“We’re not raising money to start discounting more,” says Zomato’s finance chief Akshant Goyal, speaking about the company’s proposal to raise about $1 billion dollars.
“I think we could do what is right for the business first. And we don’t think therefore discounting is going to help our business at this point in time,” Goyal further added during the company’s post-earnings call.
While the final timeline and amount for the fundraise hasn’t been finalised yet and still needs shareholder approval, Zomato is looking to raise somewhere along the range of $1 billion subject to market conditions in a bid to strengthen its balance sheet.
Growth beyond metros
The foodtech major is focusing on increasing its quick commerce offerings with a wider assortment and increased penetration. It said it was on track to open 1,000 dark stores by the end of the financial year, and 1,000 more by the end of 2026.
Blinkit pared its market share in NCR regions from 47% to less than 40% as it tries to focus on building out markets beyond Delhi-NCR. It claims to currently be the largest player by gross order value (GOV) in all major metro cities outside of Chennai and Hyderabad.
Albinder Dhindsa-led Blinkit has been rapidly expanding across the country, especially in Tier II towns. While opening a single store in various cities can show market expansion, it is crucial to understand how many stores can be profitably operated within a city.
Therefore, the city count may not be the right indicator of the depth of this market at this point beyond the top eight cities, as Zomato is “still scratching the surface of the addressable market in the city”, according to Zomato executives.
“While we have seen success in most of the markets that we’ve gone into so far, but our immediate focus in terms of building out the infrastructure and business remains in the top eight cities because we still believe that is underserved from a supply standpoint,” noted Goyal.
Pricey quick commerce expansion
While the segment more than doubled its revenue to Rs 1,156 crore, the growth hasn’t been cheap, with reduced margins and take rates for Blinkit.
The margin has been impacted due to the fixed costs associated with opening new stores, which include expenses for staff and rent. It takes time for these stores to become operational. As a result, there hasn’t been any expansion in the contribution margin over the past two to three quarters, primarily due to ongoing expansion efforts, noted Akshant Goyal.
“Majority of the impact that you’re seeing (on take-rates) is because of the higher velocity of new store openings. So when we open a new store, typically it takes time to ramp up. So the take rates increase over time. So the mix of new stores is increasing. That’s why you see a little bit of decrease in the overall take rates,” noted Blinkit’s Albinder Dhindsa.
Moreover, the quick commerce operator said it does not see any impact on the throughput of existing stores with the launch of new dark stores. Blinkit plans to continue its building backend and customer infrastructure for high traction categories like beauty, electronics and toys.
In terms of future plans for the quick commerce arm, there are no loyalty programs and private labels on the card right now but the company said it will continue to evaluate all models.
Food Delivery and Stepping Out
On the food delivery front, peers in the space are expecting the segment to take a hit as food delivery is perceived as more of a discretionary spending. While Zomato hasn’t seen any impact from the general economic consumption slowdown, it plans to keep an eye out, noted Goyal.
Its food delivery segment—which continues to be its largest vertical—witnessed lower growth as compared to the last two quarters at just a 21% rise in the reporting quarter vs a 27% YOY rise in Q1 and a 28% rise in Q4FY24.
For its going out business, Zomato plans to focus on transitioning its dining out business and new ticketing business to the District app, at least for the foreseeable future. It is currently planning to launch the District app in the next four weeks.
On a consolidated basis, The Gurgaon-based company reported 68.5% higher operating revenue in Q2FY25 at Rs 4,799 crore. While, its profit narrowed on a QoQ basis to Rs 176 crore, from Rs 253 crore it clocked in the previous quarter.
