Zomato Quits On Exclusivity For Cloud Kitchens

Zomato delivery guy fetching a order

Zomato has withdrawn exclusivity rights for restaurants operating out of its cloud kitchen facility, according to six brands using the service and several media reposts. The move, which essentially allows these restaurants to list on rival platforms such as Swiggy — underlines a major shift in strategy for Zomato, which had pegged exclusive supply on its platform as a core differentiator.

Zomato and Swiggy both offer infrastructure to cloud kitchen brands which includes the space and technology support needed to run cloud kitchens. Zomato launched its Zomato Infrastructure Services (ZIS) in 2016, whereas Swiggy started Swiggy Access in 2017.

As per a report in ET, Zomato’s infrastructure business has taken a hit hard after it decided to significantly reduce discounts offered to consumers. This ended up affecting the real estate utilization in businesses as well as unit economics. In other words, Zomato was unable to push order demands for listed restaurants, which affected its infrastructure business.

A cloud kitchen owner reportedly said that the push for demand is possible through aggressive discounting, even though it’s not sustainable to achieve profitability. Another cloud kitchen owner was quoted as saying that Zomato will now be able to earn incremental rental revenue from sales with “zero opportunity cost”. The report also said that Zomato will charge a rental commission on all businesses that list themselves on other platforms.

While cloud kitchens might heave a sigh of relief on getting more orders, the road ahead is trickier than it looks. Zomato’s biggest rival Swiggy is not allowing some previously Zomato-exclusive cloud kitchens to list as the Bengaluru-based aggregator also has to protect the exclusivity of cloud kitchens on its Swiggy Access platform. Adding new cloud kitchens would end up affecting Swiggy’s own infrastructure business and unit economics.

In November 2019, Swiggy announced that Swiggy Access will host kitchens by 1000 restaurants across India. Moreover, the company also planned to expand its services to tier 2 and Tier 3 cities like Guwahati, Surat, and Kochi.

Swiggy has invested close to INR 150 Cr in setting up Swiggy Pods for multiple cloud kitchens. In November, Swiggy also announced that it will be investing an additional INR 75 Cr to bring more partner cloud kitchens in 12 new cities by March 2020.

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