Driven by Gold subscriptions, Zomato’s food business keeps swelling

Zomato on Friday said its core food delivery business rode on the success of its Gold subscription programme, among other things, to achieve a 20% year-on-year jump in gross order value (GOV) for the quarter ended September, 2023

The food business’s GOV hit Rs 7,980 crore in the latest quarter, against Rs 6,631 crore a year ago, and up from Rs 7,318 crore in the preceding quarter. The business also saw 18.4 million average monthly transacting customers, against 17.5 million in the April to June quarter.

The GOV growth was “almost entirely led by growth in order volumes, while the average order value remained largely flat,” said Rakesh Ranjan, chief executive of the food delivery vertical.

About 40% of the GOV in the latest quarter was driven by users of the Zomato Gold subscription, whose membership grew to 3.8 million from 2.0 million in the preceding quarter. The subscription was “continuing to drive higher ordering frequency amongst members,” Ranjan added.

However, the expansion of the Gold subscription programme also had an impact on margins, the firm said in its quarterly letter to shareholders. This was due to multiple factors, like delivery charges paid by Gold members being “almost negligible.”

Zomato also incurs a higher cost per order for these members, due to longer average delivery distances, priority service to members during peak hours, and costs from the “no-delay guarantee” to members.

“All of this results in Gold orders being meaningfully worse-off on contribution margin vis-à-vis non-Gold orders,” said Akshant Goyal, chief financial officer at Zomato.

Yet, there is some respite as the gap in contribution margin between Gold and non-Gold members is narrowing, “driven by efficiencies across both pricing and cost of the programme. Eventually we care more about growth in absolute contribution profit (rather than contribution margin),” Goyal said.

“…The contribution margin in food delivery has consistently increased from 5.1% in Q3FY23 (pre-Gold launch) to 6.6% in Q2FY24,” he added.

Zomato’s rival Swiggy also runs its own subscription service called Swiggy One, which besides providing benefits for the food business, also extends them to its quick commerce arm Instamart. Zomato Gold benefits do not extend to BlinkIt. ET first reported in August that Swiggy was working with banking and telecom firms to roll out bundled plans that include Swiggy One subscriptions.

Meanwhile, Zomato reported a profit for the second consecutive quarter, as it earned Rs 36 crore for the three months ended September, 2023. The firm made Rs 2,848 crore in revenue from operations for the quarter. The positive results saw Zomato’s shares rise more than 10% to cross a market capitalization of $12 billion.

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