Zomato Ltd., an Indian multinational restaurant aggregator and food delivery company, in its Q3 earnings call discussed about a broad-based slowdown in food delivery, while addressed that Blinkit’s take rate declined due to product mix changes in electronics and general merchandise. The company achieved rapid dark store expansion, reaching 1,000 stores ahead of schedule, particularly in smaller cities, with new stores typically breaking even in 2-3 months. Management also mentioned that while margins in mature stores remain stable, overall profitability was impacted by aggressive expansion and new store openings. The company emphasizes service quality over discounting for customer retention, with higher initial marketing costs in competitive markets but stronger customer retention rates.
Zomato reported mixed performance, with year-over-year revenue growth of 64% but a significant net profit decline of 57% quarter-over-quarter, falling below analyst expectation. The company’s food delivery business faced headwinds due to a broad-based slowdown since November, while Blinkit, its quick commerce unit, showed strong revenue growth of 117% year-over-year despite posting an EBITDA loss of INR30 crore. The company added 216 new dark stores during the quarter and accelerated its expansion plans, aiming to reach 2,000 stores by December 2025, though management indicated Blinkit would likely remain loss-making through FY26 due to these investments. Despite current challenges, Zomato remains optimistic about recovery and projects margin improvement to 5% in coming quarters, though profitability will continue to be impacted by elevated capital expenditures and employee costs.
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Financial/Operational Metrics:
- Revenue: INR5,405 crore, up 64% YoY.
- Net Profit: INR59 crore, down 57% YoY.
- Diluted EPS: INR0.06, down 63% YoY.
- Operating Profit: INR162 crore, up 217% YoY.
- Avg. GOV (Gross Order Value) Per Day Per Store: 970.
Outlook:
- Store Count Target: 2,000 by December 2025.
- Food delivery GOV Target: 20% plus annual growth long-term.
- Going-out Segment Growth: 40% plus YoY for the next few years.
- Profitability: Expect short-term losses due to rapid expansion.
Analyst Crossfire:
- Quick Commerce Take Rate & Profitability (Aditya Soman – CLSA)? Changes in take rates were attributed to product mix, with no significant trends observed. Confidence in improving profitability stems from strong contribution margins in mature stores, despite investments in new stores and logistics (Akshant Goyal – CFO; Deepinder Goyal – CEO).
- Expansion Strategy & Unit Economics (Ankur Rudra – JPMorgan): Accelerated store expansion was a natural outcome of prior work, not a competitive decision. Smaller cities show attractive ROI, with a larger portion of new stores planned outside top 10 cities, maintaining favorable unit economics (Akshant Goyal – CFO).
- Marketing Costs & Delivery Fees, Store Density & Cost Efficiency (Ankur Rudra – JPMorgan, Yogesh Agarwal – HSBC): Increased digital marketing costs and competitive delivery fee adjustments slightly impacted take rates. Discounts remain negligible as Zomato operates as a marketplace. Densification in larger cities has reduced delivery costs, although aggregate reductions are slower due to new store openings. Rent and picker salaries have risen but are considered within expected business costs (Akshant Goyal – CFO).
- Blinkit Expansion & ROI, Customer Retention (Swapnil Potdukhe – JM Financial, Vivek Maheshwari – Jefferies): New stores continue to achieve breakeven within 2-3 months, though densification slightly slows existing store ramp-ups. Healthy same-store growth is observed at polygon levels. Retention relies on consistent service quality and user experience rather than pricing, with marketing costs expected to rise amid competition (Albinder Dhindsa – CEO, Blinkit).
- Marketing Spend & Expansion, Food Delivery Margins (Gaurav Malhotra – Axis): Marketing spend was backloaded in the quarter, driven by ramping up 150 new stores. Store maturity towards year-end is expected to improve profitability despite continued expansion. Margins are improving through incremental optimizations across delivery costs, platform fees, and AOV growth. Focus remains on maintaining market share while enhancing profitability (Deepinder Goyal – CEO).
- Quick Commerce Expansion, Competition & Retention (Gaurav Rateria – Morgan Stanley, Sachin Salgaonkar – BofA): Over 50% of new stores are in top cities, with 20% in new cities. Bottom-tier stores contribute lower margins due to being newer and underutilized. Despite rising competition, Zomato has maintained or grown market share through service consistency. The company is experimenting with quick delivery models like curated menus and reduced delivery times (Akshant Goyal – CFO, Deepinder Goyal – CEO).
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