HyperPure - The Cure for Restaurants' Supply Chain Woes

Happy Weekend and Happy Holi!

I have always associated festivals with lots of delicious food, so here’s a thought – “Food may be an essential fuel for the body, but good food warms the heart and feeds the soul.”

With this lovely food thought in mind, I am here to talk about Zomato – a company that’s all about food.

Figuring out if it’s ‘zomaito’, ‘zomaato’, or ‘jomaato’ – reads the bio of Zomato’s official Instagram page.

One thing I really like about the company (other than the fact that they get food delivered to my lazy soul) is their Marketing! It’s CRAZY good.

• “Green fleet” / “Pure veg mode” - amirite?!?

• ZFT (Zomato Food Trends) – an interactive website to look at India’s ordering habits for different food items.

• I cannot not mention Albinder Dhindhsa’s twitter page.

• And if you haven’t seen Zomato’s Twitter and Instagram pages or the banners on the streets – well, there’s no if. I am sure you have seen them.

While marketing helps a bunch, I am going to give due credit to Goyal saab and his team on growing the business quite well. Investors can see that too, as evidenced by the stock’s share price. 1-year stock performance snapshot –

Anyway, I’m not here to discuss their marketing or their consumer-facing businesses (food delivery service and quick commerce).

You’re probably thinking – what else is there to talk about, if not that? Let me give you a quick snapshot of its verticals and their revenue contribution.

You see HyperPure? That’s what I’m going to talk about. I think it’s not discussed enough, especially given its potential.

First things first. What is HyperPure? – In August 2018, Zomato acquired WOTO, a three-year-old Bangalore-based company specializing in collecting farm produce and supplying it to restaurants. Following the acquisition, Zomato rebranded the service as HyperPure and began operations in 2019.

HyperPure is thus a B2B restaurant supplies business that works on a farm-to-fork model. The supplies are sourced directly from farmers, mills, producers, and processors; thereby offering a one-stop solution for restaurants, ensuring next-day deliveries on a wide range of quality ingredients.

Now you see why I want to talk about it? Zomato started off as an interface between restaurants and customers and is now growing to become an interface between restaurants and their suppliers. Here’s a chart for a quick visual representation –

Now, let me tell you why I like HyperPure, by answering the following questions:

• What is HyperPure’s market opportunity?

• What makes HyperPure a star player in that market?

• Do we have numbers?

What is HyperPure’s market opportunity?

Food delivery: As of March 2023, Zomato had ~210,000 average monthly active food delivery restaurant partners.

HyperPure: Food and supply costs typically constitute ~25-30% of a restaurant's revenue, indicating HyperPure's addressable market (25-30% of India’s restaurant food consumption) aligns with this range. India’s restaurant food consumption is estimated at ~US$ 25bn, implying a US$ 6-7Bn market size for HyperPure.

Even if one were to only consider Zomato’s existing restaurant partners for HyperPure’s addressable market to begin with, as of March 2023, it served ~72,000 unique restaurant outlets, implying a ~34% penetration of Zomato’s average monthly active food delivery restaurant partners.

What makes HyperPure a star player in that market?

HyperPure identified the key issues faced by restaurants and sought to address them.

I just didn’t want to read about these things. I wanted to try the app myself. Here’s a screenshot of the app’s home page displaying the wide range of categories it offers.

I do not have a restaurant, so I did not really place an order, but I was quite impressed with the variety. If you think I could have still tried, they do have a minimum order value to churn out small, unprofitable restaurants and increase their AOV, thus contributing to growth in both revenue and profitability.

What’s even more interesting is that HyperPure is leveraging synergies. While it gets restaurant access from Zomato’s food delivery business, it got its warehouse network and inventory management skillsets from Blinkit.

• Warehouse Network: In August 2022, HyperPure completed the acquisition of the warehousing and ancillary business of Hands on Trades Private Limited (a former subsidiary of Blinkit) for INR 61 crore in an all-cash deal.

• Blinkit Suppliers: HyperPure has begun supplying to the sellers on Blinkit’s marketplace, thus paving the way to further accelerate revenue.

You see, Goyal saab and team didn’t stop there. They found a way to make the deal even more attractive for restaurants –

• HyperPure Certification: Restaurants that source their materials from HyperPure will get certified on Zomato’s page for using quality ingredients. This would help in enhancing the brand of those restaurants, and lead to increase in revenues. (I honestly have not come across this, so this may have been discontinued, but if you have seen it, please do let me know)

• Own plant for value-added food supplies: The company is setting up a plant for processing value-added food supplies including, sauces, spreads, pre-cut and semi-finished perishable products. This would have the potential to expand margins and drive higher engagement with restaurant partners.

I love how his brain works. Constant innovation. That’s surely one of my goals.

Now moving on to what most of you are generally interested in.

Do we have numbers?

The company only reports revenue and adjusted EBITDA numbers for HyperPure. The segment has only been around for ~5 years and hasn’t achieved EBITDA breakeven (~-4% adj. EBITDA Q3FY24, up from ~-25% in FY22). However, the company is now past the investment phase and is looking at achieving profitability. Meanwhile, here’s a chart on its quarterly revenues –

 I know these are historical numbers and it would be great to have some forward-looking insights. Research houses have done their own estimations on financial forecasts, unique restaurant additions, etc., and that’s where you should look for that information. For now, I am only here to give my opinion.

And here’s another one – Zomato has managed to tap both the backward and forward channels in a restaurant’s value chain and it’s the first food tech company in India to do so. It probably has the potential to become as big as Sysco!

Do you agree?

If the market opportunity, HyperPure’s offering, and my opinion haven’t led you to agree with me, I do not know what will. But I am open to hearing your thoughts – let’s book a restaurant table on Zomato and meet over good food for the soul? Or we could probably order in?

And if you are happy and convinced with my thoughts, and want to send me some food from Zomato, here are a few dishes I enjoy – Starbucks coffee, peri peri fries, oats cookies, lotus Biscoff cheesecake.

Seriously though, if I have managed to leave HyperPure as ‘food for thought' – my work here is done 😊

Till then, toodles! And have a great long weekend!

Disclaimer – As of date of publishing this article, I am personally invested in Zomato as a shareholder. However, views are personal and independent.

3 Weekend Recommendations by Yours Truly –

Food for the Soul ❤ 

Given this week’s edition, I HAD to start with this.

Exercise!

If you’re anything like me, you will end up hogging after reading so much about food! So here are some beginner-friendly exercises to burn those calories –

• Jumping jacks

• Squats

• Mountain climbers

Watch a Food Documentary – Jiro Dreams of Sushi

Meet Sukiyabashi Jiro, the 85-year-old sushi sensei renowned for his mastery in the art of sushi-making. Located in Tokyo, his Michelin three-star eatery stands as a testament to his dedication and expertise.

In a mesmerizing documentary, we witness Sukiyabashi Jiro's craft and passion transform his humble restaurant into one of the world's most beloved eateries. Beyond serving sushi, he offers food for the soul, creating an unforgettable culinary experience for patrons from around the globe.

This is an old film and you may have heard of it, but I think it suits well to today’s food theme and is even worth a re-watch.