Zomato Game-Changing Strategy is Underway

Zomato, one of India's leading food delivery and restaurant discovery platforms, is taking strategic steps to improve its profitability. This consists of the testing of a new flat platform fee, a focus on quick commerce businesses, and revamping efficiencies in its delivery.

New Platform Fee Testing

In August, Zomato initiated a test phase for imposing a modest flat platform fee of ₹ 2–3 per order on its mobile application. This action follows a similar one initiated by its peers, Swiggy, in April 2023. With the goal of increasing its customer take-rate, Zomato's agenda with this fee is to charge it regardless of the user's Gold status.
 
Zomato justifies this fee by quoting, "This small fee helps us pay the bills so that we can keep Zomato running. This indicates the company's strategy to bolster its revenue streams while ensuring the sustainability of its services. Notably, with a particular focus on enhancing its restaurant take-rate, Zomato has been working on improving its take-rate.

Impact on Contribution Margin (CM)

The significant impact on Zomato's financials is expected by the implementation of a ₹ 2/order platform fee, especially for high-frequency customers. Assuming that transactions occur 75 times a year on average for 2.7 million high-frequency customers, this fee could result in an incremental contribution profit or EBITDA. Moreover, it could lead to an approximate 16-basis-point increase in CM.
 
This move aligns with Zomato's long-term goal of achieving an 8% CM (as a percentage of GMV) over the medium term, compared to the 6.4% reported in 1QFY24. The platform fee serves as a strategic step towards enhancing profitability and driving sustainable growth.

Efficiency Focus on Blinkit and Hyperpure

Zomato's strategy for achieving profitability extends to its other business segments, Blinkit and Hyperpure. In the case of Blinkit, Zomato has been rationalising its dark store count over the past few quarters, optimising its operations for greater efficiency.
In a positive sign, Blinkit witnessed a substantial 149% year-on-year increase in revenue per store in 1QFY24. The company is determined to achieve a positive contribution margin in the next 1-2 quarters. This focus on profitability is a significant step towards ensuring the long-term sustainability of the quick commerce business.

Financial Outlook

The recent developments indicate a strong commitment from Zomato to enhance its financial performance. By introducing the platform fee, Zomato aims to boost its take rate, which has been a key driver of revenue growth. Additionally, the focus on efficiency improvements in Blinkit and Hyperpure should contribute to profitability in the near term. These positive revisions reflect the company's potential for improved profitability.
 

Conclusion

Zomato's strategic moves, including the introduction of a platform fee and the focus on efficiency in its various businesses, signal a determined effort to bolster its financial health. While the future remains uncertain, these initiatives position Zomato for a more favourable financial outlook in the near term.
It's vital to note that these developments are rooted in the company's commitment to enhance profitability and provide a sustainable foundation for its operations. Investors and stakeholders will be keenly watching as Zomato continues to navigate the competitive landscape of the food delivery and quick commerce industries with an eye on maximising its financial potential.