Hello My Dear Reader. What up!?
My last post was about this blog completing a year. Thanks for all the emails, encouragement and feedback. To answer two most asked questions:
No, I am not going behind a paywall anytime soon.
Yes, the frequency will likely continue to be erratic. I try to write more regularly but it is hard to always find something to write about - with my own spin and something that hasn’t been well covered by others.
In other news, Charles is now king, Edtechs are turning teachers into sales agents and India is trying to beef up its semiconductor manufacturing chops after watching what is happening to China and Russia.
Today we are talking about food delivery cos and we’ll try to take a deeper look at intercity food delivery.
1. Rage against the Duopoly
Effectively, food delivery in India has consolidated, with only two players left in the mix - Swiggy and Zomato. Both have high commissions, one-sided contracts and abysmal customer service.
As a practical matter, if you run a restaurant and don’t work on on either platform, you might as well not exist. Swiggy and Zomato have taken over discovery, extracting huge rents for little value add.
Then, a pizza order brought this flyer to my home:
The name of the restaurant is irrelevant - but they have pretty high AOVs, (~INR 700ish). This also exposes the two key pain points of the stakeholders - high commissions (which restaurants offset by charging for packaging), and delivery charges (which these two companies take from both the users and the restaurants). Effectively, this restaurant wants to save on commissions and is offering an INR 70-100 discount up-front to get customers to move to Dotpe.
So, now, you know what happened next right - I ordered off Dotpe. Other than patchy tracking, the delivery was pretty seamless. The order cost 80% of what it costs on Swiggy / Zomato (apples to apples basis, after adjusting for the discounts).
It is also a masterclass in shrewd customer acquisition - Dotpe is acquiring users, but restaurants are driving it (and likely paying for it).
So, next time you are thinking about ordering in, call the restaurants directly. Save both yourself and the restaurant from the rent seekers.
2. The Quest for Hyderabadi Biryani
Moving on the the main programming.
In 2011, Gati sent me an email. It outlined makemygiftz.com - a service that would happily deliver Biryani and Haleem from Paradise in Hyderabad to our office in Defence Colony, New Delhi. I remember ordering 4 kgs of biryani, 2 kgs of haleem for the office. The package was eagerly awaited, with one of my bosses asking for tracking every two minutes. Between him reaching the office and the package arriving on the day of delivery, my intercom must have rung at least 70 times. The items were received in some pretty heavy duty mylar packaging and well, it made for a pretty decent lunch. The Biryani and Haleem tasted pretty good and we didn’t mind paying a lot for overnight delivery.
MakemyGiftz doesn’t exist anymore - It eventually closed down when the customer acquisition costs went crazy.
So, when Deepinder wrote a post on August 30 outlining Zomato’s intercity delivery service - I had to try it out. More on that later.
3. But why do this?
Well, I have my theories but it seems pretty clear that this service is intended to be a hype-leader. You see, Zomato reported its numbers at the beginning of August 2022. Please read it. It’s a masterclass in Spin.
Here is the meat1. Zomato's performance has been very flat over the last 4 quarters. As the Covid situation improves, people are stepping out and visiting restaurants (and not ordering in). Things can only slide from here as isolation driven ordering-in cools off.
Now, they claim Adjusted EBITDA breakeven soon but let’s be clear - the migration of and revolt by restaurants is in full swing. Inflation is not abating anytime soon, spending remains depressed and Blinkit is bleeding from the jugular. All-in-all, no one is really impressed with the performance or the shiny new toy Zomato bought. Headwinds galore.
So, in the opinion of this observer, once the Blinkit acquisition failed to abate the tough questions2 and no one was feeling warm and fuzzy, Zomato pulled out yet another rabbit from its hat and launched intercity food delivery.
Zomato is by no means the first one to offer this service. Other companies doing this include Just My Roots, Tastes2Plate, State Plate and so on.
Key challenges are - Logistics, Food Quality, Margins.
4. Biryani ki Sair (the Journey of the Biryani)
Regular readers know exactly what happened the moment the tab showed up in my zomato app - I ordered. First off, the selection is pretty meh. I could not find Rawat’s and LMB in Jaipur, or Tunday Kebabi (the Original) from Lucknow. I found some weird facsimiles like “Grandson of Tunday Kebabi” and so on. Here is a screenshot of the 4 restaurants available for Jaipur3. I mean, who wants to order Sodhani’s Pyaz Kachauri over Rawat’s?
I ordered Biryani from Pista house and Aloo-Khasta from Rattilal in Lucknow. Khasta was priced at INR 400 - (fair price of INR 120) and the Biryani at INR 569 (fair price of INR 285). OK - one can forgive the markup - since they don’t explicitly charge for delivery on this anymore but then there was an additional INR 50 of Handling and packaging charges. er, OK.
Lucknow order arrived the next day, but at 9 PM instead of 6 PM4. Hyderabad order was on time. Both times, the containers were the same as the ones restaurants normally used. There was some zomato tape and stickers, but that’s it by the way of “tamper evident seals”. Zomato claims in their blog post:
Nope. Just your regular plastic boxes (which will get reused to death anyway in any Indian household).
And as you can probably tell, the food was frozen in both instances and was much worse for it, especially the biryani. The Khastas fared better but you could tell it had gone stale because of the freezing.
The service has also had a couple of big, public misses. There was this gentleman who only got salan after ordering biryani. And then this guy who got fungus ridden sweets.
Now, there are 3 key axes of success here - Packaging (and hence, quality), logistics, and Margins. Let’s examine them with examples from the competition.
5. What does the competition do?
Packaging / Quality: If you order from JustMyRoots (JMR), one will get food cold but not frozen, they have pretty interesting packaging that keeps food at 5-7°C but not colder. Food becomes tasteless and textureless (like wet cardboard) if frozen5. They also bundle multiple items from various cities in one delivery but it’s a hit and a miss. Sometimes physics and geography can’t be beat. So if you were to order say Omit Khar from Guwahati, it will take its own sweet time coming.
Logistics: My State Plate (yes, the one from Shark Tank) maintains its own warehouses with stocks of items based on its own demand forecasting. So they will say order 200 kgs of Ratlami Sev based on their demand forecasts. Now, because of this model, they tend to deal more in items with higher shelf lives like namkeens and pickles. The key risk is the demand forecast. If it is off, they are subjected to perished inventory. It took them a LOT of trial and error to get it right. They also used MAP (Modified Atmosphere Packaging) to extend the shelf life of items like Kaju Barfi.
Margins: Upto a third of the margin is claimed by logistics and shipping. So, we don’t want bulky products. Zomato seems to be not looking to break even anytime soon. Even with the markup, Zomato will end up shelling INR 150-200 per order on logistics. Now, I get it - the hope is that high margins will come in with economies of scale but it seems like a one-off, not a regular use case. Contrast this with JMR where the food is marked up anywhere from 5-8x and then they even levy shipping charges. I read somewhere that JMR’s AOV is ~INR 1800. They also have rather small volumes - their FY21 revenues were only 2.5 Cr. Trading margins for volumes is a pretty solid business tactic, but that assumes one can get the volumes. I am a huge foodie. I am unlikely to order anything other than Pyaz Kachauri from Zomato or anyone else (or any desert travelling food, because they were developed to travel well).
6. Conclusion
After using the service, I have an unanswered question:
What is the point?
Assuming that the intercity business is a hook or a cream-on-top business, it doesn’t really attract any new customers. 9 of 10 orders on zomato are from existing users. And the customer ordering more than 4x/month from Zomato is either a new-to-the-workforce fresher (who doesn’t have the money to afford this stuff) or a foodie (who will likely not put up with the quality). Why would I order frozen reheated Pista House Biryani over what I can get from Biryani by Kilo right here in Gurgaon?
More importantly, this is not likely to be a volumes business - is the complexity and effort worth the margins? (i.e. is the juice worth the squeeze problem).
And then there is the carbon footprint of air-lifted food. Banal much?
I think Zomato needs to re-launch zomato pro plus. That will do far bigger wonders for their margins than this sleight of hand.
Here’s someone else putting the point across more emphatically:
Interesting Reads
Warren Buffet on why they don’t do excessive diligence.
Ben Thompson on AI unbundling. Very well written.
The Japanese are still sending telegrams.
Housekeeping
As always, I look forward to hearing from you. If you liked this post, pls feel free to share this or subscribe to this newsletter using the links below. I try to write a 1000-2000 word essay once every two/three weeks.
Inadvertent pun.
And in fact, raised more and more hard questions
Too tall an image for this writing format
Citing “operational constraints”. More likely the vehicle had a flat.
Freezing forces all moisture out which doesn’t go back in on reheating. has to do with water expanding on freezing.