On Thursday, popular restaurant discovery Zomato announced its plans to launch a food delivery service in India, which will bring it in direct competition with the dominant player of the space, Foodpanda.
We have long predicted that the services would go head to head eventually, despite repeated statements from Zomato to the contrary. In fact, as recently as January, Zomato co-founder and COO Pankaj Chaddah dismissed the idea, choosing to talk instead about real time table bookings.
So why the sudden change in heart? Zomato CEO Deepinder Goyal insists the decision is not sudden, and definitely not a reaction to Foodpanda's acquisition of JustEat, which was announced last week. Foodpanda also owns TastyKhana, which makes it the largest food delivery platform in India at the present moment.
Zomato's move into the space is a big change for a company that repeatedly stated that deliveries weren't possible in India. What's particularly telling is the change in position from a blog post wrote a few years ago. Almost exactly three years ago, here's what Chaddah said stood in the way of ordering online:
All sort of customisations are removed from the universe of cooking. I am talking about the preferences of 'having it our way' - extra salt, more or less spicy, extra onions on the side, extra green chutney and what not!
The mouse pointer that clicks on menu items in an online menu is treated to be as authentic as a real voice over the phone which persuasively says: "bhaiya please jaldi bhej dena!" (It would be great if you could send the food really quickly!). This is perhaps as good as removing everything human from the entire concept of food!
This is something that Goyal reiterated to us last year. Needless to saw, we wanted to know what was different about things now.
"The sector was extremely unorganised, which has changed drastically in the recent past," Goyal explained in an email interview. "The restaurant community today is a lot more cognisant of customer needs and they will not risk losing brand equity for any short-term gains."
Goyal says the move is another step towards making Zomato the ultimate destinations for all things food.
Building a platform
"With this feature we are moving closer to integrating everything on one platform - right from online food ordering, restaurant discovery and table bookings, to Uber-like in-app cashless payments," writes Goyal. "We are functioning as just the tech interface here, which means - a restaurant has to manually accept each order from a Zomato user before it is processed. That's opposed to simply passing confirmed orders from users over to restaurants as other services do."
Some restaurants are already using bespoke applications and in-house tablets to automate parts of the ordering process - what Goyal seems to be suggesting here is that Zomato wants to take over that role, and become a singular platform for discovery, table booking, in-restaurant ordering, deliveries, as well as payments.
Of these, table booking is coming soon as per Chaddah, and delivery, as we head on Thursday, is coming in March. While discovery remains central to the Zomato experience, the company recently rolled out payments in Dubai, and this could soon make an appearance in India.
"Recently, RBI declared that they are mulling over the process of removing the two-step verification procedure for 'smaller transactions'," writes Goyal. "If the OTP or password is removed then this question will become irrelevant and our international workflow will be applicable in India as well."
(Also see: Two-Factor Authentication Is a Bother - Can It Get Better?)
The only remaining part of the puzzle then is in-restaurant ordering. But that, perhaps, is problem for another time. Today, Zomato's real advantage lies in its feet on the ground approach to business. As Goyal puts it: "On the merchant end our biggest advantage compared to any of our competitors is that we have a large sales force that meets with restaurant owners regularly educating them about our product and the benefits that come with being on Zomato. We also have a lot of clients on board so ramping up this business is going to be much faster than any of the other player outside of Zomato."
The panda in the room
Until Zomato's announcement, the race to be number one in food delivery in India looked fairly one-sided as the Rocket Internet-funded Foodpanda acquired all major competitors. As Foodpanda CEO Rohit Chadda said to us at the time: "We like to be number one in every market."
With Zomato's almost inevitable entry into the space, however, that Foodpanda's dominance doesn't look like a foregone conclusion. Especially since Goyal believes Zomato will offer enough to differentiate itself from the current players.
"We are not entering the food delivery space per se, but are facilitating the process of online ordering as a tech platform," writes Goyal. "The logistics of the delivery is still handled by the restaurants. We have been consistently working on creating a seamless dining experience for our users and think this is one more step in the direction of bridging the communication gap between restaurant owners and consumers."
Considering that the restaurants carry out deliveries even on competing platforms, this seems like an exercise in semantics. But Goyal insists the company will be able to do things differently thanks to the reputation it has built for itself.
"The other thing is that the brand value of Zomato and the traffic that we bring to all these businesses has also gone up," he adds. "We are at the heavier end of bargaining scale, so merchants cannot afford to not service our customers well."
This is a philosophy that is also reflected in the company's plans for monetisation. The commission Zomato will charge the restaurants for orders processed via its platform will vary depending upon the customer's feedback. So, if the customer gives a restaurant the highest rating, Zomato will receive 7 percent commission, and if he or she gives the lowest rating, the restaurant has to pay 15 percent. Goyal explained that customers will have to provide ratings for each delivery - if they don't, they will be prompted to do so before placing their next order.
While Foodpanda has deep pockets, Zomato is also well funded. Just a few months ago, it raised $60 million (approximately Rs. 370 crore) at a reported valuation of $660 million (approximately 4,100 crore). The company has been growing steadily, using its funds to acquire leading food discovery business around the world. With 2015 a year where the company aims to consolidate its position in the markets it's already present, competing with Foodpanda in India, and possibly other markets, will no doubt be one of its biggest challenges.
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