Zomato Infrastructure Services -Will it click?

Zomato’s founder, Deepinder Goyal posted a blog a few days back about an exciting new concept of cloud kitchens(which were already in the cloud, so to speak), and gave the first sign of a shower. Zomato has of late had to cut back severely on its international expansion plans after having started out on an ambitious note. It also saw a valuation downgrade by HSBC in May 2016. In this uncertain environment where many restaurant aggregators are shutting down, Zomato as one of the pioneers was facing a lot of pressure to innovate and stay in business, and profitably at that. Which is why Zomato Infrastructure Services must be seen as a ground-breaking concept, which as the blog itself has pointed out, may or may not work. But I strongly feel it is a step in the right direction, having the potential to address many gaps in the current food delivery ecosystem.

To me, always customers come first. So then, what is in it for the customer?

  • Quoting from the blog, “That’s the fun and most exciting part. The “front of the house” in these kitchens will be common. As a user, you will be able to select dishes from multiple brands to build a single food order. So if you want to eat shawarma, and your friends want to eat pizza, that can be done in a single order.”
    • Now isn’t that exciting? As per the current ordering system online, no site (Swiggy or Zomato or foodpanda) offer this feature. Is it so much of a necessary feature? Absolutely. So many times, we have had the need to order items from different restaurants but can’t do that through a single order. If you add 3 items from one restaurant to your cart, and then try to select a dish from another restaurant, you’ll have to forgo your original cart. Why not provide the feasibility to combine orders from multiple restaurants into one order? This is precisely what Zomato is achieving for the customer. If the model ultimately works, Zomato would strategically bunch together restaurants that often go together. Pizza from Domino’s and Ice cream from Corner House. Isn’t that a delight?
    • Can they not do it today without the concept of a Zomato kitchen? After all, it’s just an order we’re talking about. How complex could it be? Well, it is not simple for sure. First of all, it is a logistics nightmare in combining two or more restaurants into one order, especially when they are not in the same locality. Even if they manage to do it, there will be absolutely no control over the individual kitchens so as to deliver the order on time. With limited resources, implementing multiple-restaurants-in-one-order is not a viable solution. Zomato Kitchen will possibly solve the issue of control over the restaurants and faster pickup for a delivery executive, but the order accounting problem has to be addressed over time. There will be a major impact on the accounting entries as well as terms of agreement Zomato has with its partners. If there is a cockroach found in one of the items in the order, who is liable?
  • For a customer, it is definitely a value-add, but will it be a value-add that is worth the costs associated? I, for one, believe it is. It is a natural need for many, and a manufactured need for others, who will use the feature at least once, even if it is at a premium. It is a unique feature that could give it a valuable edge over its competitors, as long as they don’t mimic the model themselves. If implemented and advertised well, at least 20% of the orders made online could be from clubbing two or more restaurants.

What is in it for the restaurateurs and new food business owners?

  • A quicker go-to-market option at minimal cost – Imagine the benefits for already successful restaurants who haven’t been able to expand to further locations due to infrastructure and cash constraints. ZIS offers a seamless way of building up quickly in a new location and reaching new customers they didn’t have access to earlier. There is however the perennial commission Zomato would take as a cut off their revenues for all orders delivered from the kitchen. Hence ZIS might have the intention of slyly retaining its partners on the Zomato platform alone exclusively, though the blog states the restaurants are free to list on competitors like Swiggy.

Major considerations for Zomato –

  • Analytics efforts to identify key areas that are under-supplied but have great demand. There are so many residential pockets that lack access to good restaurants, and by opening up kitchens in such localities, they could basically bring food faster to people who have been deprived of good quality cuisines.
  • How they will display and promote kitchens on their App/Site. Will there be dual treatment for kitchens and regular restaurants? Would it be possible to combine food from two non-ZomatoKitchen restaurants? Expanding that question, would it be possible to combine food from restaurants in two different Zomato Kitchens? Optimal clubbing of restaurants into one kitchen will be the biggest challenge.
  • Maintaining safety standards in these Zomato Kitchens. By signing up to provide cooking equipment, building space, software services, etc, Zomato is bringing upon itself many more areas of risk earlier not in its purview.
  • Ensuring there is enough order volume for restaurants signing up for the kitchens to make it a profitable investment, both for the restaurants and for themselves.
  • Each city has its own problems. By launching a pilot in only one city, they are not going to be able to gauge the issues faced in each city. If possible, parallel pilots can take place in at least 2-3 big cities to get a better idea of whether the model can work. Going by just one location in Dwarka, Delhi could provide misleading results.

All said and done, ZIS is very much an inspired vision. Implementation will define its success. Much like demonetization. Hope they put a lot more thought into the planning than what our government did.

Will this idea work?

This is the question on most startup founders’ minds both before launch and after. I have created this blog with the idea of analyzing important moves made by big (or up and coming) startups in India.

Disclaimer: All opinions posted here are solely of the author, and are in no way associated with the company I work in.