Remember that scene from Christopher Nolan’s Inception? One of the main characters takes another on a walk up a staircase, but the stairs actually lead to the bottom and end in a loop. “It’s a paradox,” says the character with an enigmatic smile. Knowing that this was a reference to the ‘Penrose stairs’ created by M.C. Escher is one thing, but seeing it come to life on screen actually felt magical. The paradox of endlessly climbing yet descending at the same time perfectly mirrors what’s happening with Zomato and its quick-commerce venture Blinkit. The more they climb toward growth, the more they seem to descend into losses.

When Zomato dished out its quarterly earnings in December 2024, it was not quite to the taste of investors. Sure, the flavor notes included revenue growth, but the aftertaste was decidedly bitter as profits took a nosedive. The Deepinder Goyal-led company’s financial feast turned into a famine of profitability, primarily due to the seemingly insatiable appetite for cash that its quick-commerce business, Blinkit, has developed.

It was reported in January 2025 that amid rising competitive intensity in the quick commerce space, Zomato-owned Blinkit crossed the milestone of 1,000 dark stores. A feat to be celebrated, perhaps, but at what cost? To be fair, Blinkit’s gross order value (GOV) grew an impressive 120% year-on-year and 27% quarter-on-quarter. But its losses exceeded expectations owing to aggressive store expansion and competitive pressures. Yet, most brokerages remain optimistic and maintain a “buy” on the stock. One can’t help but wonder if these brokerages are seeing something the rest of us are missing, or if they’re simply caught in their own paradoxical staircase.

The Historical Context Where India’s Love-Hate Relationship with Quick Service Can Be Seen!

Before we dive deeper into the Zomato-Blinkit saga, let’s take a stroll down memory lane. India’s relationship with quick service isn’t new; it’s just evolved dramatically. From the humble beginnings of dabbawalas in Mumbai, who have been delivering home-cooked meals with near-perfect precision since the late 19th century, to the neighborhood kirana stores that would send a boy running with your forgotten cooking oil – quick service has been woven into India’s cultural fabric.

Remember the 1990s when pizza delivery promised “30 minutes or free”? Domino’s brought this concept to our country, and it was revolutionary at the time. The promise was simple – get your pizza delivered within half an hour, or you don’t pay. It created a sensation, but also led to accidents as delivery personnel raced against time. The company eventually had to modify its guarantee, focusing on safety over speed.

Then came the early 2000s with the rise of mobile phones, and suddenly your local grocery store was just a call away. The shopkeeper knew your preferences, extended credit without fancy apps, and most importantly, delivered whatever you needed within an hour. No venture capital, no fancy algorithms, just good old relationship-based business.

Fast forward to 2010, when Zomato started as a restaurant discovery platform. Who could have predicted that this company would evolve from helping you decide where to eat to bringing the food to your doorstep, and eventually, delivering everything from band-aids to bananas in ten minutes? Certainly not the investors who first backed the company.

The Quantum Leap to Quick Commerce

The leap from food delivery to quick commerce wasn’t entirely unnatural for Zomato. After all, if you can deliver chicken biryani in 30 minutes, why not a packet of chips in 10? But as Einstein once said, “The difference between genius and stupidity is that genius has its limits.” The question is: which category does Zomato’s expansion into quick commerce fall into?

Quick commerce in India has its roots in the pandemic years when locked-down consumers needed essentials delivered quickly and safely. Companies like Dunzo began offering these services, but it was BigBasket’s BB Now and newer entrants like Zepto that really turbo-charged the space. By the time Zomato acquired Blinkit (formerly Grofers) in 2022, quick commerce had already become the new battleground for startups and established players alike.

The journey of Grofers to Blinkit is itself a tale of pivot and perseverance. Founded in 2013 as a B2B delivery service connecting retailers with suppliers, Grofers evolved into a B2C grocery delivery platform. When quick commerce began gaining traction, the company rebranded to Blinkit in December 2021, promising 10-minute deliveries. Six months later, Zomato acquired it for approximately Rs 4,447 crore in an all-stock deal.

This acquisition reminded many industry observers of another food delivery giant’s diversification attempt – Swiggy’s foray into general product delivery with Swiggy Stores in 2019, which was later scaled down. History has this annoying habit of repeating itself, especially in the startup ecosystem, and especially when investors are breathing down CEOs’ necks for growth at all costs.

The Numbers That Make Investors’ Stomachs Churn

Now, let’s talk brass tacks. Zomato reported a revenue growth rate of almost 13% to INR 5,400 crore on a quarterly basis, but its profits declined 66% to INR 59 crore in December 2024. Its EBITDA margins also declined in the quarter from a consistent 9% in the three quarters to September 2024 to 7.6% in December 2024.

While its adjusted EBITDA for the food-delivery business stood at INR 423 crore (an 82% quarterly increase), the quick-commerce business reported a further decline in adjusted EBITDA from a loss of INR 8 crore to INR 103 crore. This decline has given birth to more red flags than you’d see at a Communist parade, with serious questions about the sustainability of its growth and the ongoing challenges posed by Blinkit.

At a staggering price-to-earnings (P/E) ratio of 300x, Zomato’s valuation reflects expectations so ambitious they’d make even the most bullish investor pause. The company operates four business verticals – food delivery, quick commerce, going-out, and B2B supplies (Hyperpure). However, the food delivery and quick commerce affected its EBITDA majorly in December 2024.

But here’s the elephant in the room that few are discussing:

Blinkit’s discount per order has gone up by a massive 27% year-on-year.

This isn’t just a number; it’s a scream for help, a desperate attempt to protect market share in a space where competitors are equally determined to win, come what may. It’s like watching five people fight over a cake that’s shrinking even as they brawl.

For the first time since its IPO, Zomato released Blinkit’s Net Order Value (NOV). Until now, they had only been reporting what’s called Gross Order Value (GOV). And they clearly defined NOV as GOV minus discounts. Thus, dividing NOV by GOV gives the exact percentage of an order’s value that was given away as discounts to generate sales.

Here’s how the discounts as a percentage of GOV have changed in the last five quarters:

• Q4 FY24: 17.16%
• Q1 FY25: 17.51%
• Q2 FY25: 19.63%
• Q3 FY25: 22.80%
• Q4 FY25: 21.86%

This means that earlier, Zomato gave discounts of around Rs 170 on an order of Rs 1,000. Now, it’s giving away around Rs 220. That’s up 27% year-on-year! It’s like watching a restaurant give away more and more free appetizers just to get customers in the door, hoping they’ll eventually pay full price for the main course.

Can We Call It A Déjà Vu Of The Historical Pattern of Discount-Driven Growth?

This discount-driven growth model is reminiscent of India’s e-commerce wars of the early 2010s. Remember when Flipkart and Amazon were practically giving away products during their sales? The “Big Billion Days” and “Great Indian Festival” became occasions for consumers to stock up on heavily discounted items, while the companies bled cash in the hope of capturing market share.

Even earlier, India witnessed the telecom price wars, especially after Reliance Jio’s entry in 2016, which eventually led to the consolidation of the sector and the virtual duopoly we see today. The survivors were those with deep pockets who could withstand years of losses.

In fact, this pattern traces back to the 1990s when carbonated beverage giants Coca-Cola and Pepsi entered India and engaged in fierce price wars. They sold their products at significantly reduced prices to gain market share, leading to the extinction of many local beverage brands like Thums Up, Gold Spot, and Limca – which were eventually acquired by Coca-Cola.

The discount game in Indian business is as old as business itself. What’s changed is just the scale and the technology enabling it. From neighborhood shopkeepers giving “kuch discount de do” deals to regular customers, to algorithmic pricing models calculating exactly how much discount would convert a browser to a buyer – the essence remains the same: sacrifice current profits for future market dominance.

But here’s the million-dollar question: Does this strategy ever truly pay off in the long run? The jury is still out.

Whenever Blinkit and Zomato’s management has been asked about rising losses on the Blinkit front, they’ve been remarkably skilled at deflection. They never reveal the full picture about these growing discounts. Instead, they simply keep saying that losses are because of “front-loaded investments” to increase the pace of dark store openings. It’s like blaming the restaurant’s poor financials on the cost of new tables and chairs, while ignoring that you’re giving away half the menu for free.

Moreover, in a particularly telling moment, Zomato’s parent company head blamed competitor Zepto, saying they are “burning way more cash than us.” It sounds like a schoolchild saying, “Though I received poor marks, there’s someone behind me who failed.” This kind of comparison might work in a family gathering, but in the cold, calculating world of business and investment, relative underperformance is still underperformance.

This narrative management is reminiscent of how Kingfisher Airlines’ Vijay Mallya kept assuring investors about the airline’s bright future even as it was hemorrhaging cash. Or how Satyam Computer’s Ramalinga Raju maintained that everything was fine until the house of cards came tumbling down in what became India’s biggest corporate fraud at the time.

While it would be unfair to draw direct parallels between those cases and Zomato’s situation, the pattern of selective disclosure and focusing on growth metrics while downplaying concerns about profitability is eerily similar. History doesn’t repeat itself, but it often rhymes.

The Dark Stores Dilemma

The concept of dark stores, where retail facilities that cater exclusively to online orders, isn’t new globally, but its rapid proliferation in India is relatively recent; as Blinkit’s expansion to 1000 dark stores represents significant capital expenditure and operational costs. Each dark store requires inventory, staff, technology infrastructure, and real estate costs.

Historically, retail expansion in India has been challenging. From Subhiksha’s rapid expansion and subsequent collapse in the late 2000s to More Retail’s struggles before being acquired by Amazon, the pattern shows that rapid physical retail expansion without solid unit economics often leads to disaster.

Even established players like Future Group, with brands like Big Bazaar, eventually crumbled under debt despite their scale. The cautionary tale is clear: expansion cannot outpace economic viability for long.

Yet, Blinkit continues its dark store expansion spree. The question is whether these stores will become profit centers or remain a drain on resources. The company claims these are “front-loaded investments,” but at what point do these investments start yielding returns?

The Competitive Landscape: A Blood-Red Ocean

The quick commerce space in India has become what strategy experts call a “red ocean” – a market where companies are fighting for the same customers, offering largely undifferentiated services, and competing primarily on price.

1. Zepto, backed by Y Combinator, has been aggressive in its expansion and has raised substantial funding despite being a newer entrant.
2. Swiggy’s Instamart, leveraging its existing food delivery network, poses another significant challenge.
3. Then there are titans like BigBasket’s BB Now, backed by the Tata Group’s deep pockets.
4. Also, Flipkart’s Quick, supported by Walmart’s resources.

This intense competition is reminiscent of India’s telecom wars, ride-hailing battles between Ola and Uber, and the ongoing food delivery competition. In each case, consolidation eventually occurred, with many players either shutting down or being acquired.

JustDial tried to enter the hyperlocal delivery space with JD Omni but couldn’t sustain its operations. LocalBanya, PepperTap, and Askme Grocery were among the many grocery delivery startups that shut down after initial hype. More recently, Dunzo has been struggling despite being backed by Google.

The historical pattern suggests that not all current players in quick commerce will survive. The question for Zomato shareholders is whether Blinkit will be among the survivors or the casualties.

The Consumer Psychology: Discount Addiction

One aspect often overlooked in analyses of quick commerce is consumer psychology. Indian consumers, across income brackets, have historically been value-conscious. But the e-commerce and app-based service revolution has created a new phenomenon: discount addiction.

From the Great Online Shopping Festival (GOSF) introduced by Google in 2012 to the current sale events by various platforms, Indian consumers have been conditioned to expect discounts. Apps that don’t offer discounts often see lower engagement and higher uninstall rates.

This creates a vicious cycle. Companies offer discounts to attract customers, creating expectations of continued discounts. When they try to reduce discounts to improve unit economics, customers often migrate to competitors still offering better deals.

This pattern has been seen in the movie ticket booking space with BookMyShow and Paytm, in food delivery with various players before the Zomato-Swiggy duopoly emerged, and in ride-hailing before Ola and Uber established dominance.

For Blinkit, attracting customers without discounts will be challenging, especially when competitors like Zepto, etc are still willing to burn cash; as if’s like trying to be the first person to stop dancing at a party where the music is still playing loudly.

The Investor’s Dilemma: Growth vs. Profitability

Zomato’s stock performance presents a fascinating case study in investor psychology. Despite the company’s profit decline and the mounting losses from Blinkit, many institutional investors remain bullish, by believing that the stock has had its ups and downs, but overall, it has performed reasonably well since its IPO.

This optimism is reminiscent of how investors viewed other technology companies that prioritized growth over profitability. From global examples like Amazon (which took years to become consistently profitable) to Indian counterparts like Nykaa and Paytm (with varying degrees of success), the growth-first approach has had mixed results.

Historically, Indian markets have been more profit-focused compared to their Western counterparts. Companies like Infosys, HDFC Bank, and Asian Paints gained investor trust through consistent profitability rather than just growth stories. However, the injection of global capital and changing investor profiles has shifted this landscape with many angles. Now, companies can sustain longer periods of losses if they can demonstrate strong growth and a clear path to eventual profitability.

The question for Zomato investors is whether the company’s current growth trajectory, particularly with Blinkit, will eventually translate into sustainable profits or whether it’s climbing a Penrose staircase – moving but never really getting anywhere.

The Regulatory Factor: Another Wrinkle in the Story

Another aspect that adds complexity to Zomato and Blinkit’s future is the evolving regulatory landscape. The Indian government has been increasingly focusing on the digital economy, with new rules and regulations being proposed and implemented.

The draft e-commerce policy, potential changes to labor laws affecting gig workers, and data protection regulations could all impact the operating models of companies like Zomato and Blinkit. Historically, regulatory changes have significantly affected various industries in India.

For instance, the telecom sector saw major disruptions with policy changes regarding spectrum allocation and fees. The pharmaceutical industry had to adapt to price controls on essential medicines. More recently, the online gaming industry has faced challenges due to evolving regulations around real money gaming.

For quick commerce players, potential regulations around delivery times (due to safety concerns for delivery partners), inventory management for multi-brand retail, and labor protections could significantly impact cost structures and operational models.

Will Blinkit Be Zomato’s Albatross?

So, will Blinkit ultimately take Zomato down?

The company is clearly at a crossroads. On one hand, quick commerce represents a massive market opportunity in a country like India where convenience for ‘some masses’ is increasingly valued and fulfilled; while otherwise, the cutthroat competition and high cash burn make it a risky bet.

Historically, companies that have successfully navigated such transitions in India have a few things in common: deep pockets or patient investors, the ability to establish clear differentiation beyond discounts, and excellent execution capabilities.

1. Reliance Industries successfully transitioned from a textile company to a petrochemical giant and then to a retail and telecom powerhouse.
2. Tata Consultancy Services evolved from a division of Tata Sons to one of the world’s largest IT services companies.
3. Even in the consumer internet space, MakeMyTrip survived the dot-com bubble and multiple economic downturns to establish leadership in online travel.

The common thread in these success stories is strategic patience – the willingness to invest for the long term while ensuring that unit economics eventually make sense. Whether Zomato and its investors have this patience remains to be seen.

In The Way Forward, What Are Possible Scenarios?

Looking ahead, several scenarios could unfold for Zomato and Blinkit…

The Amazon Path – Blinkit continues to burn cash but gradually improves unit economics. Eventually, it achieves profitability and justifies the current investments. This is the path Amazon took with AWS eventually supporting its retail operations.

The Consolidation Play – The quick commerce sector sees consolidation, with Blinkit either acquiring smaller players, like what Byju’s did, or merging with another major player. This could potentially improve economies of scale and reduce competitive pressure.

The Strategic Pivot – Zomato recognizes that quick commerce in its current form isn’t sustainable and pivots Blinkit’s model to focus on higher-margin categories or different service levels that don’t require as much discounting.

The Spin-off or Sale – If Blinkit continues to drag down Zomato’s overall performance, the company might choose to spin it off or sell it to focus on its more profitable food delivery business.

The Old Economy Wisdom – Blinkit adopts a more measured approach to expansion, focusing on profitability in existing dark stores before opening new ones. This would be similar to how traditional retail chains like DMart have expanded – slowly but sustainably.

At The End, Where The Paradox Continues…

As we return to our opening metaphor of the Penrose stairs, Zomato’s journey with Blinkit continues to resemble this paradoxical structure. The company keeps climbing the growth staircase, but somehow finds itself back where it started in terms of profitability.

In the Indian context, we’ve seen this movie before – from Kingfisher Airlines’ aggressive expansion to Snapdeal’s discount-fueled growth phase. Some companies manage to break free from the paradox and establish sustainable businesses, while others remain caught in the loop until resources run out.

For Zomato, the challenge will be to learn from these historical patterns while charting its own unique path. The food delivery business has shown signs of profitability, which provides some cushion. But how long this cushion will last if Blinkit continues to burn cash remains to be seen.

As consumers, we might enjoy the convenience and discounts that quick commerce provides. As investors or observers, however, we need to recognize that in business, there’s rarely such a thing as a free lunch – or in this case, a free 10-minute delivery. Someone always pays the bill, and right now, that someone appears to be Zomato’s bottom line.

The paradox of quick commerce is that the faster you deliver, the slower your path to profitability might be. Only time will tell if Zomato can solve this puzzle or if it will remain trapped in this Escherian nightmare of its own creation. Until then, we’ll watch from the sidelines, perhaps ordering some popcorn via Blinkit – with a hefty discount, of course.