Food delivery major Zomato has started reclaiming some of its market share from rival Swiggy in the food delivery play, helped by an uptick in Gold membership signups.
The comeback of the Gold programme is also expected to help Zomato improve its unit economics in the current quarter though the food delivery market may slow down further, as per a report by HSBC.
“We expect Zomato to continue to gain market share from Swiggy, led by an aggressive go-to-market strategy,” HSBC said in its report. Zomato was the market leader with 54% share in Q3 FY23 and the share is expected to increase to 56% in the current quarter.
“We believe Zomato will be able to offset the negative impact of Zomato Gold by its continued push for higher take-rates and reduced costs; leading to improving contribution margin,” it added.
The Deepinder Goyal-led firm was hit by slowing growth in the food delivery business in the December quarter, with adjusted revenue declining 1% from the preceding quarter, largely owing to declining order volume.
“We have seen an industry-wide slowdown in the food delivery business since late October (post the festival of Diwali). This trend has been seen across the country but more so in the top 8 cities,” CFO Akshant Goyal said in Zomato’s earnings statement.
HSBC said the food delivery segment will continue to witness a slowdown in the March quarter, however, it will not have an impact on Zomato’s market position.
Zomato Gold, the company’s first loyalty programme, which was remodeled to Zomato Pro, made a comeback in late January. The new membership feature has seen over 9 lakh signups already, the company had said while revealing its third-quarter financial performance.
Blinkit’s value addition
Zomato’s hyperlocal vertical Blinkit is expected to add “significant value” over the long term if executed well.
The quick commerce division is expected to achieve gross order value (GOV) run rate of $2 billion by FY25, according to HSBC, from its current GOV run rate of $1 billion. With increasing volume, Blinkit also holds the potential for an improvement in profitability as well, keeping up an anticipated strong growth in quick commerce for a few years due to low penetration and stabilising competition.
“Blinkit and Swiggy Instamart were almost neck-and-neck in hyperlocal gross order value for H1 22. We are positive on Blinkit’s growth as opportunity is large and the company is adding new SKUs,” the report noted. Efficient integration of logistics with food delivery will also help leverage cost centres.
Blinkit registered a 21% year-on-year growth in order volume in Q3. Average order value, however, fell marginally to Rs 553 from Rs 568.
“The slight downward pressure on AOVs might be a result of the slowdown where customers are preferring to buy smaller packs instead of larger ones,” Albinder Dhindsa, founder and CEO of Blinkit, said in the earnings statement.
Dhindsa, however, said the third quarter was the highest ever in terms of new and returning customers, without divulging numbers. Blinkit registered monthly active transacting customers in the third quarter at 3.1 million, up from 2.6 million a year earlier.
