Zomato CEO aims to turn entire business, including Blinkit, profitable in a year
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
By increasing profits in the food delivery business and reducing losses in the quick commerce (Blinkit) business, Zomato founder Deepinder Goyal aims to turn the company profitable within the next four quarters
While announcing Zomato’s March quarter earnings on Friday, the foodtech giant’s CEO Deepinder Goyal said he’s confident about turning the entire business, including Blinkit, profitable within the next four quarters. “By increasing profits in the food delivery business and reducing losses in the quick commerce (Blinkit) business,” Goyal noted, while replying to how confident he was of achieving profitability for the entire business within the next four quarters.
Zomato on Friday reported trimming of losses, both on a year-on-year and sequential basis, in the March quarter. The company’s consolidated net loss narrowed to Rs 188 crore from Rs 360 crore a year ago, and Rs 345 crore a quarter ago. Consolidated revenue increased a whopping 70 percent on-year to Rs 2,056 crore.
“In food delivery, over the last five quarters, we have improved our margins meaningfully while further strengthening our market position. We will continue with the same mindset as we look to further expand the Adjusted EBITDA margin (from the current 1.2 percent) to our stated goal of +4-5 percent of GOV (which would translate to Rs 1,000 to 1,300 crores of annual cash operating profit at the current scale of the food delivery business),” the Zomato founder said.
ALSO READ: Zomato Q4 Results: Net loss narrows to Rs 188 crore; revenue rises 70%
Demand slowdown hit Zomato’s quarterly growth
Zomato said its quarterly growth in food delivery segment was low because of the demand slowdown that it witnessed from late October last year till the end of January 2023. Zomato said it has started seeing green shoots of recovery in the first week of February.
“As we had mentioned in our last letter, we had started seeing green shoots of recovery in the first week of February 2023. That recovery has continued and the business has grown well since then and the same should reflect in better GOV growth in the next quarter,” said Chief Financial Officer Akshant Goyal.
The Zomato CFO expects quarter-on-quarter GOV growth to be in high single digits in the first quarter of FY24. “This could have been higher if not for the industry wide slowdown that continues to weigh on growth,” he noted.
Zomato cited two other factors that impacted growth in the quarter under review. The first was February being a shorter month (2.2 percent impact) and shutdown of 225 cities in January this year (0.3 percent impact).
Normalised for these factors, Zomato said it would have seen a sequential GOV growth of 0.8 percent in Q4FY23 instead of a decline of 1.7 percent.
Akshant also said that Zomato has gained market share in the last quarter and also in the last financial year (FY23).
Can Blinkit become an overriding biz for Zomato?
To foray into the quick commerce segment, Zomato had acquired Blinkit (erstwhile: Grofers) in August last year. In a highly competitive market, Blinkit grew its order volumes as well as average order value over a period of time. Its Gross Order Value (GOV) grew by about 26 percent sequentially in Q2FY23 to Rs 1,482 crore and in the following quarter of Q3FY23, Blinkit reported nearly 30 percent jump in revenue and managed to narrow down the EBITDA losses to Rs 230 crore from Rs 260 crore. Furthermore, as its potential user base is larger than the food delivery business and the retention rates being higher, it provides a cushion to Zomato’s overall growth.
However, the risk to this quick commerce business is its incremental cash burn, which can act as a roadblock for growth of Zomato. Alongside, Blinkit’s biggest challenge is rationalizing the delivery fleet due to time constrains in quick commerce.
Competitor Big Basket in an interaction with CNBC-TV18 said the unit economics for 10-minute delivery is unviable. A ‘good sensible’ business is 15-30 minute deliveries. “For the unit economics of quick commerce to work, you need a high density of orders” Bigbasket’s co-founder Hari Menon said. Hence, the key to make quick commerce work is to prioritize dense locations and order value, instead of covering an entire city.
Nevertheless, Blinkit could well become an overriding business for Zomato if it successfully maintains consistent growth in GOV and profitability in the long term. Furthermore, the integration of Zomato and Blinkit delivery fleet has the potential to result in better delivery management.
(With inputs from Vahishta Unwalla)
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