Zomato - Should you order?

Zomato is a professionally managed company and nobody has been classified as promoter. Therefore, almost all shares are Listed as public category.

Same is the case with icici and hdfc bank.

2 Likes

Another case file of Zomato “Shenanigans”.

Disc: Not invested and always stay away from such mgmts.

There is no fraud here, listing price is determined by individual restaurants, not Zomato. They are adding on the commission charged to them by Zomato. Another add on is 18% GST Vs. 5% if you dine in at the restaurant, as discussed in this same thread a few months ago.

But I agree the price differential has become too huge for customers to ignore. I recently visited a newly opened Burger King outlet near my house. A meal combo for two (2 Veg Whopper + 1 Cheesy Fries + 2 Pepsi + 2 Chocolate Mousse Cake) cost Rs. 540. As I was having my meal, I casually checked what it would have cost to order the same on my Swiggy app, and to my surprise the final amount was coming to around Rs.900. At such a large differential, customers are bound to retaliate. I think Swiggy / Zomato are stuck between restaurants / delivery partners / customers all three of them having conflicting objectives. Difficult to see how they will be able to satisfy all of them, to achieve a “steady state” profitable business in the long run.

19 Likes

Agree, the differential is obscene at times.

On that note, this interview with the ONDC CEO is instructive in my opinion. He talks about disruption of food delivery apps. I think lowest hanging fruit for ONDC may be food delivery ahead of e-commerce.

Investors need to analyse potential impact of ONDC rollout on Swiggy/Zomato. I have not yet reached a conclusion, but ONDC disruption is now part of the realm of possibilities I consider when I try to value Zomato/Swiggy.

4 Likes

Important writeup by Debashis Basu on Start up shenanigans, valuations and Zomato

4 Likes

Please help to answer the question.
why there is so much hype for zomato one year lock-in period. is this applicable for all companies?
is there a website which tracks this lock-in end date and percentage of shares which are locked (like 50% of total outstanding shares), looks like this is exactly one year after listing date.

There you go…VC Investors were given a 1 year vesting period before selling their shares so as to not make spoilsport of the IPO

7 Likes

Thank you @StonePitbull this is super helpful. just to summarize

  1. For anchor investors who buys in the IPO which is just one day before it opens for general subscription - lock-in 30 days (which is now 90 days i believe)

  2. For VC’s or the promoter: lock-in period is one year.

As per some articles, it is mentioned that one year period is applicable for companies which does not have an identified promoter. I believe it should be applicable for promoter held entities as well ?

3 Likes

Aswath Damodaran’s latest update on Zomato fair value - A 2022 Zomato Update: Price, Value and the Gap! - YouTube

6 Likes

If I did not misunderstood then all pre-ipo shares will have 1 year lockin period from listing date (w/ few exception) and it does not depend on without or with promoter… This is to save retail so ppl do not come with ipo and offload their stake in short time.

Thanks!

2 Likes
1 Like

Must say I was tempted a little to begin exposure to Zomato in recent plunge but still could not convince myself even after the crash …
The strategy is not clear and decisions too aggressive for my comfort like recent acquisition…

Add to that, the constant news flow where we read that either partner restaurants or delivery agents are not happy or at receiving ends plus no serious player with scale wants to partner with them…either they want to develop their own delivery ecosystem or partner with more economical pure delivery people/companies…

In such case, honestly I do not understand the moat or runway or leadership benefits which other experts see…still on lookout…

Disc. Above thoughts only for academic purposes and I can be wrong in all my assessments.

6 Likes

When I come across the business mode of Zomato (& Swiggy), I considered it as a type of business like e-commerce - Amazon & Flipkart. Ecommerce companies provide convenience (home delivery) & cost advantage (discount). Their growth may have been limited if they only offered convenience. Home delivery is cost-saving for consumers and they may have grown even if they have offered free or minimum home delivery charges. E.g. I used amazon to order my ccl coffee and girnar green tea. Am getting it at MRP (No discount) but am not charged for delivery hence am saving on transportation (girnar and ccl are not available at nearby Kirana). They have grown multifold as they created an ecosystem where they offered both convenience and cost advantage. Amazon and Flip did a great job.

On the other side, Z & S as a business model did a poor job. They may have offered a discount to consumers as a restaurant is saving by delivery vs Dine-in. The same discount is used to offset full or some delivery costs. Take an example of Restaurant A X km from home.
A. I can go there, order and take delivery which cost me say Rs. 50-100 of transportation & 30 mins of my time. May save time if I order them on phone and get delivery.
B. Restaurants provide delivery, which may cost them manpower and transportation.
C. Z delivers – As they use manpower efficiently it cost them lower than options 1 & 2 and they got the negotiation power to offer discounts to consumers or offset the delivery cost to consumers.

Hence naturally business model is beneficial to Z & S. But the same is not the case practically. I come across specialised paratha chain which offers their item at Rs. 200. In general 2 families of 8 needs 4 items; cost Rs. 800. The same item is offered by zomato at Rs. 300 (Price is fixed by Restaurant); hence it may cost Rs. 1200. Rs. 400 additional is no way most of us are happy to shed.

I will invest in Z if they offer me the same cost as the restaurant offering in Dine-in (no discount is okay). Will be happy to pay them reasonable delivery charges which may be equivalent to the actual cost of my transportation and after that, they are breakeven at a unit economic level.

Just a random note for my investment thesis.

2 Likes

I feel that the restaurants set the price as per their assessment of demand and competition. They set the prices higher when they are confident that the customer would be ready to pay more for the convenience. The restaurants are also trying to recover the commission that they pay to Zomato/Swiggy. The restaurants are direct beneficiaries of higher prices. The platforms also gain indirectly since their commission is linked to the order.

2 Likes

Did some scuttlebutt of restaurants around my place. My learning was almost all restaurants and eateries maintain two prices for the same menu. One for zomato/swiggy, one for dine-in and takeaways by customers. The zomato/swiggy prices are on an average 30% - 40% higher than customer takeaways and dine-in. Can anyone else corroborate the same with their neighbourhood restaurants / eateries?

3 Likes

Yes this is standard practice. All Zomato/Swiggy prices are much higher than restaurant dine in prices. I have found this to be true whenever I have compared Zomato prices with my neighbourhood shops dine in prices.

The delivery fee for Zomato has also lately started becoming very unreasonable. I was being charged 60 Rs for a delivery from an Udupi near my house not even 1 km away. I cancelled the order and ordered via Swiggy. If there’s an option for restaurant delivery, I often shift to that.

Waiting for Ondc to come in and disrupt these pricing practices.

5 Likes

I’m more concerned about ordering from the same house (same wifi) with two different phones. Mine vs my roomates. Prices shown to me are 20-25 rs higher in the final bill for same items.

4 Likes

I was thinking of setting up cloud kitchen for Zomato / Swiggy. But now with all these price difference (Zomato/Swiggy vs dine-in), I am doubtful whether this food delivery business is feasible at all…

2 Likes

This is the dark side of the capitalist world. Unfortunately, rarely gets highlighted in all of the glitz and glamour