Almost a year since Zomato opened its initial public offering (IPO), the initial excitement about the food delivery company’s shares seems to have suffered a little. A popular perception of doing the rounds is that the company’s stocks have not quite rewarded the investors.
Zomato’s shares have been in freefall, with the numbers plummeting by 23% in just 48 hours last week. At one point, the company’s shares were the worst-performing among the country’s consumer internet shares, shaving off over 71,000 crore rupees in market capitalisation.
But why have Zomato’s shares failed to match the investor's expectations? And when the numbers are recovering after the fall last week, with the stocks having jumped back by 37%, which is an existing shareholder like Uber exiting the company?
In this ETplay podcast titled ‘Is India Eating Out of Zomato's Hand?’, host Arijit Barman ponders over these questions. He is in conversation with Priyanka Sahay, Assistant Editor at ET Prime; Dhruv Dewan, co-founder at Thrive; and Kabir Suri, founder of Azure Hospitality and president of the National Restaurant Association of India.
‘FoMo’ acquisition of Blinkit:
Experts believe that Zomato’s acquisition of Blinkit was more of a ‘FoMo’ move as it wanted a share of the quick commerce pie. But so far, its entry into the craze for “10-minute delivery” did not work out well, with Zomato deciding to downgrade its investment.
Despite the initial euphoria over quick commerce, the segment does not seem to be doing well from the business perspective globally. Zomato’s acquisition of Blinkit remains a contentious and contested move, with many experts believing that the company should do more to address the concerns of investors.
Battling business challenges:
Like all other big businesses, Zomato has been battling economic challenges posed by the COVID-19 pandemic. And to tackle food inflation and escalating fuel prices, the company has readjusted costs and hiked its delivery prices. Also, despite the perception that more people are ordering food online now, recent disclosures show that Zomato’s earnings have not increased significantly.
The other big problem is that despite its best efforts to expand its footprints, Zomato remains a metro-centric company, with its revenue generated in the big eight Indian cities. That is a hurdle that the company needs to overcome to be more profitable.
Zomato’s strategies to overcome hurdles:
Many restaurant owners believe that it is a problem that Zomato does not offer them unbundled services. It means if they are to list their restaurants on the app, they have to advertise on it. They also use the platform for getting their food delivered. So, if you look at the discounts being offered, the commissions charged and the discoverability offered by Zomato, it seems that many restaurants are facing tough times due to Zomato.
Thus, Zomato is finding it tough to deal with these issues even as it faces stiff competition from rivals like Swiggy or new start-ups that are coming up. To deal with these challenges, Zomato has been focussing on organisational restructuring and making corporate disclosures around conflicts of interest involving its key management personnel. The company believes that these strategies will help it strengthen its foothold and regain the trust of investors.
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