery simply because consumer brands and packaged goods have much higher digital media spending compared to restaurants and cloud kitchens to have.

According to data provided by Zomato, Blinkit sales increased by more than 160%. Based on these
numbers, Zomato believes the merger is on track for success.

Success factors for fast trading: who has what?

Blinkit:

• Strong technology stack: As mentioned above, Blinkit has a robust technology stack that manages end-to-enlast-milele operations.
• Dark Shop Network: Blinkit's sophisticated network of warehouses and dark shops (approximately 3,000 square feet each)
• Supply: Fort 3rd Party-Seller Relationships
  

Zomato:

• Low CAC: Zomato has a large customer base (approx. 16 million) that processes transactions every month.
• Delivery on the last mile: Zomato has 316,000 delivery partners that have an extensive network in over 1000 cities form and cities.
• Repeat behavior: Customers on both platforms have demonstrated a healthy pattern of repeat purchases.

Integrated membership programs are also a major contributor.

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