Zomato, a food delivery and restaurant discovery platform based in Gurgaon, India, has been able to regain market share that it lost to rival Swiggy in the second half of 2022, according to a note by HSBC Global Research. The relaunch of Zomato Gold, a loyalty program, in January 2023 has contributed to the company’s success. Zomato Gold offers a three-month membership at a discounted price of INR 149, making it an attractive option for users.
Zomato’s market share for the January-June 2022 period was estimated at 55%, with the remaining 45% held by Swiggy. However, for the October-December 2022 quarter, this changed to 54% for Zomato and 46% for Swiggy, as per the HSBC report. The bank predicts that Zomato’s market share will increase to 57% in the fiscal year 2023-24.
The report said, “We expect Zomato to continue to gain market share now from Swiggy, led by an aggressive go-to-market strategy.” “From 4QFY23 onwards, there will be a negative impact from Zomato Gold in the range of INR 10-12 per order, which could concern investors. However, we believe Zomato will be able to offset this impact from its continued push for higher take-rates (commission) and lower costs.”
“In the coming quarters, as the company absorbs the impact of Zomato Gold, Ebitda margins should continue to improve. On top of this, Swiggy continues to burn a lot more cash than Zomato.”
The HSBC report also discusses Zomato’s quick-commerce unit, Blinkit, which aims to become a hyperlocal e-commerce player beyond grocery retailing. While this could increase inventory and logistics costs, it could also result in stronger growth in gross order value (GOV). Blinkit’s GOV grew from INR 1,172 crore in the June quarter to INR 1,749 crore in the December quarter, showing promising growth.
HSBC expects the gross order value for the food delivery industry to grow around 9% year-on-year in the quarter ending March 31, which is below its medium-term expectation of 15%. The funding crunch affecting India’s new economy ecosystem has resulted in companies reducing cash burns, which is weighing on their business growth. In the fiscal year ended March 31, 2022, Swiggy had used INR 3,900 crore of cash, compared with INR 700 crore by Zomato. Swiggy’s higher cash burn was mainly due to its investments in its quick-commerce vertical, Instamart.
Despite the challenges, private wealth management firm Bernstein believes that Indian Internet companies’ challenging funding environment could lead to market share gains for segment leaders, including Nykaa in beauty retailing and Zomato in food delivery and quick commerce. The slow growth in the food delivery sector was flagged by Zomato in its December-quarter earnings, which showed a tepid growth of 0.7% sequentially in an otherwise seasonally strong quarter.
