- Restaurants and delivery partners are critical to
Zomato ’s business model, but few are signing up with the food delivery startup. - Analysts expressed optimism about Zomato’s prospects, but said food delivery is not a hyper growth industry.
- Zomato added 3,000 new restaurants and delivery partners in the first three months of FY23.
Restaurants and delivery partners are critical to Zomato’s business model – a slowdown in new sign-ups shows that the supply-side stress is increasing on the food delivery player’s platform.
According to the company’s disclosures, Zomato added 3,000 new restaurants and delivery partners in the first three months of FY23. In comparison, Zomato added an average of nearly 6,000 new restaurants and 10,000 delivery partners in the previous 9 months.
Analysts sound optimistic about the company’s prospects, but say that they don’t expect hypergrowth in the food delivery business.
“We think food delivery is a well-established industry now, with a relatively healthy duopoly structure. Unit economics are gradually improving with scale benefits, reduced discounts and increase in delivery charges. We don’t think it’s a hyper growth industry, but think 15-20% CAGR growth is possible over the next five years,” said a report by HSBC.
“The big positive surprise is that this healthy growth has come despite Q1FY23 being the first quarter with complete normalcy (all restaurants were open without any restrictions), which indicates that shift towards delivery have sustained despite the pandemic moving away,” said Karan Taurani, senior vice president, Elara Capital.
This explains how Zomato was able to add 1 million new customers in this quarter, but a slowdown in delivery partner additions could halt its momentum.
Earlier, $4 of Zomato’s customer complaints revealed a fact that we’ve all grown used to – higher delivery charges, and in some cases, unavailability of delivery partners.
These problems could worsen if this declining trend in restaurant and delivery partner sign-ups continues, while customer additions continue to grow faster.
It remains to be seen how food delivery startup addresses the supply-side challenges since those are harder to fix.
For now, the market seems to be excited about Zomato’s prospects, with its shares hitting a 20% upper circuit as of 3 p.m. today (August 2), adding ₹7,100 crore to investor wealth. This is after a $4.
Source: Company reports
Recovery coming in $ZOMATO.NSE -Positive Q1 Results as Net loss narrows. -Brokerage Houses bullish on the scrip. -Breakout from falling wedge pattern and crossing the important level of 52-54. -Resistance will be 64,72 while support will be 54. "Disclosures: Content for educational purposes, I’m not SEBI registered. "
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