Welcome to Bengaluru, a destination for farmers eager to sell their produce to food-tech major Zomato, which is making an audacious bid to transform itself into a farm-to-fork company with HyperPure. A supplies platform for restaurants, HyperPure sells practically everything that a hotel needs: from vegetables and fruit, poultry, groceries and spices to dairy beverages and even eco-friendly packaging.
The goods are procured directly from the source. Vegetables, for instance, are sourced from small independent farmers and FPOs (farmer producer organizations) that don’t use pesticides. Poultry is procured from farms that ensure that the chicken is antibiotic-residue-free. Big-ticket grocery items come directly from the big consumer companies. To ensure that quality standards are adhered to, Zomato has roped in Equinox Labs, an independent food-quality auditing firm, with the mandate to regularly test samples.
“We are trying to transform Zomato into a foods company, much on the lines of a farm-to-fork model,” says Deepinder Goyal, cofounder of Zomato, which started in 2008 as a food discovery and ratings platform. The intent, he lets on, is not only to supply “clean” and “fresh” produce to the restaurants but also to make a strong business proposition out of it.
Goyal explains how. What HyperPure sells to merchants, he stresses, is not just antibiotic-residue-free poultry, pesticide-free vegetables and high-quality groceries but also the proposition that the restaurants get certified on Zomato’s Web page for using such ingredients. “Consumers will buy food for the sticker that assures high quality and safety,” he reckons, adding that it’s a win-win for restaurants and consumers.
The Gurugram-headquartered company is betting big on the high level of awareness among Indians about abuse of antibiotics by poultry producers. Early this year, the Centre for Science & Environment (CSE) reiterated that antibiotic use in the poultry sector is rampant in India. “They [producers] are even using lifesaving drugs like colistin to fatten chicken. There seems to be no genuine attempt by the industry to reduce antibiotic misuse,” Chandra Bhushan, deputy director general at CSE, reportedly said.
“Look at Sysco,” says Goyal, dishing out an example he would love to emulate. The world’s biggest distributor of food and related products such as fresh and frozen meat, fruits, vegetables, dairy, beverages and paper products, Sysco clocked sales of $59 billion and a gross profit of $11.1 billion in the fiscal year ended June 2018 by selling to restaurants and other business establishments. “The opportunity on the supply side of the food business is massive,” he asserts, adding that HyperPure is a perfect mix of B2B and B2C.
What gives Goyal the confidence is the demand experienced during the first month of the pilot rolled out in August this year. With 300 restaurants on board, HyperPure managed an order book of $5 million a month but ran out of farms within two weeks. The company had to stop supply temporarily as it couldn’t meet the demand. “It’s a flywheel. Demand pushes the supply, which in turn creates demand,” Goyal smiles.
Zomato is trying to fix the supply side by reaching out to farmers and guaranteeing them that it will buy their produce if it’s clean. A lot of farmers, Goyal reckons, are ethical. Financial pressure and lack of predictability of demand force them to go lax on quality. “Nobody wants to produce bad stuff. People do it because they have to, not because they want to,” he argues. Taking care of the demand side fixes a large part of the problem.
What might also be a comforting factor for Goyal is the American trend of spending more on restaurants than on groceries. Restaurants are fast becoming the preferred choice for people to get their three meals a day. “It has been happening in the U.S. I don’t see why it can’t happen in India,” Goyal maintains.
In a December 2017 report titled “What’s Cooking With Indian Diners,” Nielsen maintained that affluent Indians–those with an annual income of over 1 million rupees –spend approximately twice as much as their middle-class counterparts on eating out every year. Millennials in the middle-income segment–earning between 300,000 rupees and $1 million rupees per annum–spend 10% of their total food expenditure on eating out. “On an average, urban Indians spend 6,500 rupees per year on eating out,” the report pointed out.
Eating out is complemented by a heady rise of another trend: food delivery. Those who are not stepping out are eating at home, but not a home-cooked meal. The food delivery market in India is likely to grow sevenfold in seven years–from $1 billion in 2018 to $7 billion by fiscal year 2025, according to an August report by Goldman Sachs. What’s fueling the growth are convenience, ease of ordering, live tracking of delivery, increasing penetration of smartphones and the growing number of working women in India. “The online food market can grow to 100 million orders per month in FY23,” projects the report.
The changing dynamics of food delivery and eating out are reflected in the way Ant Financial-backed Zomato has been growing over the last three years. Delivery, which made up just 4% of revenue in FY16, surged to 65% by the end of September this year and is pegged to be the biggest growth driver for Zomato; it’s expected to climb to 72% by FY21.
The surge has put the food-tech company on a hypergrowth trajectory. While consolidated revenue jumped from $26 million in FY16 to $66.5 million two years later, losses have dipped from $84.2 million to $15.1 million. “We forecast Zomato revenues to grow by 500% in three years,” Goldman Sachs predicted in its report.
The pace of growth has only gathered steam this year. From being present across 15 cities for food delivery this January, Zomato expanded its reach to 38 cities by September. The target is 100 cities by the end of November. A fleet of 5,400 delivery riders in January swelled to 74,000 riders by September. The strength of restaurant delivering partners almost doubled from 28,000 to 54,000 during the same period.
Back in Bengaluru, Dhruv Sawhney is busy signing on restaurants for Zomato’s new venture. The head of procurement and sourcing operations for HyperPure, Sawhney was the founder of WOTO. “Sourcing is an operational nightmare for restaurants,” he points out. From inconsistency in quantity and quality of ingredients to unreliability in delivery of the products to wastage and pilferage, operational challenges–which are not even related to cooking–take up most of the time of restaurants. HyperPure, he claims, has been streamlining the supply chain by getting everything under one shop. “We even forecast demand for restaurants using machine learning. This eliminates the need for overstocking,” Sawhney says.
Lokesh Krishnan agrees. Owner of the online-delivery biryani brand Potful, Krishnan is one of the first clients of HyperPure. “It’s convenient. Everything that we need is available on one platform,” he says, listing out other benefits: insulation from price fluctuation, ample choice in terms of assortment of chicken and predictability of demand.
Sourcing, reckon food experts, is a massive opportunity yet to be tapped by any organized player in India. “It’s a timely move by Zomato,” says celebrity chef-cum-entrepreneur Sanjeev Kapoor, “which will help it differentiate from others.” Though sourcing of food and ingredients for restaurants is a big business globally, in India it is still at a nascent stage. “HyperPure is the best way Zomato has spent money so far,” he says.
The challenges for Zomato, though, are daunting and manifold. Kapoor starts with the biggest one. “The business itself is the biggest challenge,” he says. The complexity of the task is huge, it’s not a business that Zomato has any experience in, and there is no guarantee that leveraging its existing strength of food discovery and delivery will work in food sourcing as well. “It’s not easy for somebody who has been selling biscuits to a shop to go and tell them that you will now also supply milk, vegetables, rice and groceries,” he cautions.
Operational issues notwithstanding, what might turn out to be the biggest challenge for Zomato is the threat from archrival Swiggy. Zomato is locked in an intense battle for supremacy with the Naspers-backed food-delivery company headquartered in Bengaluru. With over 45,000 restaurant delivery partners, 100,000 active riders across 45 cities and over $465 million funding raised so far, Swiggy has been breathing down Zomato’s neck.
What makes the fight interesting is the pace at which Swiggy is growing, from an operating revenue of $19 million last fiscal to $63 million in the March-ended 2018 fiscal–a threefold jump. Though losses, too, have almost doubled, it’s not something that Swiggy needs to worry about. Reason: The backing of South African media conglomerate Naspers, which has a 22% stake in Swiggy, as of March.
Back in Gurugram, the competition doesn’t appear to be on Goyal’s radar. “We would rather focus on our work than think of what rivals are doing,” he says, as he takes a sip from a glass of fresh tomato juice and points to a poster plastered on one of the walls of his corporate headquarters. “July 10, 2008. We were born. July 10, 2013. We started walking. July 10, 2018. Now is when we start running,” it reads. “It’s time to put on the running shoes,” Goyal signs off. – Rajiv Singh (Forbes Asia)