Ladies and gentlemen, a very good evening and welcome to Zomato Limited's Q4 FY24 earnings conference call. From Zomato's management team, we have with us today Deepinder Goyal, Founder and CEO, Akshant Goyal, Chief Financial Officer, Albinder Dhindsa, Founder and CEO of Blinkit, and Kunal Swarup, Head of Investor Relations. Before we begin, a few quick announcements for the attendees.
Anything said on this call which reflects outlook for the future or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements.
Additionally, please note that this earnings call is scheduled for a duration of 45 minutes, and we'll be starting directly with the Q&A section of the call. If you wish to ask a question, please use the raise hand feature available on your Zoom dashboard.
We will announce your name on the call and unmute your line, post which you can proceed with your question. We will wait for a minute while the question queue assembles. The first question is from the line of Manish Adukia from Goldman Sachs. Please go ahead.
Yes, hi. Good afternoon. Thank you so much for taking my questions, and congratulations to the team on the quick commerce milestone. My first question is on the outlook for this segment.
Now, with your plans to double the store count in the next 12 months, what is your expectation of how much time could these new stores take to reach contribution break-even, and is it likely to be meaningfully longer than the two-month number that you had called out in the previous quarter?
In a related question, you talk about the 4x increase in GOV due to expansion in some of the larger cities in terms of store count. Is there a time frame you're targeting for this 4x increase, or is it more medium-long-term aspirational number? I have one more follow-up after this, but I'll just stop there for a minute
Hi, Manish. This is Albinder. So, in terms of the store count increase, like you mentioned, a lot of our increases now index to the cities which are growing, so Bangalore, Hyderabad, Mumbai, and a few other cities. So, the time to break-even usually varies depending on whether we are opening a store in an existing location, new location.
So, we expect that it will not increase meaningfully, the time to break-even, but it will be higher than the two months that we are put in, and we are already accounting for that in our projections as well. But outside of that, I think what you will see us do more and more is just going into under-penetrated markets in the top four cities and opening more stores over there.
Sure. Thank you. My other question was on the 4x increase in GOV.
Yeah, Manish, so I mean, there is no, the timeline is broadly what we are saying, that the store count will double from here over the next 12 months. Most of those stores will come in the top 7-8 cities, right, including the top four you're asking.
So, broadly, that's where we are. To get to, I mean, we do believe that even in Delhi and NCR, there is meaningful room to ad more stores. So, I think Delhi will continue to remain our largest market, while the others will also start catching up is how we look at the next 12 months.
Right. So, Akshant, just to confirm on this particular comment, you're saying at an overall Blinkit level, you could potentially see your GOV go up by 4x in the next 1-2-year period. Is that what you're suggesting?
It's a functional. No, I think we are not trying to put any timeline to this. I think the comment was to essentially highlight the fact that for us today, outside of Delhi, the other metro markets are significantly under-penetrated. O ver time, as these markets get to the scale that we are at in Delhi today, would mean that the business would have grown by 4x, right?
So, I think that has to be read in conjunction with the other statement that we have made, which is that we're planning to double our store count in the next 12 months. So, I think there's going to be some overlap here, but it doesn't mean that all of this will happen in the next 12 months.
Right. Okay. Thank you for clarifying. Maybe the last question. Now, the quick commerce segment has seen an acceleration in your MTUs in the quarter again, while your food delivery trends have been somewhat volatile. What, in your view, explains this divergence, and could this continue?
I mean, based on your comments on quick commerce, it definitely looks like quick commerce could continue to be strong, b ut on food delivery, is there any expectation of reversal or acceleration in MTU heads, or could that be in the same ballpark for some time?
Yeah, so I think even if you look at last 12 months, Manish, the MTUs have grown in line with the overall growth in volumes. So, they've grown around 20%. So, we expect that as the business GOV continues to grow 20% + is what we have shared, that is likely to be a combination of some AOV increase and order volume increase a nd a majority of the order volume increase would come from transacting users growing. So, we expect that to continue.
Got it. Thank you. I'll jump back in the queue. Thanks for answering my questions.
You're welcome.
Thank you. Next question is from the line of Ankur Rudra from J.P. Morgan. Please go ahead.
Hi. Thank you for taking my question, and congratulations on the profit milestone. On Blinkit, if I can start, we've seen a huge amount of experimentation that you've done on the ground, which seems to be yielding very good results. When you take this to completion, let's say over the next two or three years, do you see you get to a point where you start moving beyond just quick commerce to other forms of delivery timelines also?
Hi, Ankur. So right now, we are focused more on operating our quick commerce supply chain more efficiently. We don't have any plans of experimenting with any other supply chain modes right now.
Thank you. Maybe just a quick follow-up on that one. In terms of the next two or three years, your rollout plan is quite aggressive, like you suggested. Will this change the business has been negative cash flow so far? Will this remain the case as you go into a more accelerated rollout while maintaining 0% margins?
I think our attempt is to keep reinvesting back into the business to grow as fast as possible, while we want to sort of maintain at least neutrality on the EBITDA side. That's our strategy. Based on how our expansion goes in a particular quarter, the numbers might be up and down, but it will not significantly deviate from our stated objective of remaining at least EBITDA neutral , if not positive.
Excellent. Thank you. Thank you so much .
Thank you. Next question is from the line of Swapnil Potdukhe from JM Financial. Please go ahead.
Hey, hi. Thanks for the opportunity. So, a couple of questions from my end. First, on the ATU number that you used to share for food delivery, I presume that used to be around a 60 million-odd number of users. Has that changed meaningfully since then? T hat's point one. P oint two is, any sense on what will be the number for Blinkit for a similar like-to-like number?
So, Swapnil, on the food delivery side, the ATUs have grown by about 10% last year. I think we'll share that data with you in the data pack that we put up on the website. It's not there in the letter. O n the Blinkit business, I'll have to check. We haven't really, I mean, the business is only a couple of years old, so we haven't had a chance to look at the business on an annual lens yet. But I can check and come back to you.
Okay. Got it. Cool. T he second question was with respect to the improvement in profitability of Hyperpure. So, is there any guidance that we have for us? I mean, when can we expect the profitability trends to improve? That's point number one.
P oint number two is, how long can we expect the growth to be so strong in the Hyperpure business on a Q on Q basis? The trends have been very strong for the last so many years. But will there be a base effect at some point of time? I f yes, can you give some sense around it?
Sure, Swapnil. So, I think base effect is already showing up. I mean, if you see the growth rates have come down from 146% year- on- year to 99% in Q4. I think as we scale, we do expect that it'll trend downward slightly, but still remain healthy and reasonably high. S imilarly, on the margin front, I think if you look at over the last five, seven quarters, directionally, the better margins have improved from -9% in Q4 last year to -2% now.
So, we expect that change to continue. Honestly, our focus here right now is not getting to a break-even, but I think continuing to solve for growth in the business. We believe the business is still subscale as far as the opportunity is concerned. H ence, while the margin improvement will continue, we are really focused on driving more growth at this point.
Got it. I'll come back in the queue if you have more questions. Thanks for this opportunity.
Thank you so much.
Thank you. Next question is from the line of Aditya Soman from CLSA. Please go ahead.
Hi. Quick question. Firstly, on Blinkit, I mean, the guidance of doubling the stores is fairly straightforward. But would you also see the per-store throughput to continue along similar lines? That'd be question one.
So, Aditya, I think per-store throughput is a function of, I mean, the weighted average, right? So, we do think that directionally, it'll not go down, b ut again, expansion can be lumpy. It's very hard to predict or pace expansion given there are so many external dependencies that are there when you open a store.
So, I think not counting for one or two quarters here and there, directionally, we expect the average throughput per store to continue to increase over time. But if the growth is lumpy, then there could, of course, be one-off quarters along the way.
Understood. No, that's very clear. Secondly, on Zomato Everyday, can you throw a little more light? I think recently, there was some press that even Swiggy has restarted their daily service. Any more light on Zomato Everyday?
Yeah, so I think that's a business or a use case we've been trying to develop for now over a year and a half. F inally, we believe that we have good confidence on being able to scale that use case, keeping in mind customer experience and also economics, given that it's a low AOV use case.
So, right, we want to continue expanding every day. Right now, it's largely in Gurgaon b ut over the next few months, we'll see maybe Bangalore and Hyderabad sorry, Mumbai and Bangalore being added as cities where we'll launch every day. T hen we'll take it from there in terms of other cities that we want to expand in. So, it'll be a slow, gradual expansion over time.
Very clear. So, Bangalore, you've already launched in a few neighborhoods, right? So, you'll just expand it further.
We'll scale that now, yeah.
Understood. Yeah. All right. Thanks .
Thank you. Next question is from the line of Abhishek Banerjee from ICICI Securities. Please go ahead.
Yeah. Hi. So, again, super set of numbers. Just to understand the growth trajectory that you are now kind of guiding for in Blinkit, seems like you are trying to do a land grab with regards to at least intensifying the density in the urban locations or probably plugging the coverage gaps.
So, is that with relation to the competitive intensity in the space, given most of your competitors at this point of time cannot really match the scale of growth b ecause, I mean, there was a business case for probably driving the EBITDA margins slightly higher before you go on this kind of expansion?
Plus, retail expansion is often very challenging, I mean, trying to find the right real estate. So, if you could give us some clarity on this as to what kind of drove this decision-making, that would be really helpful.
Yeah. Hi, Abhishek. So, I think, look, our plan to expand slowly in the last 12 months and now expand aggressively, I don't think has anything to do with competition or even margins, right? I think it's more dictated by the confidence we have in the business, right, because the expansion can be really expensive if it doesn't work.
I t's also dictated by the bandwidth that we have to be able to open these new stores, right, which requires time to build capabilities both in terms of team and infrastructure, right? So, Adjusted EBITDA break-even is more an outcome of where we are today. We've not really thought of the business in that way where we said, "Okay, let's get to break-even, and now we should expand." It just happens to be the case now that we are at that milestone.
From here on, as we feel confident about the business fundamentals and we believe that we have the capability to expand at a higher pace than what we've done in the past, we're doing that. While doing that, we believe that we should remain Adjusted EBITDA break-even, but that's not the goal yet. The goal is to now expand as much as we can now that we clearly see signs of the business doing well.
Understood. Understood. Just to add on to this question, now, you are talking about opening more stores in the top eight cities, right? Now, if you could give us some color on the kind of AOVs that you see in the top eight cities vis-à-vis the tier two, tier three.
That would give us some idea of how the AOVs should be expected to move b ecause I would think that the AOVs in these bigger cities would be higher. So, given you are expanding your reach within these cities, the AOV blended could actually move up. Any color on that?
See, broadly, what you're saying is true, that AOVs are higher in the top eight cities, b ut if you see the mix of top eight versus the rest, I don't think that is likely to change meaningfully b ecause while we are expanding in top eight cities and within top eight, focusing more on non-Delhi cities, beyond top eight, expansion also continues, right?
So, even in the letter, we mentioned that only about 75% of the stores we opened were in the top eight cities. So, 25% stores were still in the non-top eight cities. So, that mix of top eight and non-top eight cities is likely to remain same. H ence, I don't think what you are saying, that weighted average change in AOV is going to play out at this point.
Understood. O n the food delivery business, last month and a half, you have really started priming the innovation engine. We've seen a lot of new initiatives being undertaken there. If you could give us some color on those, such as a group ordering one and all, that would be very helpful.
Yeah. So, I think, look, I think our idea is to constantly think of what can drive value for customers in our business a nd I think the only way to win long-term is to continue innovating. N ot just last two months, I think we've been at it always. S ometimes, some of these things end up culminating in terms of execution at the same time. Press the pedal on innovation as we've always done.
Got it. But specifically, for the bunch I mean, the group ordering thing, how big can it really become over the next couple of years?
We don't know. We'll know in the next six months. We'll keep sharing data. I think as and when things become meaningful in our business, we would make sure that we share that with our investors, right?
So, at this point, we have a great opportunity, b ut we'll have to first execute well. I think announcement doesn't mean that we have solved the problem. So, there's a learning curve in everything that we do. So, we'll have to continue executing and solve for it, and then hopefully share the results as and when they become meaningful.
Got it. With regards to the priority delivery or better monetization of the gold program, as in differential pricing, are we any nearer to implementation of that b ecause that could really boost your profitability in the food delivery segment?
These are all tactics. I think we take real-time calls on these things, on pricing, etc., depending on the competitive environment and what we are seeing on the demand side. Yeah, nothing to comment specifically here.
Okay. Fair enough. Thank you so much. Best of luck for the next share.
Thank you.
Thank you. Next question is from the line of Ashwin Mehta from Ambit. Please go ahead.
Can you hear me?
Yes, Ashwin. Please go ahead.
Yeah. Thanks for the opportunity. So, one question in terms of expansion beyond NCR to Bengaluru and Mumbai. How do you see the dynamics differ b ecause in NCR, you were the incumbents? In Bengaluru and Mumbai, there is more entrenched competition. So, from a dynamics perspective, how would that expansion differ in your view?
Hi, Ashwin. So, I think even in Bengaluru and Bombay, for instance, these markets, we believe the largest player in terms of GOV already. The point that we were trying to make in the letter was that there is still a lot of opportunity for us to go to these markets and meaningfully expand b ecause we also think that the NCR market has been able to grow in quick commerce because of the product market fit and the quality of service that we've been able to provide.
W e feel that as we touch more customers in these cities with our quality of service, with our selection, that the quick commerce market over here will also meaningfully expand to the size of the NCR market.
Okay. Fair enough. The second question was in terms of, like you'd mentioned in the letter, that you are charging INR 20 per delivery in Blinkit. But some of your competition is kind of discounting delivery. So, how do you see that? You will continue to be more prudent here, or there will be a need to possibly react to that?
Ashwin, like you mentioned in the letter as well, our focus is to build a valuable service that customers actually are willing to pay more for rather than trying to provide an inferior service and leaning on discounting to grow. I think that'll be a strategy going forward as well.
The last one was in terms of NCR. We indicated the growth was 7% sequential in this quarter. That appears to be a little soft given that we've also indicated we've added stores as well as users. So, is there something to read into the slower growth here b ecause our overall growth seems to have been pretty healthy, but NCR seems to have slowed down.
So, Ashwin, there is seasonality also involved here. So, the overall business grew at 14% a nd most of our stores in this quarter were actually non-Delhi NCR. So, to that extent, I think 7% growth is not bad according to us.
There is no saturation here in terms of demand or anything. I think it's just that, as I said earlier, the growth will be lumpy, not just one way, but many ways. I mean, there could be quarters where we end up opening more stores in a particular city. So, I think these things will keep going up and down.
Okay. Okay. I f I can just squeeze last one. So, Blinkit, we saw AOV drops in this quarter. Given that we've expanded into adjacencies, is it that some of this is not going into GOV and possibly going into take rate, or it's more a seasonal factor?
It's a seasonal factor. Even last year, we saw that dip in Q4, if you recall. T his year, the dip has been significantly lower than what we had last year. So, I think that assortment expansion leading to AOV increase is still playing out if you look at year-on-year comparison.
Okay, Akshant. Thanks.
Thank you. Next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thanks for taking my question. The first question is with respect to the store expansion acceleration that we saw during the quarter a nd it happened with very sharp improvement in contribution margin.
So, just trying to understand, when the new store additions happen, does that have an impact more on the overhead cost below contribution margin level, or does it have an influence on contribution margin as well?
So, it has an impact on contribution margin also because the way we define our contribution, a lot of fixed costs are sitting above that. So, the entire store operating cost is above that, for example.
So, impact is on both sides a nd the increase in contribution you see is a function of the negative impact of new stores and the positive impact of the older stores increasing in terms of profitability.
Got it. Second question is on the data that you guys shared on store count and GOV city-wise. It's quite useful for comparison. Curious that this store count expansion is possible without necessarily changing the dynamics on competition because you think these markets are underserved, or you think this is also likely to up the ante on the competition for Blinkit?
Ashwin, so sorry, Gaurav. Gaurav, nothing that we are doing is actually a function of looking at competition. I think our viewpoint has been that we are able to go into markets and actually gain meaningful share because of the quality of our service.
T he quality of our service is everything. It's assortment. It's timely delivery. It's the quality of products as well. So, we believe that we still see an opportunity to be able to go and do that and expand the overall pie of quick commerce in all of these markets a nd that's what we are going to focus on.
Got it. Last question on steady state margins that you have shared. I think from the time you broke even in the food to getting to a steady state of 4%-5%, it's been eight quarters, and now maybe another 4-5 quarters you get to that level.
The journey for quick commerce should be similar, or should be a little bit longer than that of food to get to steady state b ecause it's a much faster-growing market, food matured much earlier, and hence, this investment required is much higher than that of food for quick commerce.
Gaurav, very speculative at this point. Very hard for us to say. It depends on the potential size of the market here, how many stores we end up opening, and so on. So, at this point, we're not in a position to very specifically answer that question.
Got it. Thank you very much for taking my questions.
Thank you. Next question is from the line of Sachin Salgaonkar from Bank of America. Please go ahead.
Hi. Thanks for the opportunity, and congrats on the quick commerce break-even milestone. I have three questions. First question on take rate of Blinkit. Any color you could provide: how much is add, how much is the core take rate, and how big could add as a percentage of GOV be in, let's say, medium term?
Hi, Sachin. We don't provide that breakup. I think the take rate has increased by one percentage point right now in this quarter. It's a composite number, including the product margin, the ad income, and the delivery charges. At this point, we expect each of these to contribute towards the growth in take rate.
Got it. Just a quick follow-up out here. We did see volatility in AOV from quarter- to- quarter. Should we expect a similar volatility in take rate, or just because ad as a percentage of AOV continues to improve, we won't see that volatility?
I think some of it will be there as we also expand into different categorie, b ut there is definitely an element of seasonality in our AOV. And there is also an element of seasonality in the product mix that we are able to sell on the platform.
Therefore, you will see some amount of volatility across the average take rates but overall, the trend for us has been that as a result of improvement on commissions on products and advertising and delivery fees, we've been seeing an upward tick in the take rate consistently a nd we expect that to continue.
Thanks, Albinder. Any color on new use cases you guys are looking to add to the Blinkit platform? Anything on the services part out here?
Please follow Albinder's Twitter handle for that. We launched luggage today, guys, if anybody wants to buy.
Sorry, just a quick follow-up out here. Clearly, you talked about an aggressive store expansion going into more places and broadening and widening the reach. Should we at some point expect the Blinkit MTUs to cross the Zomato MTUs?
Absolutely. I think that seems like it'll happen.
Got it. 12-18 months o r difficult to give a timeline, Akshant?
Difficult to give a timeline.
Got it. Last question. Any specific reason for increase in ESOP cost this quarter? Couldn't get that from your shareholder letter.
Like we've explained, part of it is towards the Blinkit leadership team and senior employees. That is the reason for the current quarter as well as the increase that we've alluded to going forward.
Got it. Thanks, Kunal. All the best.
Thank you.
Thank you. Next question is from the line of Vijit Jain from Citi. Please go ahead.
Yeah. Thank you. Just two questions. One, just on the Blinkit dark store acceleration, you will ad 475 new stores this year. Would these mostly come with existing dark store partners in these cities: Bengaluru, Mumbai, Hyderabad, and Delhi o r do you need to ad new partners there? That's my first question.
T he related question to that is, if I got the math of it right, you have 32 stores each in six cities: 62 stores in Bengaluru, 178 in Delhi NCR. So essentially, in that 500 new stores you're going to ad, it's about 100 each in each of these other non-Delhi NCR cities.
That is Bengaluru, Mumbai, Hyderabad. Is that interpretation right? What I'm trying to get at is, is 180-200 the right store count for larger cities for you to kind of do 10-minute to almost everyone you can target?
Vijit, I think that way, that number is much higher. I think where we get to in the next 12 months, I don't think we'll even get to 178 in each of the three, four other large cities within the next 12 months. That might take longer.
M ore long-term, I think each of these we think each of these four, five top metros can easily have, for example, 500 stores each, right? So that runway, I think, on store expansion will continue fairly meaningfully beyond the next 12 months.
Got it. How about the dark store partners? Do you need them to ramp up also in a meaningfully different way, or do you think that is not a constraint to your growth plans?
Vijit, I think we are always looking for good partners for our dark stores. So we are also expanding the footprint of our best operating partners in the existing cities b ut we're also looking and talking to a lot more entrepreneurial folks that are looking to open these dark stores. I think we'll increase that number as well. But our methodology, more or less, will remain the same.
Got it. My last question, just sticking to Blinkit, would be if you could discuss a little bit on the non-food share in the Blinkit GMV mix. Just a clarification, you have said before that food delivery should see 4%-5% of GOV in few quarters. That's still very much the timeline, right? Few quarters.
Yeah. I think so.
Okay. How about the first question? Sorry.
We don't give the breakup of the different category mix, Vijit.
Got it. Fair enough. Those are my questions. Thank you so much. Congratulations for that break-even in Blinkit this quarter.
Thank you.
Thank you. Next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.
Yeah. Hi. Thank you for the chance. So, Akshant, can you talk about the vesting schedule of the new ESOP policy? L onger term, what is the thinking of the management on the ESOP pool? The last pool what we issued was large enough, 5%, when the market cap was much smaller, b ut even today, 2% looks a large amount. So thinking around the new ESOP pools also will be helpful.
Yeah. So, Abhishek, I think on employee cost, we look at the summation of ESOP cost and the cash employee expense together. A s we mentioned in our letter, that expense as a percentage of revenue has come down meaningfully from 29% in FY22 to 12% in FY24, right? W e expect that to continue, which is the operating leverage in the business.
W ithin that, then there is a balance between ESOPs and cash compensation a nd we believe we have to maintain that balance a nd the last dilution that we did on the ESOP front was prior to our IPO. W e still have a large part of, or at least some meaningful portion of that ESOP pool with us today to be granted to employees.
But we just wanted to expand that a little bit by 2% right now. We believe then with that, we should be good for the next five years at least or more in terms of adequately incentivizing our leadership and generally employees at Zomato and Blinkit.
Okay. Let me ask you another way. This quarter, we roughly had INR 160 crore of ESOP cost. So let's say on a run rate, this is INR 650-odd crore annually. How should we think about next two to three years?
Yeah. So again, I will take you back to that point of looking at the total employee expense, right? We don't want to guide on specifically the ESOP cost at this point because these things, we don't want to get ourselves into a box here. So we want to have the flexibility on that front as long as the total employee cost is within a range.
Yeah. The reason for asking this, Akshant, and sorry for persisting here, is we get measured on Adjusted EBITDA. So for us, it's an important metric to look at. So if you could give some kind of indication, that will be helpful. Should we consider this 160 as the new run rate?
Yeah. I think it will increase from 161 for sure going forward.
Okay. Got it. Thanks, Akshant.
Thank you. Next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.
Hi, team. A couple of questions. First, on these store additions, how easy or difficult it is for you to get this kind of real estate b ecause you have, so I understand these are not on high streets, but still you need a larger plot? So where are you on that curve in terms of getting those 1,000 stores out there?
Hi, Vivek. So right now, we have a fairly healthy pipeline. So we are always looking for and scouting and building our database around real estate in the cities that we operate in. So far, we have not faced any material issues in being able to get the kind of real estate that we're looking for.
In addition, we have also been innovating on that front to be able to work with different configurations of real estate. So as we open more stores, we learn how to do more things in better ways a nd I think that's what we'll continue to do.
Having said that, Vivek, in all our guidances, there is some element of hope. So it's not like we have everything tied up for these 500 stores, b ut we are fairly hopeful that this is a realistic target to take for the next year.
Got it. T he other bit on stores is you have been somewhat, let's say, calibrated in store additions so far a nd now you are accelerating it. In a typical retail business, we have seen that there is a fair amount depending on which company we talk about.
But there is a fair amount of, let's say, wrong locations that retailers choose, etc., which also requires calibration as you go forward. In your case, now that you know business, you know a lot of nuances already.
When you think about moving or accelerating it, do you think there is a risk of getting the wrong sites o r you are fairly confident, that's one part. S econd, how do you view the cannibalization bit?
A lot of these stores, since are going to be in existing cities, is there a- it's not a risk-risk, but yeah, from a shorter-term perspective, throughputs in the existing store go down because the next neighborhood store is coming up. Is that something that we have to bear in mind?
On the second one, Vivek, even if the throughput in neighboring stores go down, I think the customer experience improves meaningfully for us. So we think it's the right thing to do a nd it also gives us bandwidth for adding more products for the customers as well.
So we are usually not shy about opening stores in existing locations just on the off chance that the throughput of a neighboring store might get affected. Vivek, first question, in terms of real estate and how to get the locations right, look, we will get certain locations wrong a nd we do. I think as a business, our objective is to decrease that miss rate as we learn more.
So I think we feel fairly confident that the numbers that we are putting out will be able to deliver on that with a good enough hit rate and while making sure that the business and the P&L is healthy. So I think which is the guidance that you're seeing is an outcome of that confidence.
Got it. The other question is the AOV number, which has been fairly strong. Do you think as you get into, let's say, more neighborhoods or the mix of NCR goes down, is there a risk that number settles down on an average to a lower level than where it is today?
Right now, there are way too many factors which affect AOV. Like we mentioned, there is seasonality. There is assortment addition, which is also another vector of growth in the business. T hen there is different city habits. But we don't expect any material movement because of expansion in the AOV overall.
Got it. But can it get diluted, Albinder?
No. We don't expect that it will be diluted b ut like you said, AOV has many more components rather than just being affected by the cities where we are opening the stores.
Just one thing, Albinder, on this: keeping the city mix sorry, keeping the seasonality bit and the portfolio mix the same, the cities other than NCR, do they have somewhat similar AOVs o r NCR is by far ahead of everything else?
No. I think as our service in the city gets better and our assortment gets better, most cities tend to at least the top cities are converging to a similar number. Again, I would reiterate that there are a lot of factors which affect AOVs.
For example, MRPs for most products in Mumbai tend to be higher than in Delhi. So there are more than one factor which affects the AOV number. So I think the takeaway I would want you to have is that we don't expect that the city expansion is going to have a material impact on AOVs.
Okay. Got it. La st one, if I may, Albinder, Akshant, because there is so much of excitement around QC, you are accelerating the store additions, etc. What are top one or two worries that you have about quick commerce at this stage? The proof of concept, everything is done now. What is it that worries you from a next 12-18 months perspective?
I think, Vivek, we always have to innovate on behalf of our customers. I think we're paranoid about not falling behind on that innovation ladder because we believe that our business is all about constantly making things better, constantly innovating, getting better products to the market. I think that is what at least keeps me up at night.
In order to innovate at that pace, what you need is your teams to be not just on their toes, but also to be smart and humble and realize that they need to also show up every day to make lives better for our customers. I think on both these fronts, I think these would be my biggest worries, that we keep innovating, and then we have the people who also have the right mindset to keep innovating.
Got it. Wishing you all the best, team.
Thank you. Ladies and gentlemen, in the interest of time, we will now take the last one to two questions. The next question is from the line of Gaurav Malhotra from Axis Capital. Please go ahead. Gaurav, can you hear us? Gaurav, checking with you again. Can you hear us? Seems like we're facing some technical difficulties. We'll move on to our next participant. Next question is from the line of Samarth Patel from Equirus Capital. Please go ahead.
Can you hear me?
Yes, please. Yes. Go ahead.
Thanks for providing me the opportunity. I have three questions. Just to add into previous participants' point, typically, FMCG companies in India typically allocate 8%-9% of revenue to A&P spends.
Now, considering that Blinkit could be getting around 3.5%-4% of GOV, according to my estimates, how should we think about advertisement income going forward, especially considering that there could be some categories with low or no advertisement income such as fruits and vegetables or electronics? So just your thoughts on the scenario would be helpful.
So yeah, Samarth, broadly, we expect the advertising revenue in Blinkit to increase from where we are today b ut at this point, we don't want to give a guidance on where it can go. But it's so far been a major driver of economics a nd I think that is expected to continue.
Okay. Thank you. Just next question on Blinkit as well. So you mentioned in Shareholder Letter that a steady state margin for the business could be around 4%-5%. What could be fixed cost as a percentage of GOV in the steady state?
Would that number be materially different than food delivery business? The point I'm trying to get is what would be the contribution margin required to achieve that kind of Adjusted EBITDA in the business?
That will broadly be similar to food because below contribution, we just have people cost and marketing cost, which we don't think is going to be meaningfully different between the two businesses.
Okay. Got it. That was really helpful. Now, the third question on food delivery side, do you foresee further rising take rate through advertisement income in food delivery business o r do you anticipate that it would primarily be driven by, let's say, customer-side initiatives such as increasing the platform fee or the new value-added services that we introduced, like quick deliveries for an incremental fee? So would it be on the restaurant side or the customer side that I'm trying to get here?
So Samarth, I think we don't think of the business that way. I think we think of it more in terms of optimizing absolute profits in the business while providing the best experience to customers a nd to be able to do that, I think these answers on economics keep changing, right?
So there is also an element of competition here and what they are doing and so on. So we don't have a target on each of these line items that take rate can go up to here and ad sales can go up to here.
I think we just like multiple juggling balls with an overall intent of taking the margins in the business to a certain point and driving growth in the business. So yeah, I would not be able to, therefore, comment specifically on the potential on each of the line items in the unit economics.
Okay. Thank you for taking up my questions. All the best for upcoming quarters.
Thank you, Samarth.
Thank you. Ladies and gentlemen, we will now conclude this conference call.