Zomato to counter Swiggy’s expansion with US$400m investment in q-commerce 

INDIA – Indian multinational restaurant aggregator and food delivery company Zomato has announced plans to invest US$400 million within the next two years to expand its q-commerce capabilities.  

The move can be interpreted as an attempt to counter Swiggy’s plans to greatly expand into the rapidly expanding sector. 

Swiggy recently raised US$700 million which it said will be mainly used for accelerating the growth of its core platform and growing its quick commerce grocery service Instamart. 

Apart from doubling down on its in-house capabilities, Zomato is also expanding its presence in the space by investing in other q-commerce startups. 

The company has invested US$225 million across Blinkit (formerly Grofers), Shiprocket and Magicpin.  

Blinkit which received a bulk of the finances has been rapidly expanding its presence across India. 

Based on January sales, it is on an annual gross merchandise value run rate of US$450 million with more than 400 dark stores across 20 cities in India.  

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Zomato said the category offers a “huge addressable market” and is also “synergistic to its food delivery business”. 

 “We are very bullish on the product-market fit, unit economics, as well as the growth trajectory of the quick-commerce category,” Zomato said in its latest earnings report.  

“We are becoming increasingly confident in our decision to invest behind market leadership here with healthy unit economics.”    

Quarterly revenues grow as losses dramatically shrink   

In its earnings report, Zomato has said its revenue from operations for the December quarter rose 9% even as its loss shrank.  

Revenue from operations for the fiscal third quarter rose to Rs 1,112 crore (US$147.07m) from Rs 1,024.2 crore (US$135.46m) in the July-September period and Rs 609.4 crore (US$80.6m) a year earlier.  

Zomato’s adjusted revenue — a combination of revenue from operations and customer delivery charges — increased 78% on year to Rs 1,420 crore (US$187.81m). 

Losses, on the other hand, narrowed dramatically to Rs 67.2 crore (US$8.89m), compared with Rs 434.9 crore (US$57.52m) a quarter earlier and Rs 351.3 crore (US$46.46m) in the previous-year period.  

Zomato attributed the reduction in losses to unit economics in its food delivery business which has improved with scale.  

Contribution margin (as a percentage of gross order value) has also improved steadily from a negative 15% in 2019 to 1% today, it said.  

“A 5% contribution margin in our food delivery business (at the current scale) should get us to Ebitda break-even as a company (covering all common corporate costs as well).” 

Incidentally, archrival Swiggy reported its financial results for FY21 on Thursday where consolidated revenue from operations fell 26.6% from the previous year to Rs 2,547 crore. 

Swiggy’s net loss also shrank almost 59% to Rs 1,617 crore, as the food delivery platform weathered the first year of the pandemic. 

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