Hi everybody zomato went ipo on 14th of july 2021 and while most of us only know zumato as a food deli startup which is losing hundreds of crows with each passing quarter very few of us know how exactly zoomite are going to become profitable but you know what guys in the past two years zomato has made some critical.
Investment that can turn it into a profitable company the best part is that the profits of this investment will be immediately visible within the next two to three years itself this strategic investment that i’m talking about is none other than zomito hyper pure which is a b2b supplier business and zomato is so keen on conquering this.
Market that they’ll be investing 372 crores into hyper pure to build giant warehouses including a 30 000 square feet warehouse in bangalore apart from that they intend to scale the business to more than 18 cities in the next few years and expect a growth of one thousand percent in the next two to three years.
The question is what exactly is tomato hyper pure why is zomatos so keen on diversifying its business and most importantly as investors into the full tech space what are the on ground challenges that you need to keep an eye on to understand the food tech wars of india this video is brought to you by wind.
Wealth but more on this at the end of the video the first thing you need to understand is how do restaurants work in the first place so here’s an oversimplified example of the same people before the food is served to you on your table the restaurant owner has to deal with a.
Complex inventory management system and based on the type of food that the restaurant serves there are hundreds of ingredients that have to be stocked up so that the chef can prepare your food now the catch over here is that not all ingredients are available with a single vendor for example if a restaurant serves indian food just to make naan and.
Paneer tikka masala you need mustard oil curd turmeric chili powder dhania powder jeera powder garam masala dry fenugreek leaves chaat masala ginger garlic paste carom seeds besan lemon and salt similarly for making chicken tikka masala you need yogurt lemon juice cumin cinnamon pepper ginger salt chicken breast skewers butter garlic pepper.
Paprika and sauces now each one of these ingredients again fall into different categories and that are grocery dairy vegetables grains fruits bread back food spices and poultry and apart from that for the other dishes you have seafoods frozen foods and beverages usually every type of these ingredients come from a different vendor and in some cases in.
Order to keep the prices low the restaurants even have two to three vendors for each category and whoever offers a lower price at that time gets the order this way the number of vendors for a single restaurant might even go up to 200 vendors now another catch over here is that in this case these middlemen or vendors of.
Different categories become an essential part of the supply chain and they cannot be bypassed why because each one of these hundred to two hundred ingredients have a different shelf life for example paneer milk might last for two to three days different seafoods have different shelf life packed foods have expired dates ranging from three months to one.
Year fruits and vegetables do not remain fresh after two to three days and so on and so forth so regardless of how big the restaurant is they cannot order these items in bulk and just store them so restaurant owners have to order items in limited quantities in clearly defined cycles according to the usage demand and.
Shelf life of an ingredient and all of this put together depending on the size and type of the restaurant the working capital for inventory alone could range between 1 lakh to 10 to 15 lakhs per month and this is where zomato hyper pure comes in with something called the farm to fork model and as the name implies.
Instead of restaurants having hundreds of vendors to source different ingredients zomata wants to become the one stop shop for restaurant to order all categories of ingredients directly from the source now as simple as this sounds it gives tomato three impeccable superpowers over the existing suppliers.
The first one is obviously the scale of zumato now when it comes to individual suppliers if a vendor makes seven to eight percent profit on a one lakh purchase since zumato places large orders it can make 12 to 15 profit in the same one lakh sale in fact as for the 2020 report hyper pure has a minimum order value of 1500 rupees with gross.
Margins of 10 to 12 percent secondly contract farming could increase zumatos profit margins for those who don’t know contract farming is an arrangement wherein a company like zumato could sign a contract with farmers for quality produce for example the company will make an advance payment to the farmers with the promise of.
Procuring 30 tons of tomatoes with a list of quality parameters now these parameters might even include the kind of pesticides the farmers are supposed to use and sometimes even the usage of a certain technology for irrigation and farming and after the harvest when the farmer delivers the produce he is paid the full amount including in advance for.
The next cycle therefore by using contract farming zomato can not just procure the produce at low cost but also make sure that the commodities are of the highest standards possible this can further increase your profits by a large extent and thirdly unlike other suppliers zomato can give the hyper pure tag to the restaurants.
That are listed in their application and especially after the pandemic they increased health and hygiene consciousness of the consumers is bound to drive more sales towards the hyper-pure partners this is the reason why in the past two years zomito has gone from supplying to just 2256 restaurants in march 2020 to 12 000.
Restaurants as of june 2021 now another point to be noted over here is that when zomato has a large number of restaurants it can even use machine learning to accurately predict demand and further optimize its inventory management system and this could also be used by zumatro to enter the grocery and online retail market eventually to enter into a.
Competition with geomand and the rest this is the reason why zomato is using hyper pure as a core instrument to diversify its business and go from a door to door business model to a farm to fork business model apart from that zoido is aggressively diversifying into other domains by investing 75 million dollars into ship.
Rocket 50 million dollars for 16 percent stake in magic ping and it also sold fit so to cure fit for 50 million dollars and gain 6.4 stake in curefit now what remains to be seen is how these companies work in conjunction to build an agile ecosystem for consumers so moral of the story is that on paper somato has all the elements needed to.
Build a robust and profitable supply chain in the b2b space it has a billion dollar investment has millions of app users to direct traffic towards hyper-pure partners has massive warehouses to store and manage inventory it has the technology to execute world-class inventory management system and most importantly it already has a.
Positive unit economics with hyper-pure with a great potential to scale up so the question over here is that is it so obvious that zomato will end up building a billion dollar business out of hyper pure and does it mean that you should blindly invest into zumato well not really because as much as hyper pure looks promising on paper on ground.
There are some critical challenges that zumato needs to tackle if it wants to become a powerful player in the b2b space and this brings me to the most important part of the episode and that is as investors and students of business what are the critical parameters that you need to keep an eye on to understand the.
Success and failure of zumato and this framework is something that applies to every single player operating in the food tech space before we move on i want to thank our partners for today’s episode and that is wind wealth people just like zumato and jio are diversifying their business even you should diversify your investments.
Strategically do not put all your money into just stocks and crypto and diversify your portfolio appropriately into different asset classes to reduce your risk now this does not mean you should start investing into fds because it barely even beats inflation this is where our partners wind wealth.
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Best part about wind is that they are focusing on educating the investors and not just selling it to them so to know everything about this opportunity and other upcoming ones click on the link in the description and press the keep me updated button to learn all about investing in bonds moving on to the challenges here are the critical.
Parameters that you need to keep an eye on to assess the success or failure of zomato with hyper pure firstly just like demart in order to establish a relationship with the hyperviewer the restaurant owners have to cut ties with their existing suppliers and like we discussed before this is a very big deal because we are.
Talking about a relationship that has been fostered over decades secondly according to a july 2021 article zomato has taken a misstep with the credit system of hyper pure it includes a clause that says zomato can deduct from the restaurant’s earnings on the full delivery side if the dues for hyper pure purchases are not paid on time and many.
Restaurants find it unviable because with the local vendors the credit could be extended up to 60 days without interest whereas zomato actually levies an interest rate for example with credit period being 7 to 45 days when timely payment on hyper payout purchases does not happen the company charges a monthly interest rate of one percent on the due.
Amount for the first 15 days after that it charges a 0.1 percent daily interest from the date of invoice due until the debt closure now to some restaurant owners this almost sounds like a dead trap so when something like this pops up on top of the hard time that the restaurant owners are already facing due to the pandemic it’s.
Obviously a very very bad thing and lastly there is the competition commission of india which can bring in new regulations in case zomato tries to control the market beyond a certain point nonetheless as students of business it will be very interesting to see how zomato navigates through these.
Challenges and eventually becomes a successful company if it does it’ll obviously become a gold mine investment and if it does not it will teach us some very valuable lessons in business and supply chain management and if you’re a restaurant owner please drop a comment about your experience with jomato hyperviewer so that the entire community.
Can benefit from your market insight and who knows the leaders of zomato or some other startup might be reading your comment to bring some changes to their system before we say goodbye i’ve got three study materials for you number one is the ken’s article on the farm to folk model of zuma to number two is a.
Document that tells you all about the supply chain and distribution of tomatoes in india it’s a little old but then i think it’s great for your conceptual understanding and lastly if you want to keep an eye on specifically zomato related news you can use ticker tapes news section to understand the most relevant market updates about.
Tomato and three more companies that i have in my watch list are nestle borisov renewables and adani power so keep an eye on all these companies because their growth has some good insights about the trajectories of the emerging markets in india and do check out the wind wealth app from the link in the description that’s all from myself today guys if you.
Learned something available please make sure to the like button and all to make youtube bubba happy and for more such insightful business and political case studies please subscribe to our channel thank you so much for watching i will see you in the next one bye bye you.
Class 12 Business Studies | Board Exam 2024 
