We're not looking to expand to more cities in the short term: Zomato Hyperpure head

One is how frequently restaurants buy from us, what we call regularity, which makes them stickier partners for us, and also gives us more predictability about the supply chain. About 70-75 percent of our business comes from regular customers now, compared to around 60 percent last year. That improvement has helped us a lot.

The other two are obvious ones: the number of customers and the basket share that we have with each customer.

When Hyperpure launched in 2019, Zomato had said that it would enter 18 cities but that has not happened. What have been the challenges?

We were in six cities when I took charge last year. Now we are in 10 cities. In the big cities, we operate from a large warehouse. But that might not work in smaller cities as the fixed cost of opening a warehouse may not compensate for the business that we create. So we need to figure out what the right operating model in the smaller cities is.

Having said that, I consciously feel that in the largest cities itself, we are at very early stages of overall penetration. And it doesn’t make sense right now to spread ourselves thin. And hence, a lot of focus has been on fixing the basics in the existing cities. From an overall perspective, we are perhaps at 1-3 percent of where we can be in the current cities. There’s a lot more headroom for growth. In the short term, we're not looking to expand a lot more to newer cities. But we are looking a lot more in terms of penetrating the existing cities better.

What can be some of the operational models to cover smaller cities?

One option may be to deliver orders without routing them through a warehouse. That would need us to figure out which of the 4,000-odd SKUs (stock-keeping units) should be done from the warehouse and which don’t need to be.

We are also trying to figure out how to service a small city as a spoke while keeping the warehouse in a large city as a hub. If we can do that, it may be possible to service Baroda from Ahmedabad, or Jaipur from Delhi.

What’s the nature of the integration between Hyperpure and Blinkit (Zomato acquired instant delivery service Blinkit in an all-stock deal earlier this year)? Can Blinkit dark stores be used as the spokes?

No. Blinkit sellers are serviced from Hyperpure warehouses. As the Blinkit sellers buy the same set of products regularly, there is a mechanism to predict demand and let our system know of the requirements through APIs (application programming interfaces).

Experts say that it will be very hard for an online B2B grocery business to compete with local vendors on cost. For example, they are not bound by compliances and can load up any amount of stuff from the mandis for a single delivery. 

Customers realise that at times they might be paying a premium for Hyperpure. However, they have also understood that the cost of ownership of that material is ultimately less when they use our service.

Let me explain this with an example. A lot of the onions that restaurants buy often have two centres. This kind of multi-core onions lowers the yield by around 15 percent or more in bulk purchases. But as I have a sorting and grading facility, my ability to give consistent quality and yield is much better.

Last year, some restaurants were complaining that Hyperpure orders didn't arrive on time, hence they only made purchases like oil and butter ahead of time but could not rely on an overnight service for vegetables and meat. 

You must have that chat with the restaurants once again. Today, close to 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 are next-day deliveries now, which means that you can place an order at 11 pm in the night, and it will get delivered to you the next morning at 6 am.

Are perishables a significant part of Hyperpure’s business now?

Perishables like vegetables and poultry are now more than 50 percent of our overall business and that has actually helped improve the regularity of purchases. When you are just buying one-off items, you are largely price-hunting across platforms and vendors.

If you are used to a certain quality in perishables, then it is very hard to shift to another vendor. It is difficult to find the right price-quality equation as these are not branded products. We have also focused a lot on perishables as a category in terms of the kind of teams that we have built across meats, seafood, vegetables and our teams are a lot more localised.

One of your focus segments is small and mid-sized food chains that want to cut spends on their internal grocery procurement teams. How big is that segment?

It’s hard to share an exact number, but these are generally the popular restaurants at the city level. They would typically have anywhere between 5 and 15 outlets and have a basket size ranging from Rs 30 lakh per month to Rs 1-2 crore. That’s the sweet spot.

In one of the company blogs, Zomato said that 20 percent of the food cost of a restaurant is due to groceries but restaurants say it can be as high as 40 percent. Is there a part of the basket that you are not considering?

The number may vary widely from restaurant to restaurant. But it’s closer to 30 percent, generally. While 20 percent may be true for a fine-dining restaurant, it would be much closer to 40 percent for a low-cost eatery that is operating on very thin margins.

What kind of share of the basket of your customers do you command?

It is not very high right now. There are two types of regular customers — those who may buy 50-55 percent of their supplies from us and those who are at 10-20 percent levels. See, restaurants also need to build a certain amount of redundancy in their business, especially the larger ones. The smaller ones are happy to rely on a few vendors.

I think we are still in a very early stage. There are categories that we have not yet solved for which gives us a lot of scope 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 revenues. Three-quarters come from medium chains and retail clients. There’s a huge headroom for growth with large chains also. We were not focusing so much on them earlier as you need to become a certain size and have certain capabilities before they take notice. That is happening now. We work with almost all the well-known guys out there.