The swift growth and increasing popularity of foodtech giants Zomato and Swiggy are expected to negatively impact sales in the quick-service restaurant (QSR) sector, which includes pizza and burger chains, according to a report by brokerage BNP Paribas.
The brokerage’s QSR Tracker report highlighted that Zomato’s average monthly active restaurant partners increased dramatically to 2.70 Lakh by FY24, up from 61,000 in FY19. Meanwhile, listed QSR chains had a total of 5,300 stores combined as of FY24.
Meanwhile, Swiggy, which is gearing up for an IPO, boasted 22.72 Lakh active restaurants on its platform by the end of FY23.
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“This indicates that the scale of these companies has grown significantly over the past few years, which helped to improve consumer reach, particularly for smaller restaurants,” said the report.
According to analysts at the brokerage, the number of restaurants operating on Zomato surged to 51 times the total branded QSR (Quick Service Restaurant) stores in FY24, up from 22 times in FY19, with expectations for this trend to continue expanding rapidly.
“With the growing number of options available to customers, sales are expected to become more fragmented. This further undermines the QSR industry’s already low average daily sales, which are exacerbated by overall demand weakness,” they explained.
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Revenue and Sales Trends in the QSR Sector
The report highlighted that revenue growth for listed QSR companies dropped by 9% year-on-year in Q4 FY24, compared to an 18% rise in FY23 for the corresponding quarter. This decline primarily stems from factors such as subdued demand, prevailing macroeconomic conditions, and decreased consumer spending, among other contributors.
Even amid low demand and sluggish sales growth, QSR companies have affirmed their intentions to proceed with opening new stores or investing in capital expenditure, as per the report.
Jubilant FoodWorks, Devyani International – a franchisee of Yum Brands (KFC & Pizza Hut) in India, and Restaurant Brands Asia, operator of Burger King, stand out as prominent QSR brands in India aiming to expand their outlet count in the country.
The report comes at a time when both Zomato and Swiggy are actively working to expand their restaurant offerings and bolster support for establishments already on their platforms.
Earlier this year, Swiggy rolled out a marketing feature named ‘Smart Links,’ allowing restaurants to seamlessly guide customers from social media and ads to their menu pages within the food delivery app. Additionally, it initiated a digital learning academy in support of its restaurant partners’ development last year.
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In January, Zomato introduced a daily payout option for select restaurants.
However, Swiggy raised its restaurant collection fee to 2% last year following Zomato’s implementation of a comparable ‘payment gateway fee’ of approximately 1.8% on all orders.
Moreover, both platforms have implemented platform fees, which appear to have bolstered their revenues without significantly affecting the demand for their services.
Financial Performance of Zomato and Swiggy
Zomato saw its consolidated profit soar to INR 175 Cr in Q4 of FY24, marking a 26% increase from INR 138 Cr in the corresponding quarter of the previous year. Meanwhile, its operating revenue for the same period surged by 73% to INR 3,562 Cr in Q4 FY24 compared to INR 2,056 Cr in Q4 FY23.
Similarly, Swiggy experienced a 40% surge in operating revenue, reaching INR 8,264 Cr in FY23, up from INR 5,704 Cr in FY22.
In the midst of these developments, Swiggy is gearing up for its IPO, expected to include a fresh issue valued at INR 3,750 Cr alongside an offer-for-sale component totaling INR 6,664 Cr.
As smartphone usage grows and online food ordering becomes more widespread, the country’s food delivery market is projected to expand rapidly, reaching 34.66 Cr users by 2028, according to Statista.
Continue Exploring: Food delivery app surge leaves QSRs struggling with revenue and margins amidst fragmented sales: BNP Paribas Report