Daybreak - What's making Zomato bet big on Blinkit?

Episode Date: June 13, 2024

Zomato, the food delivery giant is all set to infuse more than $35 million into Blinkit. But not too long ago, Blinkit, the grocery delivery platform that was formerly known as Grofers, was on the verge of dying. It was the first year of the pandemic and the demand for quick commerce was at its peak. Grofers wanted to join the bandwagon but it didnt have the money.A year later in June 2021, it got its shot in the arm with a $120 Mn infusion from Zomato. A year later, in 2022, Zomato decided to go all the way in and acquired Blinkit for nearly $600 million. It was not been all smooth sailing even after that.But somehow, Blinkit has managed to crack the quick commerce market and become a leader.  How?Tune in.*This episode was first published on March 6, 2024Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission. We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture,

how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd.

To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. A few years ago, Blinket, the grocery delivery platform that was formerly known as Grofers was on its deathbed. It was the first year of the pandemic and the demand for quick commerce was at its peak. And Grofers, of course, wanted to join the bandwagon. But it did not have the money. It needed funds badly.

So a year later in June 2021, it got its shot in the arm with a $120 million infusion from Zomato. Next thing we knew, Grofers had become blanket and also a unicorn company. And then in 2022, a year later, Zomato decided to go all the way in and acquired blanket for nearly $600 million. But it was not all. smooth sailing even after that. The competition from rivals like Swiggy's Instamart and Zepto only grew more intense. And then there were the strikes from the delivery personnel

and also slow revenue growth from dark stores. But somehow Blinket managed to crack the quick commerce market and now it is leading in terms of gross merchandise value or GMV. It currently boasts of a close to 40% share in India's quick commerce market. Zomato also says that Blinket in itself will become a beta level profitable very soon. And two days ago, Zomato said that it is going to infuse fresh capital of more than $35 million into Blinket once again. So I thought today is a great day to revisit a previous episode of Daybreak where we dug a bit deeper to understand how this turnaround came about for Blinket.

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I'm your host, Nick Da Sharma, and all. I don't chase the new cycle. Instead, every day of the week, my colleague, Rahal Philippoza and I, will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 13th of June. Okay, fair warning. I'm going to begin with some numbers, all right? In the third quarter of the financial year, 2024, Blinkets saw a revenue of nearly 650 cro rupees. Now, for comparison, in just the quarter before that, the revenue was around

500 crore rupees. And its adjusted beta loss reduced from 125 crore to less than 90 crores in the last quarter. So now you know why Zumato is so confident about Blinket reaching a beta level profitability by June this year. But back when Zomato decided to acquire Blinket, a lot of people were skeptical. In fact, Equity Research firm J.M Financial had forecasted that even Zomato's own path to profitability could get extended by a year. But fortunately, things did not quite turn out that way. And a big reason for this is, of course, quick commerce in itself. Many people had thought that 10-minute delivery would be a short-lived fad and it would fade away along with the pandemic. But they were wrong because quick commerce is thriving now. And the other reason, of course, is Zumato's magic touch. My colleague

the Ken reporter Akriti Bhala spoke to a bunch of analysts about Blinket's success. Stay tuned. You see, the success of any quick commerce business depends on its dock stores or warehouses and also having the right mix of items or SKUs, which are also known as stockkeeping units. Now, one of the first things that happened after Zamato took over was that Blinket cut down on the number of dock stores and started focusing on increasing margins. When Blinket was acquired, Blinket had around 450 dock stores. The number came down to 362 by December that year.

And then in 2023, the number of stores were back to 451. So basically, the idea was to make dock stores unit economics work, which, as it turns out, is the hardest part of this business. For example, it usually takes around 1,000 daily orders for a dock store to break even in terms of contribution margin. The stores that opened between January and March, 2023, took nearly six months to achieve this milestone. But according to the company's letter to its shareholders, that duration came down to two months for the stores that launched in October. Now Blinkett says that the plan is to open 500 more stores for the top 8 to 10 cities

which generate 90% of its revenue. Blinkett says that these regions are still underpenetrated. And then there are other factors of it. course, like Zomato's experience and expertise in delivery. That obviously helped. But this is also the contentious part. Hang on for the next segment. A Consumer Insights analyst told the Ken that before Blinket was acquired, it was paying its delivery partners 20 to 30% more for up to 5 km distances than what Zomato would pay its riders for 5 to 10 kilometers. A Zomato food delivery partner now gets about 35 rupees per order, and a Blinket Rider gets about 10 to 20 rupees per order only.

Swiggy also has a similar payout structure. Now, I'm sure you remember that this naturally led to protest by riders in April last year. Blinkets operations were temporarily disrupted in Delhi then. And even just a month ago, there was a protest by Blinket delivery partners in Delhi again against the platform's decision to shift out to a flat payout rate for their service. services. The income of delivery executives has also taken another hit because Blinket has started expanding its presence with more stores in the same areas. The idea is to facilitate faster deliveries. This strategy has reduced the distance per order to around two kilometers from

four to five kilometers, lowering riders commission per order, which means that Blinket is saving money, of course, and thus helping improve its unit economics. And then of course, there is a case of having the right mix of SKUs in its warehouses. Stay tuned to find out more. For Blinket, it was always groceries that were at the heart of the business. But once it began running the quick commerce race, it very quickly realized that it needed to cater to people's sudden cravings, like ice creams and chocolates and whatnot. So we spoke to Nickel Chowell's. So we spoke to Nickel Chowell a research analyst at Nubama Institutional Equities. And he told us how grocery is a low-hanging fruit.

So after the pivot from growers, Blinket expanded on groceries in its catalog. And it also topped that up with new categories like beauty and personal care, electronics, etc. This helped increase the average order value as well as the margins. Under Zumato, Blinket has really doubled down on this strategy. Right now, more than half of the SKUs or items in a typical dog store are personal care products and packaged foods. The other thing that Blinket has done is also to make sure that there are repeat orders. And for that, they need to make sure that they strike the right balance between these craving-induced orders and essentials like fruits and vegetables. And for that, they need to make sure that the quality of these essentials is premium level.

Plus, customers often tend to abandon the cart if they do not find that one particular item. For example, Maggie Noodles. So they make sure that they maintain a large, diverse catalog. So as the quick commerce business evolves and grows, it is all about who pays attention to how much detail. Blinket has certainly figured this out to quite an extent. So much so that Zomato believes that Blinket is going to grow bigger than the food delivery business within three to five years.

Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website.

Today's episode was hosted by Snigda Sharma and edited by Rajiv Siyah.