Zomato Infrastructure Services :10 Reasons Why it is a bad idea

Zomato is coming up with Zomato Infrastructure Services. As the name suggests, it is Zomato’s attempt to provide physical infrastructure as well as software support for restaurants to plug and play. The idea is to encourage current restaurant owners to expand to new locations without incurring any substantial fixed cost. Zomato would use its data to identify the hotspots where the demand is high and supply is relatively scarce. Its long-term plan would be to tap tier-II and tier-III cities which have not been penetrated by its competitors like Swiggy & Foodpanda. It is also procuring the kitchen set up from recently closed down restaurants leveraging its data. The idea is to set up a food court kind of arrangement where multiple black-box kitchens, restaurants which accept only delivery orders and no pickup or dine-in, could co-exist. These entities could even decide to maintain the common pool of delivery agents.

ZIS sounds like a step in right direction. While the competitors are getting into price war and deep discounts, Zomato is trying innovative ways to acquire new customers. It has also decided to stay lean and pilot the idea in Dwarka first before going for the kill. So far so good, but the road ahead is bumpy.Here are 10 reasons why Zomato Infrastructure Services may not be a good idea-

1) We order food from the restaurants we have seen
I order food only from the restaurant that I have been to. With the advent of aggregators like Foodpanda, Zomato, Swiggy etc, you can reach out to almost all the restaurants around you. While restaurant discovery has become easier, you also run the risk of ordering food from one of those shady restaurants which are unhygienic and poorly maintained. It’s only when you see the restaurant that you realize your mistake. Hence, most of the users would order food only from the places that they have visited.By setting up ‘delivery only’ restaurants, Zomato runs the risk of alienating this user base.

2) Common pool of Delivery boys would not help
This idea sounds good but the devil lies in the details. Sharing would have helped if the order peaks were spread out in time. All the restaurants witness peak during lunch and dinner time. Hence every restaurant would face scarcity and surplus of delivery boys at the same time. Common pool of delivery boys for a restaurant and grocery store would still make same. But doing it for multiple restaurants would only complicate the system.

3) Vendors might prefer one-time setup cost over lifetime commission
ZIS does not charge any fixed cost but keeps a part from all the orders. Many vendors would prefer to write off entire cost at once rather than forfeiting a part of their profit every single time. Suppose a restaurant using ZIS is listed on Swiggy. It will have to pay upto 20% to Swiggy, if now Zomato charges , say, another 20%, the restaurant would hardly be left with any buffer.

4) Higher price
Since restaurants would have to pay a certain percentage of each order, they would tend to compensate by pricing their products higher. Food, being a price sensitive market, would not favor the costlier vendor.

5) Standardization and Quality Control
It’s one thing to maintain an online platform and another to run a restaurant on the ground.If a well-established vendor, tries to expand to a remote location, it would be difficult for the vendor to maintain the same standards of quality and taste at the remote location

6) Competition from the local players
While Zomato is trying to get into new markets assuming that the market is mostly untapped, there are local players who do home delivery. It would be a tough task to cut through these local players as they do know the geography better.

7) Higher churn out rate
Food as industry witnesses a very high churn out rate. Most of the restaurants that would have opened up 6 months back would have shut shop by now. Hence ensuring good occupancy rate throughout the year would be a herculean task.

8) Uncharted territory for Zomato
Starting from a listing business, expanding to software services with Zomato base and finally diving into home delivery and table booking, Zomato was always playing on its strength, i.e, it has a good user base and vendors listed on its platform. While these would be the starting point for ZIS, there are other factors which can negate this advantage. Infrastructure and Logistics are difficult to procure and equally difficult to maintain and update. It is not impossible to tide over this challenge, but this would be the one which Zomato has never faced before.

9) Short term pilot for Vendors
With 1 month lock-in period and no fixed cost, vendors might use ZIS to pilot their idea in one location, after which, they would either completely withdraw and set up their restaurant on their own. This might lead to most of the kitchens not being optimally used.

10) Better software than Zomato Base and Zomato Trace
As per my business requirement, some software solution other than Zomato Base and Zomato Trace could fulfill my POS and tracking requirements better. While Zomato says, they are providing their software solutions for free, these would ofcourse show up in the commission charged. If Zomato makes it mandatory to use its software, it would be difficult for outlets which are used to some other software already. Even if it is optional, no one would want to pay twice for the same software.

While these are the 10 reasons why Zomato Infrastructure Service might fail, there are reasons for why it could be successful. The idea seems legit.There are threats, threats that question its longevity, But if these challenges are thought through, ZIS could be the idea which would go on to revolutionize the food industry.

  • Rahul Kumar

    Poor analysis and philosophical article.