Will Zomato's new diversification strategy deliver more unicorns?

Inspired by Chinese internet behemoths Alibaba and Tencent, recently listed food-tech startup Zomato has chalked out an ambitious plan to invest $1 billion over the next two years in other startups. There are reports that the company may invest $500 dollar in Grofers, as it sees opportunity in quick commerce

 Zomato is well-positioned from a capital perspective too after raising $1.2 billion in its IPO in July this year. This, it hopes, will help the company emerge as a major force in the hyperlocal e-commerce ecosystem.

Over the past six months, Zomato has committed $275 million across four startups. In August, it invested $100 million in online grocery store Grofers. A month later, it shut down its own pilot grocery delivery service. The company cited gaps in order fulfilment, leading to poor customer experience. Zomato believes that its investment in Grofers will deliver better outcomes to its shareholders than its in-house efforts.

It is also investing $75 million in logistics firm Shiprocket, $50 million in savings and neighbourhood discovery app Magicpin.

Zomato is also divesting its recently-acquired sports platform Fitso to Curefit Healthcare for $50 million and also investing an additional $50 million in the fitness and well-being startup. In the process, Grofers and Curefit have turned unicorns with Zomato’s funding. Each one of these deals is being seen as strategic by Zomato. It has made its intentions clear, Zomato is not looking to be a financial investor who sits on the sidelines.

The company is ready to infuse additional capital into these businesses as they scale and consolidate its stake, leading to a potential merger in the future. 

In the worst case scenario of an acquisition not panning out, Zomato is still expecting windfall gains from its investments. Laying out its strategy, Zomato said it is only investing in companies that have the ability to become market leaders in their category. This way, it is looking to add multiple large core businesses to its mainstay of food delivery. 

Zomato has hinted that a large chunk of its future investments will go into quick commerce, which refers to delivery of products in under 30 minutes. The competition is hotting up in this space, with Grofers, Swiggy, Dunzo and Zepto vying for market share.

Such diversification does not mean that Zomato is ignoring its core business of domestic food delivery. It had 15.5 million monthly transacting users at the end of September. And it feels that there is an opportunity to grow the food delivery market by at least 10 times in the next few years.

To sharpen its focus in this area, it has also shut down its nutraceutical business that sold health and fitness products, ended its grocery delivery program and pulled out of all international markets. 

After a hiatus of two years, Zomato is launching food delivery in new cities again and is heavily investing in smaller and emerging cities to enable market creation. 

Since Zomato’s focus is purely on the long term, we must wait for a few years to see how its strategy of diversification through investments will play out. For now, Zomato is adamant that it will not let its IPO morph it into a QSQT business, that is, ‘Quarter Se Quarter Tak’ or from quarter to quarter.