Zomato’s gold loyalty scheme outshining Swiggy in food delivery market
- ByStartupStory | March 22, 2023
HSBC’s report suggests that Zomato is gaining market share over Swiggy thanks to its revamped ‘Gold’ loyalty program, with Zomato projected to hold 57% of the market and Swiggy 43% by FY24.
However, the same report highlights a potential concern for investors due to the negative impact on Zomato’s unit economics from the Gold program, estimated to be between Rs 10-12 per order starting from the current quarter.
According to the note by HSBC, “despite the potential negative impact of Zomato Gold on unit economics, the company is expected to mitigate it through its efforts to increase take-rates and reduce costs. As a result, the note predicts that Zomato’s EBITDA margins will improve in the upcoming quarters as it adjusts to the impact of the Gold program”.
Zomato’s loyalty programme has been revamped and reintroduced in January, with a renewed emphasis on food delivery and an introductory price of Rs 149 for three months. This marks the fourth iteration of Zomato’s loyalty programme in recent years, following the launch of Pro in 2020 and Pro Plus in 2021, which replaced the original Zomato Gold membership programme.
Additionally, the brokerage now predicts that the food delivery market will grow by 9% in the March quarter, a revised estimate down from its earlier projection of 15%.
HSBC analysts believe that “although the food delivery industry may remain weak in the fourth quarter of FY23, there is still potential for sustained growth in the medium term (2-5 years) at a rate of 15%. This growth is expected to continue as more annual users shift to monthly users due to increased awareness and rising per capita income”.
Furthermore, the analysts emphasised that “the growth of food delivery in India is not simply a matter of moving away from the food services industry, but rather a shift away from home-cooked food”.
Despite industry experts predicting a slowdown in the growth of the food delivery sector, Zomato has continued to pilot several new services over the past year. However, the growth of the sector, which has been mostly confined to metro cities, has slowed down.
Zomato’s gross order value grew by 85% to Rs 5,500 crore from Q3 FY21 to Q3 FY22. However, this growth rate decreased to 21% between Q3 FY22 and Q3 FY23.
Zomato introduced a new service called ‘Legends’ last year, which enables customers to order food from popular restaurants in other cities. Although it was initially piloted without any restrictions on who could use the service, it has now been integrated exclusively with Zomato’s newly-launched Gold subscription programme.
Moreover, in February, Zomato launched a new service aimed at providing quick and affordable home-style meals to students and office-goers.
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