Why Zomato's side ventures may outshine its core food delivery business

According to Deepinder, in some of these cities, Blinkit's GOV, which is growing at more than 80 per cent, is already more than Zomato's

Zomato, the online food and grocery delivery platform, managed to turn a profit for the second consecutive quarter, raking in Rs 36 crore in Q2 FY24 on the back of a seasonal uptick in food delivery order volumes, yet the company's side ventures may prove to be a safer bet for long-term growth.

Despite bouncing back from an industry-wide slowdown in food delivery two quarters ago, thanks in part to the adoption of its loyalty programme, Zomato Gold, the sustainability of this momentum remains uncertain.

Blinkit, Zomato's quick commerce arm, once a cash-draining venture, on the other hand, appears to have found its stride. Its B2B venture, Hyperpure, and its going-out business are also on a healthy growth trajectory.

Blinkit

In Q2FY24, Blinkit turned contribution positive for the first time ever. Its revenue increased to Rs 505 crore from Rs 384 crore in the previous quarter, while its gross order value (GOV) for the quarter was reported at Rs 2,760 crore, compared to Rs 2,140 crore a quarter ago. “On a Y-o-Y basis, GOV growth was 86 per cent, as expected and in-line with the past. GOV growth was largely driven by same-store sales growth,” said Albinder Dhindsa, CEO, Blinkit.

Zomato CEO Deepinder Goyal had previously claimed that Blinkit would drive more value for shareholders in the next decade than Zomato itself. Elaborating on the comment, he said: “In the past five quarters, after the acquisition of Blinkit, we have seen a steady rise in Blinkit’s GOV as a percentage of Zomato’s GOV in the cities where we have an overlapping presence.”

In some of these cities, Blinkit’s GOV, growing at more than 80 per cent, is already larger than Zomato’s. Goyal predicted: “At this pace, we wouldn’t be surprised if Blinkit’s GOV becomes multiple times larger than Zomato’s GOV in overlapping cities, which will more than compensate for the wider geographical footprint of Zomato.”

On the profitability front, over 60 per cent of Blinkit's dark stores are now contribution-positive. Some cities where Blinkit operates have a similar contribution per order as the food delivery business. “Even from a potential profit pool perspective, we think quick commerce is a larger opportunity than food delivery,” Goyal further said. 

Going out

The company has also seen its going-out business do well for it. In Q2, Zomato reported metrics for this business for the first time. The venture reported a revenue of Rs 45 crore, up from Rs 42 crore in the previous quarter and Rs 26 crore a year ago. Its GOV rose to Rs 682 crore from Rs 616 crore a quarter ago and Rs 298 crore a year ago.

The adjusted Ebitda for the going-out business was reported at Rs 1 crore, against a loss of Rs 11 crore a year ago but slightly down from Rs 3 crore in the previous quarter.

Hyperpure

Hyperpure, its B2B vertical, saw its revenue rise to Rs 745 crore compared to Rs 617 crore a quarter ago and Rs 334 crore a year ago. The vertical’s adjusted Ebitda loss narrowed slightly from Rs 35 crore in Q1 to Rs 34 crore in Q2, indicating a stable growth trajectory.

Food delivery

While the growth trajectory of Zomato’s side ventures bodes well, the sustainability of growth in the food delivery business remains to be seen. Adjusted revenue for its food delivery business increased to Rs 1,742 crore in Q2 from Rs 1,530 crore a quarter ago, while its GOV increased 9 per cent Q-o-Q from Rs 7,318 crore to Rs 7,980.

According to Rakesh Ranjan, CEO of Zomato’s food ordering and delivery business, growth in food delivery GOV came almost entirely on the back of growth in order volumes, an admittedly seasonal phenomenon; the average order value remained largely flat.

Moreover, the company’s upper management believes that the ongoing festival season and the Cricket World Cup are not expected to have a significant impact on order volumes this quarter. “On balance, we think that Q-o-Q, GOV growth in food delivery in the next quarter should be moderate,” said Akshant Goyal, chief financial officer (CFO), Zomato.

Meanwhile, the company’s loyalty programme, Zomato Gold, which now has 3.8 million members, is leading to margin dilution for the business. “As of now, a Gold order is less profitable than a non-Gold order due to the impact of programme benefits. The delivery charges paid by the customer are almost negligible,” said Akshant.

Furthermore, subscription fees collected from members covers only a small part of the incremental costs, the CFO said.

Regardless, growth in the food delivery business over the next quarter is expected to be moderate around the “high single digit” mark. Slower growth could, however, lead to Zomato’s side ventures stealing the spotlight from its core food delivery business.