Fewer restaurants and delivery partners are signing up with Zomato

• 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.

Hidden in Zomato’s latest earnings are two metrics that could prove to be a cause for concern for the company and its investors – restaurant and delivery partner additions, which have slowed down by as much as 90% after growing rapidly over the past year.

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, an analysis 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 22% fall earlier last week.

Zomato’s Q1 FY23 at a glance

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. "

— (@ThinkProfit) August 02, 2022

SEE ALSO:

Auto sales data July 2022: Maruti and Toyota post strong growth in sales while MG Motor and Kia decline

Mumbai’s real estate sector registers its best July in a decade even as home loan interest rates rise

SBI Card doubles its profit as its customers increase spends by 80% – but FY23 off to a slow start