Zomato, since the relaunch of its loyalty programme, has started reclaiming the market share it had lost in the second half of 2022 to rival food delivery company Swiggy, HSBC Global Research said in a note.

The Gurgaon-based company relaunched Zomato Gold in January, almost 30 months after it replaced the subscription programme with Zomato Pro, which itself was discontinued last year. The new Zomato Gold membership is offered at Rs 149 for a three-month subscription. This is a discount to the Rs 999 quarterly membership fee.

The report pegged Zomato’s market share for the January-June 2022 period at 55%, with the remaining 45% being held by Swiggy. This changed to 54% and 46% for Zomato and Swiggy, respectively, for the October-December 2022 quarter, it said. HSBC projects Zomato’s market share to increase to 57% in fiscal 2023-24 (April-March).

“We expect Zomato to continue to gain market share now from Swiggy, led by an aggressive go-to-market strategy,” the report said.

HSBC said Zomato could witness a negative impact from Zomato Gold on its contribution margin from the ongoing January-March quarter.

“From 4QFY23 onwards, there will be a negative impact from Zomato Gold in the range of Rs 10-12 per order, which could concern investors. However, we believe Zomato will be able to offset this impact from its continued push for higher take-rates (commission) and lower costs,” it said.

Zomato chief executive Deepinder Goyal had said last month that the investments towards Zomato Gold were “already baked into” the company’s projections, as the launch of the programme had been in the works for several months.For October-December, Zomato reported a contribution margin of Rs 21.50 per order.

“In the coming quarters, as the company absorbs the impact of Zomato Gold, Ebitda margins should continue to improve. On top of this, Swiggy continues to burn a lot more cash than Zomato,” the report said.

Zomato and Swiggy did not respond to emails seeking comment.

In a report last month, private wealth management firm Bernstein said that the challenging funding environment that Indian Internet companies were witnessing could lead to market share gains for segment leaders, including Nykaa in beauty retailing and Zomato in food delivery and quick commerce.

On Zomato’s quick-commerce unit Blinkit, the HSBC report said the platform’s plan to become a hyperlocal ecommerce player more than just a grocery retailer could on one hand increase its inventory and logistics costs, but on the other result in stronger growth in gross order value (GOV).

During the last quarter ended December 31, Blinkit’s GOV grew to Rs 1,749 crore from Rs 1,482 crore in the September quarter and Rs 1,172 crore in the June quarter.

“Quick-commerce stock-keeping units (SKUs) can vary from 1,000 to 4,000 and optimising the mix of SKUs for every location appears to be the key. Technology plays a major role here in considering the quality and quantity of SKUs for each location. Niche SKUs that are in demand for a particular location can build strong customer loyalty for the platform and also drive profitability. Niche premium brands pay much higher commissions than mass large OEMs,” the report said.

Food delivery slowdown

HSBC expects gross order value for the food delivery industry to grow around 9% year-on-year in the quarter ending March 31, below its medium-term expectation of 15%. The firm retained its target on Zomato’s share price at Rs 87. On Tuesday, the shares ended trading 0.95% lower at Rs 53.04 on the BSE.

The sluggishness in the food delivery sector was flagged by Zomato in its December-quarter earnings.

“We have seen an industry-wide slowdown in the food delivery business since late October (post the festival of Diwali). This trend has been seen across the country but more so in the top 8 cities,” chief financial officer Akshant Goyal had said.

As a result of this, the gross order value in food delivery during the quarter grew a tepid 0.7% sequentially in an otherwise seasonally strong quarter.

Additionally, in the backdrop of a funding crunch that has hit India’s new economy ecosystem, companies operating in the space have been taking measures to reduce cash burns — a move that is weighing on their business growth.

According to HSBC’s estimate, in the fiscal year ended March 31, 2022, Swiggy had used Rs 3,900 crore of cash, compared with Rs 700 crore by Zomato. Swiggy’s higher cash burn was mainly on account of its investments in its quick-commerce vertical Instamart.

“As the execution bias swings in favour of profitability, industry dynamics will be more conducive for Zomato as it looks to expand margins,” the report said.