Last week, Zomato highlighted that the increase in restaurant listings on its platform significantly fueled the 27% year-on-year growth in the gross order value (GOV) of its food delivery segment. This is noteworthy given the company’s observation of a broader slowdown in discretionary spending.
An analysis of Zomato’s total count of food-delivery restaurant partners throughout the past eight quarters reveals a notable increase in the Gurugram-based company’s efforts to onboard new restaurants onto its platform.
The rate of restaurant additions has shown improvement sequentially, rebounding from a decline of -0.5% in October-December 2022, compared to a growth of 7% in the three-month period ending December 2021, and returning to nearly 7% in the third quarter of FY24.
In a post-earnings analyst call on Thursday, Zomato’s Chief Financial Officer, Akshant Goyal, pointed out that a significant portion of new restaurants added to the platform were cloud kitchens.
As of December 31, the company had 254,000 restaurant partners, marking an increase from 238,000 on September 30.
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In Zomato’s quarterly shareholder letter, Rakesh Ranjan, the CEO of the food-delivery division, observed that the demand environment for the broader restaurant industry was subdued during the December quarter.
“Hence, food delivery GOV growth (at 6.3% QoQ /27% YoY) was lower than our expectations but still higher than some of the other players in the restaurant industry space,” he said.
For the quarter, Zomato reported a food-delivery GOV of INR 8,486 crore.
“One of the things driving the growth of our food delivery business is the fact that our platform is still underserved from a supply standpoint. The monthly active restaurant base on our platform has grown by 20%+ YoY in Q3FY24. This growth is driven both by new restaurants opening up and our coverage of existing restaurants increasing,” Ranjan added.
According to people familiar with the situation, the company has allocated additional resources towards onboarding restaurants that are not currently on Zomato’s platform.
“The company is also spending on hiring account managers, particularly in tier-II and tier-III towns, to keep up with the growth story of food delivery,” one of the people said. “The pace of adding restaurants will continue steadily,” he added.
Another person familiar with the matter mentioned that internally, Zomato tracks the contribution of restaurants to its order volume based on the Pareto principle, which suggests that a significant portion of outcomes is influenced by a small number of factors.
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“Currently, a certain share of volume is coming from 40% of the restaurants but 18-24 months ago, the same share of order volumes was coming from 30% of the restaurants…so the graph is getting flatter. One way to look at it is that the dependence on the top 30% of the restaurant partners is decreasing…but the other way is that smaller and newer restaurants are gaining volumes much faster than those on the top of the deck,” this person said.
Zomato did not respond to the inquiries sent via email.
Another person familiar with the matter mentioned that while restaurant additions will keep pushing up growth for the company in the near term, the long-term growth will remain dependent on the company’s ability to generate demand, which is the primary growth driver.
During the post-earnings call on Thursday, Zomato’s CFO hinted at the same notion.
“At an absolute level, I would perhaps say that demand is a bigger factor going forward than supply (for growth) at an overall long-term level,” Goyal said.
The company posted its third consecutive quarterly profit of INR 138 crore for the October-December period, marking a notable increase from a profit of INR 36 crore in the September quarter and a loss of INR 347 crore in the three-month period that ended in December 2022.
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Zomato’s consolidated operating revenue experienced a 69% year-on-year growth, reaching INR 3,288 crore.
