Food tech platform Zomato has pulled the plug on its nascent grocery delivery service due to gaps in order fulfillment, poor customer experience and increasing competition from rivals that are promising express delivery in 15 minutes. The company said its investment in Grofers will generate better outcomes than its in-house grocery effort.
Moneycontrol has reviewed a copy of the mail that Zomato has sent to its grocery partners that it on boarded, and has reached out to the company for a response.
A Zomato spokesperson confirmed the development. "We have decided to shut down our grocery pilot and as of now, have no plans to run any other form of grocery delivery on our platform. Grofers has found high quality product market fit in 10 minute grocery and we believe our investment in the company will generate better outcomes for our shareholders than our in-house grocery effort."
The mail, sent on September 11, 2021, by Zomato to its grocery partners said it intends to stop its pilot grocery delivery service effective September 17. The company had started its grocery service pilot across a few select markets. The service offered grocery delivery within 45 minutes to its customers.
Zomato had forayed into the grocery delivery service in July through a marketplace model where it enabled its customers to shop from their neighbourhood stores. Its rivals such as Swiggy, Dunzo, however, have a different model, where they set up dedicated dark stores to service grocery orders within 15-30 minutes. Grofers, in which Zomato has a 10 percent stake, also promises grocery delivery in 10 minutes.
Zomato told its grocery partners that its service had a moderate success.
"Store catalogues are very dynamic and inventory levels change frequently. This has led to gaps in order fulfillment, leading to poor customer experience"
"In the same time period, the express delivery model, with under 15 minutes delivery promise and near perfect fulfillment rates has been getting a lot of traction with customers, and is expanding rapidly. We have realised that it is it extremely difficult to pull off such a delivery promise with high fulfillment rates consistently in a marketplace model (like ours)," the note read.
The Covid-19 pandemic has turbo-charged the adoption of online grocery service by consumers who want superfast delivery – the faster the better. From 30 minutes to 15 minutes to even 10 minutes- the likes of Swiggy, Dunzo and Grofers are pushing the limits when it comes to delivering groceries at customers' doorstep in record time. As per a recent survey by Reedseer, quick commerce is expected to grow 10-15-fold in the next five years to become a $5-billion opportunity by 2025.
Besides, over the past couple of years, the online grocery companies have matured and have set up better supply chains and smarter hub locations. They are heavily focusing on deep tech to understand consumer preferences better.
However, this is not Zomato's first attempt to dabble in the grocery business. Last year, when the food ordering was impacted due to the pandemic, Zomato had tried to experiment with groceries. However, it was quick to exit the high burn segment as its core business recovered.
With a $100-million investment in Grofers and a grocery section on its app, this was Zomato's second attempt to deliver staples and fresh fruits and vegetables to its customers besides restaurant food.
In a recent interview with Moneycontrol, Zomato's top management had said no one has figured out the right model for running online grocery in the country.
"There are so many challenges to be solved in terms of fulfillment to make sure customers get what they want. This time it is not a response to Covid but something that we believe could be an opportunity for the future. We are going to put all those learnings to use to figure out what the right answer is. The investment in Grofers is just a financial investment at this point of time for a minority stake and we will launch our own marketplace model on the app soon," they said.