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Zomato wants to have a bigger food value chain in India than ever before. Its food delivery service, restaurant loyalty program and B2C grocery delivery efforts are the most visible parts of the business, quietly growing for a fourth straight quarter.
To further expand its value chain, the Gurugram-based company in 2019 launched Hyperpur, a platform to deliver groceries to restaurants. Currently, the B2B platform has around 40,000 restaurants as monthly active customers. Revenue grew 199 percent year-on-year to Rs 334 crore in the September quarter, while operating loss rose 77 percent to Rs 53 crore in the quarter.
In an almost hour-long conversation with Moneycontrol, Hyperpur CEO Rakesh Ranjan spoke about the challenges of growing the business, its successes and the way forward. Edited quotes:
What are your most important growth factors?
One is how often restaurants buy from us, what we call regularity, which makes them stickier partners for us, and gives us more predictability about the supply chain. About 70-75 percent of our business now comes from regular customers, compared to around 60 percent last year. That improvement has helped us a lot.
The other two are obvious: the number of customers and the share of the basket with each customer.
Hyperpure was launched in 2010. What were the tests?
When I took charge last year, we were in six cities. We are now in 10 cities. In big cities, we operate from a large warehouse. But that may not work in small towns, as the fixed costs of opening a warehouse will not compensate for the business we generate. So we need to know what is the right operating model in small towns.
Having said that, I feel aware that in larger cities, we are generally at the entry level. And spreading ourselves thin doesn’t make sense now. And a lot of attention has been paid to fixing the basic things in the existing cities. From a general perspective, we are in the 1-3% of places we could be in our current cities. There is much more major room for growth. In the short term, we are not looking to expand much into new cities. But we are looking at existing cities more in terms of better penetration.
One option might be to deliver the order without actually transporting it in the warehouse. That means we need to know which of the 4,000 non-stock SKUs (stock-keeping units) in the warehouse need to be processed and which don’t.
We’re trying to figure out how to serve a small town as a hub while keeping a warehouse in a big city as a hub. If we can do that, it might be possible to serve Baroda from Ahmedabad or Jaipur from Delhi.
What is the nature of the merger between Hyperpure and Blinkit (earlier this year Zomato acquired express delivery service Blinkit)? Can Blinkit dark stores act as Spanish?
No. Blinkit sellers provide services from Hyperpure warehouses. Blinkit sellers have a way to predict the demand and to inform our system about the demand through an API (Application Programming Interface) that regularly buys the same set of products.
Experts say the online B2B grocery business will find it very difficult to compete on price with local suppliers. For example, you can reload any amount for a one-time delivery that is not regulated.
Customers sometimes realize they are paying a premium for Hyperpure. However, you also understand that the cost of ownership of that material is ultimately lower when you use our services.
Let me explain this with an example. Most of the onions that restaurants buy often have two cores. Bulk purchases of this type of multi-core onion can reduce yield by 15 percent or more. But as I have a sorting and grading facility, my ability to provide consistent quality and yield is much better.
Last year, some restaurants complained that Hyperpure orders didn’t arrive on time, so they bought things like oil and butter in advance, but couldn’t rely on overnight service for vegetables and meat.
You have to discuss with the restaurants again. Today, almost 90 percent of our orders are delivered on time, which was in the 60-70 percent bracket last year. The second thing is that all our orders ship next day, which means you can order at 11pm at night and it will be delivered to you at 6am the next morning.
Are perishables now a significant part of Hyperpure’s business?
Perishable items such as vegetables and poultry are now more than 50 percent of our total business and this has helped improve the regularity of purchases. When you’re only buying one-off items, you’re price-hunting across platforms and providers.
If you’re used to a certain quality in perishables, it’s hard to switch to another vendor. Since these are not brand names, it is difficult to find the right price-quality equation. We’ve put a lot of focus on perishables as a category in terms of the teams we’ve built around meat, seafood, vegetables and more.
One of your areas of focus is small and medium-sized food chains looking to reduce the costs of their internal grocery purchasing teams. How big is that room?
It’s hard to share the exact number, but these are generally the most popular restaurants in the city. They typically have between 5 and 15 outlets and have a basket size ranging from Rs 30 lakhs to Rs 1-2 lakhs per month. That’s the sweet.
In a company blog, Zomato said that 20 percent of a restaurant’s food costs are related to groceries, but restaurants can make up to 40 percent. Is there a part of the basket that you haven’t considered?
The number can vary widely from restaurant to restaurant. But overall it’s closer to 30 percent. While 20 percent may be true for a fine dining restaurant, it may be closer to 40 percent for a low-end restaurant operating on very thin margins.
What share of your customers’ baskets do you order?
It is not very high at the moment. There are two types of regular customers – those who buy 50-55 percent of their supplies from us and those who rank 10-20 percent. See, restaurants also need to build a certain amount of frequency into their business, especially the larger ones. The smaller ones are happy to rely on a few vendors.
I think we are still in the very early stages. There are categories that we haven’t yet addressed that give us ample room for basket expansion in terms of our regular customers.
Is most of your revenue driven by small and medium chains?
Large chains account for a quarter of our revenue. Three quarters of middle chains and retail customers come. There is a large front room for growth with large chains. We don’t focus on them early on because you need to be a certain size and have certain skills before they can take an ad. That is happening now. We work with almost all famous men.
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