For the December 2022 quarter, the food delivery market share mix stood at 54% for Zomato and 46% for Swiggy
HSBC projected that the Gurugram-based Zomato will cinch a 57% market share in FY24
As the execution bias swings in favour of profitability, industry dynamics will be more conducive for Zomato: HSBC Research
Food delivery major Zomato has started reclaiming market share from its arch-rival Swiggy since the relaunch of its loyalty programme, Zomato Gold, in January, as per an HSBC Global Research report.
The listed foodtech giant relaunched Zomato Gold in January this year, after it discontinued its subscription programme, Zomato Pro, last year. New users can still access a quarter of Zomato Gold for between INR 149 to INR 249, a major discount on the actual INR 999 quarterly fee.
The HSBC report follows a month after JM Financial said that the launch of Zomato Gold led to an increase in order volume.
According to the HSBC report, Zomato’s market share stood at 55% for the January-June 2022 period, with the rest being held by Swiggy. For the December 2022 quarter, the share mix changed to 54% for Zomato and 46% for Swiggy, respectively.
HSBC projected that the Gurugram-based listed foodtech giant will clinch a 57% market share in FY24. “We expect Zomato to continue to gain market share now from Swiggy, led by an aggressive go-to-market strategy,” the report noted.
However, the research firm said Zomato could witness a negative impact from Zomato Gold on its contribution margin from the ongoing January-March quarter. HSBC noted that from the last quarter of FY22, the foodtech will see a negative impact to the tune of INR 10-12 per order.
“However, we believe Zomato will be able to offset this impact from its continued push for higher take-rates (commission) and lower costs,” HSBC added. Incidentally, Zomato reported a contribution margin of INR 21.50 per order during the October-December quarter.
Last month, Zomato CEO Deepinder Goyal said the investments towards Zomato were ‘already baked into’ the company’s projections, as the launch of the programme had been in the works for several months.
“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 added.
The research arm of HSBC further expects the gross order value of the food delivery business to grow around 9% year-on-year in Q4FY23, below its medium-term expectation of a 15% growth in GOV.
On the other hand, HSBC retained its target on Zomato’s share price at INR 87. Shares of the foodtech giant opened at INR 53.40 apiece on Wednesday (March 22), up slightly from Tuesday’s close of INR 53 apiece.
In terms of cash burn, HSBC estimated that Swiggy burned INR 3,900 Cr of cash during FY22, compared with Zomato’s INR 700 Cr. However, Swiggy’s higher cash burn could be put down to 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.