There are two basic parameters that determines the chances of startup concept to become successful along with its execution excellence –

  1. The concept is about solving some problem that is being faced by mass so that people could easily get shifted to the new concept being provided over conventional solutions.
  2. The concept is strong enough itself to convince consumers to get addicted to it.

For example – a startup targeting the problem of commute has more probability of success while a startup providing customizable mobile designs has limited market volume. A computer game is its strong enough to get users addicted to it.

Hyper local delivery of food, grocery, consumer service etc are becoming center point of attraction for entrepreneurs, investors and consumers as they are solving one of the biggest problem of every household – Time Saving. Zomato, Food Panda, Tiny Owl, HouseJoy etc are common name of on-demand delivery services. Though these business models are being appreciated and getting loyal consumer base every day, the problem with these hyper local delivery startups is that they are having limited acceptance in terms of targeted cities, consumers and scalability.

Just after “Grofers shut down operations in 9 cities” its Zomato that announced to shut down their delivery operations in 4 cities stating that small cities are still not ready to accept the concept of delivery. According to Zomato “Business in small cities failed to take off despite aggressive marketing and accounted for less than 2% of the total orders placed on Zomato. Overall online orders are growing at a pace of 40% every month.”

FS analyzed the major learning from Zomato Shutdown –

FS Labs - Zomato Shut Down Operations in 4 Cities - Lessons for Others

[A] Consumer Analysis – Priorities, Problem and Perimeters

Consumers should be analyzed based on the following considerations – priorities of targeted consumer that determines their willingness to accept the model, problems that the targeted consumers are facing and the limits that they have while accepting the concept. FS analyzed the concept of Zomato- on demand delivery of food, and the major problems in its acceptance in small cities –

  • The problem that on demand delivery of food concept solves is time saving. So the targeted consumers are those that are having hectic schedules and willing for a provider to deliver food to them. The consumers of such need are majorly in metro cities as small cities people have relatively relaxed lifestyle.
  • The acceptance of on demand delivery of food is limited to those people that give priority to time over money. So the reach of Zomato concept is limited to people with minimum money constraint. People in small cities where 200-300 bucks per person for one time food is considers costly are definitely not the potential market for consumers.
  • People that prefer to go to restaurants for their food requirements from outside can’t be considered as potential market for Zomato concept. Hence the acceptance in small city is not as much as in metro cities.

Pankaj Chaddah, co-founder of Zomato quantified “We are shutting down the ordering business in Lucknow, Kochi, Indore, and Coimbatore. The size of the market is in these cities is small right now and is growing with time. We will re-launch when the time is right.” But FS believes that Zomato must have analyzed the behavior of consumer prior to their execution in small cities.

Here are the key learnings from Zomato Shut down Operations in Small Cities –

  • The problems and priorities of consumers must be analysed – the acceptance of consumers shall be evaluated in both ways – the people that you think will accept your concept and the mind-set of people to accept that concept.
  • The limitations of startup concept shall be decided beforehand – the positive and negative both side of your concept helps in choosing the right direction for movement.

[B] Expansion as per Need – Business Verticals, Geo Graphical and Related Services

Expansion of business shall be done in a pre-planned way. Started in 2008 as restaurant discovery and review platform, Zomato introduced its food delivery service in 2015. Though the expansion of delivery service was done after getting excellence in their core area, FS believes that Zomato shall have considered following while into moving other segment –

  • Business vertical of delivery service was already being covered by players like FoodPanda. So the expansion into the delivery segment was a risky game with consideration that the loyal consumer base would also remain stick to the same player.
  • Geo graphical acceptance of concept worldwide made Zomato believe that the other related services will also get accepted by consumers in any of the location.

Business shall be expended to other verticals, geo graphical and related services based on the available demand in the market. Acceptance and excellence in one vertical doesn’t decide the same in others. So founders must understand the need of market and expand their business accordingly.

[C] Marketing Approaches – Convincing, Comparing and Converting

Marketing strategies of any of the startups must qualify on following – power to convince consumers to use the product / service, benefits of startup concept as compared with existing solutions and finally converting them from visitors to consumers.

Zomato stated that their recent marketing strategies including television advertisements couldn’t make any significant increase in these cities. FS is surprised why Zomato couldn’t think of any other convincing market campaign like they did “pornographic marketing” previously based on the user pattern of surfing.

Here are the learnings from it –

  • Marketing campaign should be able to convince people to become addicted to the concept. For example – targeted marketing to household ladies could be a potential driver of traction to the on demand delivery of food as they are the major decision maker of food requirement.
  • Marketing should include the benefit of new concept over existing directly or indirectly so that consumers could decide to switch easily.

Comparison of Zomato vs Flipkart Acceptance in Tier II and III Cities

Zomato and Grofers business model was shut down in small cities because the acceptance was low while e-commerce players like Snapdeal, Flipkart claim that half of their sale is driven by Tier II and III cities. Here is FS Analysis of Hyper Local Delivery Vs E-commerce (electronics, apparel, fashion products, home appliances etc) acceptance in Tier II and III Cities –

FS Labs - Comparison of Zomato Vs Flipkart Acceptance in Tier II and III Cities

Stay tuned with FS Labs to know more.

Fuckedup is a phrase that captures all the emotions associated with the startup journey.

If no concept clicks in your mind, you feel frustrated. If you are not able to manage a proper team for your startup, you feel irritated. If funds, revenue, expansion etc don’t take place as per planning and expectation, you feel infuriated.

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