Hyperlocal delivery and online food ordering — two sectors in India’s startup ecosystem which saw a massive capital flush and are now seeing an equally accelerating decline. The latest to add on that list is none other than the unicorn in the latter category itself — Zomato.
The reason ? Exactly what Grofers had pointed out a few days ago. Smaller cities, where Zomato is closing in — Lucknow, Kochi, Indore, and Coimbatore — are not brining in significant order volumes, thus becoming massively capital extensive for the currently cash-strapped startups in this segment.
Despite Zomato’s recent marketing efforts, including television ads, it didn’t see a significant increase in the order volumes in these few cities. These smaller cities are not yet entirely ready for the online food ordering business, but once they are, Zomato will reconsider its strategy.
The combined order volume in these 4 cities accounted for less than 2% of Zomato’s total order volumes. Overall, Zomato’s online order volume is growing at a healthy 40% month-on-month. The Gurgaon-based upstart also claims, that less than 5% of its orders are discounted, making it one of the few tech startups to not use negative gross margins to grow the business.
Pankaj Chaddah, Co-Founder, Zomato, who is leading the online ordering business for Zomato said
We are shutting down the ordering business in Lucknow, Kochi, Indore, and Coimbatore. The size of the market is in these cities is small right now and is growing with time. We will re-launch when the time is right. In the meanwhile, we will continue to offer the best content (including scanned menus) to ensure that foodies are able to find and order great food.
While all this — closing down business due to smaller margins — is logical, it does make one wonder as to where is the pre-launch market research here ? I mean, these cities didn’t just suddenly become lower order volume ones — a bit of pre-launch research could have done a great deal of work for these companies, isn’t it ?
Also, the cities in question here are not really “smaller cities”, at least economically. Indore’s GDP for example, is close to $150 Billion, making it India’s 15th biggest metro. Lucknow’s is a staggering $100 Billion plus, clearly highlighting the fact that these cities are big economic and industrial hubs within their respective states.
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