On August 21, Zomato announced it was buying Paytm Insider for Rs 2,048 crore (around $244 million) in cash. The entertainment ticketing business will eventually be housed under District, a separate and third app from Zomato’s stable. With each new business vertical, Zomato’s Deepinder Goyal has launched a new app, a move that is at odds with rival Swiggy’s move to house all offerings under a single app.
“Which is the right approach is anybody’s guess but Zomato and Swiggy are clearly taking different approaches. While Deepinder (Zomato) is building super brands with Zomato, Blinkit and now District, Swiggy is focussed on a superapp-like play which is more of a one-stop shop for all their consumer needs,” an industry expert said.
Zomato does not want to “throw multiple things at the same set of customers” but Swiggy has other plans. “Think of the Swiggy app as a supermarket. During the trip from an aisle to the billing counter, there are many other products that a user ends up adding to cart, which Swiggy understands and leverages. So for the company to cross-sell quick commerce to food delivery customers is easier. Zomato and Blinkit have to work harder to cross-sell services,” he added.
Trial and error
In the past, Zomato has tested having all verticals in one app but has not seen desired results. In 2022, when Zomato acquired quick commerce company Blinkit, it was a separate tab on the main Zomato app but that was eventually phased out and Blinkit was spun off into a standalone app.
Even now, Zomato’s event ticketing business is just a separate tab on the main app but once District goes live – the offering will move from the main app.
“Zomato saw that the Blinkit integration wasn’t working like it should have and that’s why it was spun off – the same is the case with District. The company probably saw data that didn’t support the move to have all offerings under one single app,” a former employee and designer at the Gurugram-based company said.
Taking on BookMyShow
The decision to have two separate apps stems from Goyal's strategy to associate each brand with a specific offering and compete directly with the incumbents.
“Right now, when one thinks of movie tickets, or wants to book passes for Coldplay or Bryan Adams, they think of only BookMyShow. Deepinder wants to break that mindset. And he cannot do it with the Zomato brand name, he knows there has to be a separate brand. Zomato is only synonymous with food delivery and is overlooked for anything else because of the customer psyche,” the former employee added.
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Going after the largest player in the space is understandable. The organised live events segment is buzzing and grew 20 percent last year to reach Rs 8,800 crore in revenue, surpassing its pre-COVID levels, according to a FICCI and Ernst & Young (E&Y) 2024 report. This comes after the sector saw its revenue nosedive to Rs 2,700 crore in 2020 due to COVID-related challenges from Rs 8,300 crore in the previous year.
BookMyShow currently has an edge in the entertainment ticketing business with a ticketing revenue base of Rs 800 crore in FY24, which makes up 70 percent of the total company's revenue of around Rs 1,050 crore. The remaining revenue comes from live events, as per Karan Taurani, senior vice-president Elara Capital.
Similarly, Zomato’s going-out business, which is currently at an annualised run rate of Rs 400 crore, will move up by 75 percent to Rs 700 crore post the acquisition of Paytm's entertainment and ticketing business.
“Building a one stop destination app for going-out could be a game changer for each of these use cases, and we intend to do exactly that with our new District (by Zomato) app. If we execute this well, we see going-out becoming the third largest B2C business emerging out of Zomato (after food delivery and quick commerce),” Zomato co-founder and CEO Deepinder Goyal said in a stock exchange filing.
The risks
While people in India, especially the ones Zomato and Swiggy are targeting, do not mind downloading different apps for each use case, the Zomato-Paytm deal has risks involved.
Analysts at Nomura said smooth integration of the acquired businesses into the new District app is a risk. “Unlike Blinkit acquisition, where the founder Albinder Dhindsa and his team were well known to Zomato management, as they were ex-employees of Zomato, here the acquired team, of 280 people, is completely unknown,” Nomura said in its note on August 21.
Zomato will also burn cash initially to incentivise the users to migrate from Paytm’s app to Zomato and District apps, the note added while underscoring another risk.
On a sum of the parts (SOTP) basis, District would hardly move the needle as of now, as per analysts at Motilal Oswal. “However, Zomato’s vision of creating strong brands across food delivery, grocery, and going-out could make it a formidable platform that could command a high wallet share from urban consumers,” they added.
While analysts said no strategy is good or bad or drives better results than the other, Zomato’s financial performance is testament to its successful experiments.
The Gurugram-based company has reported five consecutive quarters of net profits now whereas Swiggy logged an operating loss of over Rs 1,000 crore in the first nine months of FY24. Even on the valuation front, Swiggy will likely IPO at a valuation of around $10-13 billion, and Zomato is already at market capitalisation of $27.5 billion.
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