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Informist, Monday, Jan. 20, 2025

By Rajesh Gajra

NEW DELHI – The Zomato Ltd. management said the acceleration of new store additions in the past couple of quarters in the company's quick commerce segment will continue in the current calendar year to meet the target of 2,000 stores by December, against the earlier guidance of December 2026. Speaking with analysts in a post-earnings conference call, the management said that at the aggregate store level, the quick commerce segment will continue to incur operating losses for the next 1-2 quarters due to the new store additions.

The quick commerce segment of Zomato is the Blinkit operations, where grocery and other items are delivered to consumers in 10 minutes or less. In the December quarter, revenues from Blinkit deliveries were INR 14 billion and accounted for 24.3% of total revenue of the company. But the segment has been incurring operating losses, or negative adjusted earnings before interest, tax, depreciation, and amortisation, for many quarters, and in the December quarter the loss expanded to INR 1.03 billion, compared to INR 80 mln in the September quarter and INR 890 million in the year-ago quarter.

In a presentation, the company said the Blinkit store count crossed the 1,000 mark "one quarter ahead of plan". But this acceleration resulted in the company's profitability taking a hit on quarter-on-quarter basis. Zomato's consolidated adjusted EBITDA declined sequentially by 14% to INR 2.85 billion due to "expedited new store openings and new customer acquisition in quick commerce business".

The management said the organisation's bandwidth and increasing confidence in the quick commerce business enabled the company to expand the segment store count faster. In the December quarter, Zomato added 216 new Blinkit stores, following an addition of 152 stores in the September quarter, to take the total count to 1,007. The rapid pace of Blinkit store additions led to "pulling forward the growth investments in the business that we would have otherwise made in a staggered manner over the next few quarters", the company said in a presentation.

As the investments in Blinkit stores continue to be on the upswing, the segment's operating losses on an absolute basis will go up in the next 1-2 quarters, the management said in the analyst concall. The newer stores have lower utilisation compared to older stores and incur higher initial operating costs, the management said. During the increasing velocity of new store additions, the company offers "sort of lower or no delivery charges" in the initial period, it said.

The management insisted that other than this initial-period offers for new stores in the quick commerce business, the company does not resort to any other customer incentives such as discounts for the purpose of retention. This is because the company's focus is on improving service levels in the business and being the "platform of choice for our core customers".

The company expects that as the new stores mature and the addition of stores slows down, the operating metrics in the quick commerce segment will improve. Zomato increased its speed of opening new Blinkit stores due to increasing completion in the past six quarters, according to the management. The idea is to retain market share and also have spare capacity to handle future growth in the business, it said.

Notwithstanding the sequential spike in operating loss in the quick commerce segment due to the number of Blinkit stores rising rapidly, the gross order value of the segment jumped to INR 78.00 billion in the December quarter from INR 61.32 billion in the previous quarter. The management said during the concall with analysts that much of this upsurge came during the Diwali festival days, that is, in the first half of the December quarter. The upsurge was also aided by the increasing number of stores.

With respect to the food delivery business segment of the company, which comprises mainly consumers' food orders from restaurants using the Zomato application, the company said in a presentation that "it was going through a broad-based slowdown in demand which started during the second half of November". In the December quarter, the year-on-year increase in gross order value in the food delivery business was the lowest in at least five quarters.

The metric increased by 17% on year to INR 99.13 billion in Oct-Dec, lower than the 21% on-year growth recorded in the previous quarter. It was also lower than the annual growth rate of 20% in gross order value expected by the company earlier.

Asked by an analyst whether Zomato was turning cautious about 15-minute-delivery expectations in the food delivery business, the management said the idea was "very, very nascent right now..., it's still early days in terms of what models will work sustainably (and) profitably, (and) which models will be scalable".

Zomato reported its financial results for the December quarter Monday. The company's consolidated net profit for the quarter fell 57% on year and 66% on quarter to INR 590 million, while its revenue from operations increased 64% on year and 12.6% sequentially to INR 54.05 billion. The company's on-year revenue growth was the lowest in nine quarters.

Zomato shares closed 3.6% lower Monday at INR 239.75 on the National Stock Exchange.  End

Edited by Rajeev Pai

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