Blinkit, the quick commerce arm of the foodtech giant Zomato, marked a significant milestone during the quarter ending on September 30, 2023 (Q2 FY24) by achieving a positive contribution for the first time.
In the shareholder letter accompanying its Q2 FY24 financial statements, Zomato announced that Blinkit’s contribution margin, as a percentage of the gross order value (GOV) within the overall business, demonstrated a noteworthy transformation. It progressed from a negative figure of -7.3% in Q2 FY23 to a positive +1.3% in the quarter concluding on September 30, 2023.
The company determines its contribution by deducting various expenses, including store costs, warehouse expenditures, packaging and handling expenses, and recruitment costs related to delivery agents, among other factors, from its total revenue.
It’s worth highlighting that this marks the first full quarter in which Blinkit achieved a positive contribution, following its initial contribution-positive status in June 2023. This significant milestone has firmly placed the quick commerce division of Zomato in the spotlight in this quarter’s shareholder letter.
In Q2 FY24, Blinkit processed a total of 45.5 million orders, reflecting a robust quarter-on-quarter (QoQ) increase of almost 24% compared to the 36.8 million orders in the preceding quarter. Furthermore, this also marked a substantial year-on-year (YoY) surge of 74.3% in comparison to Q1 FY23, during which it handled 26.1 million orders.
The significant surge is likewise evident in the Gross Order Value (GOV), which escalated by 29% in the quarter-on-quarter (QoQ) comparison and a remarkable 86% in the year-on-year (YoY) comparison, reaching INR 2,760 crore in Q2 FY24.
“Part of the reason for high growth was the low base effect, given the temporary disruption in the business in the previous quarter (as mentioned in our last letter),” said Blinkit cofounder and CEO Albinder Dhindsa.
“On a YoY basis, the GOV growth was 86%, as expected and in line with the past. GOV growth was largely driven by same-store sales growth as we continue to focus on serving more customer needs and ensuring consistency of service levels,” Dhindsa added.
Zomato’s Chief Financial Officer, Akshant Goyal, anticipates that Blinkit is poised to achieve yet another quarter of record-breaking performance in Q3, primarily attributed to the festive season.
During the reviewed quarter, Blinkit added 28 new stores, bringing the total store count to 411. Dhindsa elaborated on the geographical expansion, stating that the quick commerce platform targets a minimum of 100 additional stores by the end of FY24. Anticipating an estimated total of 480 stores by March 2024, the company aims for substantial growth.
Regarding the effects of geographic expansion, Dhindsa expressed optimism that Blinkit’s adjusted EBITDA margin would see improvement, leading the platform toward a break-even point by the first quarter of FY25.
“Having said that, what we really care about is that our existing stores increasingly make more contribution profit and at the same time the new stores that we open ramp-up at a pace that we expect them to (or better),” added the Blinkit CEO.
“…even if the aggregate margin falls as an outcome, we would not worry about that because the underlying business is solid and the fall in margin is then more a function of rapid good quality expansion in the business,” Dhindsa said.
The average order value (AOV) at Blinkit increased to INR 607 in the second quarter of FY24, up from INR 582 in the first quarter of FY24. Additionally, it saw a year-over-year growth of 7%.
“…part of the recent uptick in AOV was also driven by the improving assortment and GOV mix in favour of high ASP (average selling price) categories such as electronics, toys, books, beauty products, home décor, festive needs, among others. While the ordering frequency of these categories is lower, their ASP tends to be 3-4x higher than other categories, thereby driving up AOV,” the Blinkit CEO explained.
Zomato CEO Deepinder Goyal reaffirmed his optimistic outlook for the quick commerce business, stating that it has the potential to outperform the food delivery business.
Goyal said Blinkit is seeing profitable economics not just at a store level but also at a city level and some of the cities are now operating at similar contribution per order as the food delivery business in those cities. “So even from a potential profit pool perspective, we think quick commerce is a larger opportunity than food delivery,” he said.
Zomato, during the second quarter of FY24, achieved its second profitable quarter, reporting a Profit After Tax (PAT) of INR 36 crore.
Read More: Zomato reports remarkable surge in profit, achieving second consecutive profitable quarter in FY24
The company’s shares concluded Friday’s trading session with an 8.3% increase, closing at INR 116.40 on the BSE.