Hyperpure: Zomato’s key to unlocking synergies

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This week’s Publisher’s Parmesan covers Hyperpure, the B2B vertical within Zomato which supplies fresh and packaged products to restaurants.

For context, Zomato is an Indian multinational restaurant aggregator and food delivery company founded in 2008. It has expanded its offerings to include delivery of groceries through the acquisition of Blinkit in mid-2022.

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The Quote󠀢 💭

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Publisher’s Parmesan 🧀

Hyperpure: Zomato’s key to unlocking synergies

Zomato’s Hyperpure had a stuttering start. However, it seems to be gaining strength as the business is now present in 10 cities and services 40,000 restaurants. Its ultimate value, though, lies in the synergies it has with Blinkit, Zomato’s quick-commerce play.

Hyperpure was launched by Zomato as a startup experiment in mid-2018. It started with supplying fresh and packaged products to restaurants in Bengaluru and Delhi, but any further expansion was halted due to the Covid-19 pandemic.

As Covid waned, Zomato redefined its focus on Hyperpure, and the business has since seen impressive growth. Today, it has warehouses in 10 Indian cities and services some 40,000 restaurants listed on Zomato’s food-delivery platform i.e., around 19% of all restaurants listed on Zomato.

In the September 2022 quarter, Hyperpure’s revenue touched INR 334 Cr ($41 Mn) - a nearly 3X increase from the year-ago period. All told, it accounted for 16% of Zomato’s quarterly revenue.

The business’ synergies with Zomato’s core food delivery play are obvious. And with Hyperpure servicing just one in five restaurants on Zomato at present, it has significant room to grow there. This, though, is only the start of Hyperpure’s value.

Zomato’s leadership believes that Hyperpure could be a much larger opportunity than simply supplying to restaurants. It can emerge as the backbone of the company’s recent bet in quick commerce - Blinkit.

As Hyperpure helps scale backend supply-chain capabilities for Blinkit, the quick-commerce business would become more defensible. However, there are kinks in Hyperpure’s restaurant-facing business that need to be fixed before the vertical can realise its potential.

The quick-commerce challenge 

One of the most critical issues in quick-commerce is the sourcing of fresh produce. Most partnerships with fresh produce suppliers are unreliable - either in terms of the quality of produce or the consistency of supply. At times, quality checks lead to as much as 50% of fresh produce procurement being rejected.

The Hyperpure benefit

Hyperpure’s core competency lies in sourcing and distributing high-quality fresh produce. This helps solve the fresh produce sourcing issues that plague quick-commerce startups including Blinkit.

Also, Hyperpure has built high-quality temperature-controlled warehousing infrastructure for fruits, vegetables, and other perishable items (meat, dairy etc.). Blinkit has already started leveraging this infrastructure as well.

The results of Blinkit’s overall integration with the Zomato ecosystem are already beginning to show. Its orders grew from 22.2 million in the June 2022 quarter to 26.1 million in the September 2022 quarter, while the revenue grew 1.4X to INR 236 Cr ($29.5 Mn).

Crucially, Blinkit’s quarter-on-quarter contribution margin improved from -17.3% to -7.3%. The biggest cost improvement came from dark stores and replenishment costs, which were reduced by almost 40%.

Building an appetite for Hyperpure

In the long run, Hyperpure’s bottom line will likely benefit as it increases its supplies to sellers on Blinkit’s marketplace. However, its biggest opportunity will remain its restaurant-facing business.

For example, Mumbai alone has around 87,000 organised and unorganised restaurants. Of this, only around 8,000 restaurants presently order from Hyperpure on a monthly basis. Even among these restaurants, Hyperpure only accounts for around 5% of their spending. This shows just how little Hyperpure has actually penetrated the market.

Hyperpure, however, has to solve issues on both the supply side as well as the restaurant side.

Hyperpure offers to be the brands’ sole distributor to restaurants in exchange for a 10-15% distributor margin. For comparison, the likes of ITC and Unilever offer distributor margins of just 1.5-2.5%.

Zomato’s advantage is its massive reach. It offers brands a way into restaurant kitchens all across the country without relying on multiple distributors.

Brands, however, are wary of Hyperpure. Its distributor margins are considerable, and any exclusivity strengthens its ability to further extract margins from brands.

On the restaurant side, Hyperpure offers credit cycles of 7-45 days, but reportedly charges high interest on this.

This doesn’t necessarily deter larger restaurants. Smaller eateries, however, feel differently. They complain that Hyperpure is often costlier than traditional channels.

Zomato believes that its pitch of a vast array of produce and products that can be ordered online and delivered overnight can convince more restaurants to bite the Hyperpure bullet. As its leadership once said, “We think Hyperpure may become as large as or larger than even food delivery.”

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