zomato: Zomato steps up restaurant signups as slowdown bites

Zomato last week indicated restaurant additions on its platform as a significant contributor to the 27% year-on-year growth in the gross order value (GOV) at its food-delivery business, considering that the company is witnessing a broader slowdown in discretionary spending.

A look at Zomato’s total number of food-delivery restaurant partners over the last eight quarters shows that the Gurugram-based company has stepped up onboarding of new restaurants on the platform.

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The sequential growth in restaurant addition has improved since falling to a negative 0.5% in October-December 2022 from 7% in the three-month period ended December 2021, to again nearly 7% in the third quarter of FY24.

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In a post-earnings analyst call on Thursday, Zomato chief financial officer Akshant Goyal pointed out that a significant portion of new restaurants it added to the platform were cloud kitchens.

As on December 31, the company had 254,000 restaurant partners, compared with 238,000 on September 30.

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In Zomato’s quarterly shareholder letter, food-delivery CEO Rakesh Ranjan noted that the demand environment was muted in the December quarter for the broader restaurant industry. “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 food-delivery GOV of Rs 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 aware of the developments, the company has increased resources towards onboarding of restaurants that are not 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 in know of the goings-on said that internally, Zomato tracks the contribution by restaurants to its number of orders on a Pareto principle basis, which states that in many outcomes, a large portion of consequences are impacted by a small number of causes.

“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 a set of queries sent on email.

Another person in know of the matter said that while restaurant addition 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.

In the post-earnings call on Thursday, Zomato CFO alluded to the same. “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 reported its third consecutive quarterly profit of Rs 138 crore for the October-December period, compared with a Rs 36 crore profit in the September quarter and a Rs 347 crore loss in the three-month period ended December 2022.

Zomato’s operating revenue on a consolidated basis grew 69% year-on-year to Rs 3,288 crore.