Zomato confident inter-city food delivery will be profitable with scale

Launched as a pilot in areas of South Delhi and Gurugram a few weeks ago, food aggregator Zomato has extended its Intercity Legends service to Bangalore as well. Zomato is also confident that the offering will be profitable as it scales. 

Intercity Legends is currently offering renowned dishes from ten major cities and has partnered with around 120 restaurants. From Lucknow’s famous Tunday Galawati Kebabs to Kolkata’s decadent Gulab Patti Sandesh, customers can use the firm’s intercity delivery service to order famous dishes from across the country.

"Even at a slight scale we will be able to make profits. Because  when we started, we thought it would be expensive and a luxury offering. However, our cost projections over time have led us to believe that it is not a luxury. We do not believe paying Rs. 600 for a biryani is considered a luxury by our customers," said Siddharth Jhawar, Vice President of Global Growth at Zomato.

According to the firm, scaling up Intercity Legends to more cities will be incremental as demand increases.

According to Jhawar, customer data has allowed Zomato to identify three use cases for customers using their intercity services.

“The first is nostalgia, as customers might want to relive certain childhood memories associated with specific tastes. Second is exploration, where customers would like to discover and try famous food from across the country. And the third is celebration, where customers would like to order food from different cities on special occasions,” he said.  

Sweets and desserts are leading the charge in terms of success for the platform. “People apprehensive about eating day-old food do not exhibit as much friction when it comes to consuming refrigerated sweets,” he added.

Jhawar revealed that to evaluate success of the pilot, metrics such as repeat user behaviour were considered, i.e., the percentage of users that placed a similar order within two weeks of the initial order. Other metrics included the number of refund requests and complaints as well as customer ratings.

“We have received very low refund requests, great customer ratings and frequent repeat orders,” he said.

Ensuring that food remains fresh and food safety is maintained is a priority for Zomato, Jhawar emphasized. These restaurants are selected after extensive scrutinizing, making sure the dishes best exemplify the cuisines of the cities they belong to. Their dishes then go through rigid quality and packaging tests, with complete refunds being offered in case of mishaps, revealed 

“There are different preservation methods such as freezing and Modified Atmospheric Packaging (MAP). However, these end up changing the aroma and taste of food,” said Jhawar.

“We found that the freshness of food is preserved if kept either above 50-60°C or below 15°C.  We use a special coolant to ensure food remains at a constant temperature between 5-10°C, which is the most difficult part of the process,” he added.

“Lab tests were conducted to ensure the aroma, taste and texture of food is preserved and maintained. Different types of foods were tested at different intervals of time and in different atmospheres prior to launching the pilot. If certain foods did not pass our quality checks, we did not onboard them,” he further stated.  

The cost of intercity orders is about 2.5x more than normal food delivery orders.

“For the average Rs. 600 dish, about Rs. 200 is for handling and Rs. 80-100 for last mile deliveries. The delivery charges are also contingent upon the weight and volume of the dish,” said Jhawar.

The firm also has tie-ups with third party delivery platforms to complete deliveries.

“For closer areas like Agra and Mathura, we do deliveries by road. For most other cases we have tie-ups with various commercial airlines. These airlines are selected through third parties. We have different partners for different logistical needs as well. For instance, we use Shadowfax for some of our airline partnerships and first mile pickups,” Jhawar revealed.  

Zomato’s intercity partnerships also function on a similar construct as their normal restaurant partnerships. The firm charges commissions as well as delivery charges, although higher.