zomato food-delivery growth: Subdued consumer spends weigh on Zomato’s food-delivery growth

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Gurugram-based Zomato, which reported a fourfold sequential jump in its December-quarter net profit, said a broader slowdown in discretionary consumption had crimped the growth of its mainstay food-delivery business.

In a letter to shareholders, Zomato’s food-delivery CEO Rakesh Ranjan pointed out that the demand environment in the October-December period was muted for the broader restaurant industry.

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“Hence, food delivery GOV (gross order value) growth (at 6.3% QoQ/27% YoY) was lower than our expectations, but still higher than the other players in the restaurant industry,” he said.

“One of the things driving the growth of our food-delivery business is the fact that our platform is still underserved from a supply standpoint. The monthly active restaurant base on our platform has grown by 20%+ YoY in Q3FY24. This growth is driven both by new restaurants opening up and our coverage of existing restaurants increasing,” Ranjan added.

Zomato’s consolidated operating revenue for the December quarter increased 69% on year to Rs 3,288 crore. However, adjusted revenue for the food-delivery vertical rose 29% YoY to Rs 2,025 crore.

The company defines adjusted revenue as revenue plus actual customer delivery charges paid, net of any discounts.

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ET had reported on January 24 that sustained inflation and a pullback in funding for startups was making it challenging for the cloud kitchen segment in India to maintain the pace of revenue growth seen in the past. Further, the earnings reports of the first two quarters of listed restaurant and food companies also pointed to a broader trend of sluggish growth amid macroeconomic headwinds.

Over the longer term, Zomato’s chief executive officer Deepinder Goyal said, the company expects food-delivery GOV to grow at over 20% year-on-year. He said the growth could accelerate further “if we see more than expected market share gain and revival in macro consumer demand.”

In a January 24 research note, brokerage firm Bernstein had said that Zomato had a 54% market share in gross merchandise value (GMV) terms for the January-June 2023 period.

On the basis of monthly active users, it said, Zomato’s market share stood at 66%. This includes quick-commerce platform Blinkit’s numbers to make a like-to-like comparison with main rival Swiggy, which includes Instamart.

On the margin front, Zomato’s chief financial officer Akshant Goyal alluded to the introduction of the platform fee it charges users on every order since July 2023 as a driver for the company’s margin improvement.

On whether the company plans to increase the platform fee going forward, Ranjan said, “We think it is too early to predict how the platform fee will shape up. Much like the Gold programme, we are still testing the waters on what works and makes sense here from a long-term perspective. We will continue to tactically use levers like these to optimise both growth and margin expansion.”

ET reported on January 1 that Zomato had increased the platform fee to Rs 4 per order from Rs 3 earlier. Bengaluru-based Swiggy also tested higher platform fees for its consumers last month.

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