Zomato's Blinkit has a great durable competitive advantage over Flipkart: Sanjeev Bikhchandani and Deepinder Goyal

Sanjeev Bikhchandani (left), co-founder and executive vice chairman, Info Edge, and Deepinder Goyal, founder and CEO, Zomato Image: Amit Verma
 
Sanjeev Bikhchandani, co-founder and executive vice chairman, Info Edge, and Deepinder Goyal, founder and CEO, Zomato, are betting on quick commerce to disrupt the marketplace. “Honestly, now Zomato seems slow. I'm so used to Blinkit in 10 minutes… I think there is going to be negative pressure on Zomato now because customers are not willing to wait for a 30-40-minute period,” Goyal says in an interview on Forbes India Pathbreakers in March.  
 
Quick commerce platforms reportedly contribute roughly 30 to 50 percent to annual ecommerce sales of leading FMCG companies. As per latest industry estimates, Blinkit has a market share of around 35 percent, followed by Swiggy’s Instamart (28 percent), Zepto (25 percent), and Tata group’s BB Now (9 percent). Market reports suggest Flipkart is readying to re-enter the quick commerce space soon. Would this lead to predatory pricing as competition heats up?

"The market dynamics change overnight. Depends on somebody wanting to start," Goyal says. "The fact that Zomato has a couple of billion dollars in the bank will hopefully encourage others to rethink any strategy of predatory pricing, knowing fully well that Zomato has this kind of gas in the tank, and that will enforce rational behaviour on everybody's part," Bikhchandani, Zomato's first investor and largest shareholder, adds.
 
In a wide-ranging conversation, Bikhchandani and Goyal discuss why “Blinkit will be bigger than Zomato in some months'', how “quick commerce is a better and cheaper business model than ecommerce”, and what gives Zomato an enduring strategic advantage over rivals. Edited excerpts:
 

Blinkit: ‘A leap of faith’

Bikhchandani: I head the investment committee on the board in Zomato. The proposal [to acquire Grofers, now known as Blinkit] came to the investment committee and quite honestly, I was apprehensive, and I spoke to Deepinder. I said this is a loss-making company and if you can't turn it around, we could be in a deep hole. Although there is money with Zomato, but you don't want to burn all of it on something like this, and the main business is not profitable yet at a corporate level, and the market is asking for profits in the main business and the whole company. Besides nobody's made a profit in this space. It's a big bet. Are you sure? He said, ‘I'm sure’. I said, what makes you sure? And he said, ‘I'm confident we can turn it around and I have looked at it close enough. I'm absolutely sure’. And he explained how.
 
But we were still doubtful. He [Goyal] said trust me. So, we took that leap of faith. I think that faith has borne out. It's truly remarkable what has happened with Blinkit. To change the business model to quick commerce, to get to the margins it has, to get to profit as a company, to get to start approaching profit as Blinkit standalone in such a short span of time…. I think it's truly remarkable and it is great execution.

Goyal: At our end, we say that we actually own Blinkit, we don't run it. I don't run it and all credit to Albi [Albinder Dhindsa, co-founder and CEO, Blinkit] and his team. We did nothing here… the Zomato culture is our moat. So, we sent over some of our best people and that team figured it out because there was a lot of residual knowledge in how Zomato was built and the kind of courageous calls that we had to take. I think all of those things worked. The main synergy was culture and team, I would say.
 
Honestly, now Zomato seems slow. I'm so used to Blinkit in 10 minutes, Zomato takes 30 minutes, which now seems so slow. Why can't I do this faster? So, I think there is going to be negative pressure on Zomato because customers are not willing to wait for a 30-40-minute period. I think Blinkit is about 40 to 50 percent of the size of Zomato right now and in some cities, it's actually bigger than Zomato right now. It's growing three to four times faster. So, I think it's a matter of some number of months before Blinkit becomes bigger than Zomato and we'll be super proud when it actually happens.

Also read:  Quick commerce is the future: Info Edge's Sanjeev Bikhchandani and Zomato's Deepinder Goyal
 

Q-commerce business model: ‘Better and cheaper than ecommerce’

Goyal: In quick commerce, compared to any other commerce, the cost structures are different. So, the last mile is cheaper, but you have an extra added dark store cost, you have other things which you need to add up. So, the bet was that okay, each store needs to get to about 1,500/2,000 orders per day, and only then will this make sense. We didn't know whether any of our stores will actually get to that point. The only way we would get there in a shorter distance would be if customers order way too frequently… like on Zomato, we have four times a month. Blinkit needed to be 10 times a month for us to get to that kind of frequency, and luckily, the need for instant, quick commerce is actually quite high.
 
If you can get your headphones in a matter of seven to eight 8 minutes, why would you wait for a day on Amazon? There's no point, right? And Blinkit is almost the same price, or sometimes even cheaper than Amazon. So, I mean, that's what people are choosing to do. And, if you don't like it, you can send it right now, the returns are easy. So, I think quick commerce is overall a better ecommerce model than the current ecommerce model and at a certain throughput it is actually cheaper than ecommerce to run as well.

Enter Flipkart: ‘Zomato and Blinkit are well-positioned to win’

Bikhchandani: The fact that a much larger ecommerce company like Flipkart, the pioneer in ecommerce in India, has decided to re-enter (the quick commerce business) tells us that this model is actually the future and I think Zomato and Blinkit are well positioned to ensure that they don't lose out on this… in fact, they win.
 
There is a great advantage that Blinkit has which I suspect will be durable. I think every organisation has a strategic focus. The only thing Blinkit does is quick commerce. That's all they do. And they live 24x7 to do quick commerce. Now, Flipkart, or an Amazon, or a much broader horizontal sort of ecommerce player also does quick commerce, then it remains an ‘also’. The strategic focus of the organisation, what the brand means… Blinkit, it means by the time you blink, it comes. It's the strategic focus of the organisation, of the brand, I think that is important, and that is what will lead to the culture, and that is what will lead to the moat.

Goyal: Any competitive advantage that I say in terms of tactics, in terms of delivery fleet, or anything, can be copied or paid for. So, none of these things last beyond a point. I think the culture of the team and their mindset to innovate on a constant basis, that's the only moat. In our businesses, anything right we do gets copied in three months, so moats have to be… You have to create them every day because it's not something that lasts beyond a point. Albi is one of the highest quality founders that I've ever met. So, I mean that is also a strategic moat in the long-term.

Deep pockets: ‘It gives confidence’

Bikhchandani: [Having deep pockets] gives confidence, and if you need to burn a lot of capital for a few years, then obviously it's required. But in this case, I think they managed to do it without burning too much money. But if they didn't have this money in the bank and they were not listed, there's no way they could have done it.

Goyal: We would not have had the courage to [get into quick commerce]. I think the capital in the bank gave us the courage to do it. But we didn't also have to take short-term calls in order to get to the point where we got to so far. And I think the compounding of consistently taking long-term calls brought us here. In general, when we don't have money in the bank, it forces us to take short-term calls that doesn't work for the short-term or for the long-term. So, I think it gave us the patience which helped.
 

Predatory pricing: ‘Depends, if somebody wants to start…’

Goyal: I mean, so far, it doesn't look like we will need to do that [burn cash/resort to predatory pricing], but the dynamics, the market dynamics change overnight… depends on somebody wanting to start doing this. If we have to…

Bikhchandani: Let me put it this way. The fact that Zomato has a couple of billion dollars in the bank, okay, will hopefully encourage others to rethink any strategy of predatory pricing, knowing fully well that Zomato has this kind of gas in the tank and that will enforce rational behaviour on everybody's part.

Goyal: We hope we get to the right level of profits, and I really mean right because we don't want to continue maximising profits all the time, because we work in a marketplace, and we have to balance the interests of everyone. So, at a certain point we will maintain profitability. I think Zomato is pretty much very close to that point where the maintenance will start and Blinkit will get there in a couple of years maybe.