This point has to do with unit economics, do I think this ten-minute delivery system, in the food tech space, is going to make sense or not? Now here was a study that was done by Venkateswaran KR. We cited some resources. I’m taking it from there. This is the chart that shows you the cost structure and revenue structure and how many orders need to be fulfilled to break even in this ten-minute delivery system.
Now there are some assumptions. This is a study.
Future of Food Delivery Business Like Zomato
So of course the guesses can be wrong. But there are a number of reasonable assumptions that are made here. One important thing to note is that when we are talking about hyperlocal networks then that hyperlocal network needs to be made within a radius of two to three kilometres. So let me tell you about the numbers very quickly. It might make a lot of sense and then you can decide on the basis of this data whether to invest in Zomato or not. So here is a complete cost structure in terms of building a hyper-local delivery store and placing orders. So the rent of a normal godown will be 400. You have to staff and put some employees on it. So 35, 36,000 and then you have to bear some cost per delivery unit. So essentially, if you run all these calculations and take the current margin that all these big companies have made in terms of delivery of essential goods, for break-even, you need to deliver 291 orders per day. So to break even, you need around 300 orders per day within a radius of two to three kilometres. Now use your head and tell me that within a radius of two to three kilometres, which is not a big area, do you see 300 deliveries being made every day for hot food through Zomato or Swiggy? So my guess would be no.
So I don’t think this unit semantics makes sense right now because imagine it. How did I calculate that 300 number? Whether it makes sense or not, how many houses would you have within a three-kilometre radius? I don’t think there will be more than 1000 houses. So you are essentially saying that 33% of people are ordering food from Zomato Swiggy on every single day basis. 33% is a huge figure. So at least in that space, it doesn’t make sense. Of course, there are many ways through which Zomato’s profitability can increase later on, but at least initially, this model is not working from a unit economics point of view. Now comes the fourth and final point that by understanding the information I have given you, how can you take advantage of it. So there are two ways you can take advantage.
Number one is that more money is going to come in this ten-minute delivery segment. It is not that only Swiggy and Zomato will enter this space. There are companies like Zipto that are already in this area and there will be a bunch of ten-minute delivery, five-minute delivery, two-minute delivery, all that is going to happen. So essentially what’s happening at the macro level is that VCs are pouring in more and more money. Entrepreneurs are keen to start more and more companies in this logistics sector. This was exactly the scene that was playing out from 2016 to 2019 when Swiggy, Zomato, Uber Eats and a bunch of other companies in the food-tech industry were competing with each other and burning VC money.
So how can you take advantage? It’s time for us to have fun downloading all the apps, explore all the options, coupons and whatnot and you will get crazy discounts. For example, Zipco is already offering attractive discounts. So the more apps you have, the more discount you can get. And it’s like an instant benefit for all of you. If you liked this tip, hit the like button. Number two, keep a very close watch on Zomato’s share price as this is one option that you can exercise and invest in. If at any level you get an indication that the unit economics of ten-minute delivery is turning positive and it makes sense, then go to Zomato and buy at that particular level.
I am going to do the same. To make the long story short, the summary is this. That number one is that we as human beings are becoming more and more impatient. Number two, there is a real business opportunity here. Somebody is going to crack this code. It could be Zomato, it could be ZIP code. It can be Swiggy, it can be anyone. But the bottom line is that someone is going to crack this code. Whatever company cracks that code.
If you invest in that company, it can be a game-changer. This is a huge trend that is going on. We can like it. We may not like it, but with this trend comes an opportunity to make massive amounts of money. Third and lastly, please don’t be impatient when it comes to investments. See who is winning the race. Once you have a very clear, sensible idea, whoever is winning this race then go ahead and invest a little bit more amount because that company will continue to grow.
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