Zomato exits 225 smaller Indian cities due to poor response

Food delivery giant ceased its operations in 225 smaller Indian cities due to lack of demand. The announcement comes amidst reports of rising losses and lowering demands for India’s poster boy of food delivery segment which has been operational since 2008.

Zomato reported loss of Rs.346.6 crores for the quarter ending December, 2022. Although it didn’t name those cities in which it has ceased operating but said that those cities combined contributed only 0.3% of Zomato’s gross order value for the December quarter and the gestation period was too long. Being a startup which has been operational since 14 years, Zomato cannot afford to burn cash and wait for profitability anymore.

Bumpy road ahead for Indian startups

A few days ago it was the Sharechat saga and now Zomato. While Sharechat was predominantly focused on tier 2 & 3 cities of India and Zomato recently started targeting them. However, both of them have one thing in common:- They both faced huge losses from this segment and learnt lesson the hard way after burning their fingers.

This is a bad news for every startup focused on Indian tier 2 & 3 cities and beyond. It signifies that the population in places beyond the metro don’t want to spend on anything apart from the basics. The consumerism is low in these parts of India and it will not be until a decade or two that the startups will start getting any returns on their investments from these places. More importantly, the adoptability is low to nil in these areas.Startups need to rethink their strategy when it comes to rural and semi urban India. Are their investments and time commitment really worth the returns? Do the have the bandwidth to keep burning cash for years and not expecting any return?

Not a fairy tale

And a big reason to worry is that the metro & urban population constitute only about 30% of India’s total population while the remaining 70% is of the rural population. On paper it looks like a fairy tale- 1.41 billion population, 1 billion in rural, untapped market etc. But the reality is stark different- the paying capacity, the disposable income and most importantly, the customer adaptability all need to be considered.