Ladies and gentlemen, a very good evening and welcome to Zomato's earnings conference call. From Zomato's management team, we have with us today Mr. Deepinder Goyal, Founder and Chief Executive Officer, Mr. Akshant Goyal, Chief Financial Officer, and Mr. Kunal Swarup, Head of Corporate Development. 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. I now hand over the conference to Mr. Akshant Goyal. Thank you, and over to you, Mr. Akshant.
Thank you, Herschel. Welcome everyone on the conference call. You know, before we begin with the Q&A, you know, we just wanted to clarify and address a couple of questions that both Deepinder and I have been getting over the last 24 hours post our result. I think the two key questions which have come from analysts and shareholders, and we thought before we get into the Q&A, we should talk about that, right? I think the first question is top of mind of everyone is what is the path to profitability for Zomato?
You know, we've seen reduction in losses now for couple of quarters and, you know, I think everyone wants to know at least how long we think it will take for the Zomato business to get to operating breakeven and then making profits. The second question, again, in the same line, has been on Blinkit and quick commerce, in terms of what's our view and outlook on the path to profitability there, and the investments that we need to do before we get there. Let me address these two and then we can jump into the Q&A.
On the first one, on the Zomato business, I think, you know, first thing I wanted to highlight is that if you look at it on a cash flow basis, including, you know, treasury income, other income, last quarter we were already positive on cash flow. Our A djusted EBITDA losses were INR 1.5 billion, and our other income was INR 1.7 billion.
You know, in some ways, therefore, we are not losing cash in that business anymore. I think the next milestone for us. Along with that, we also, as you would have noticed, got to Adjusted EBITDA breakeven in the food delivery business. Now I think the next milestone there is to get the overall Zomato business to Adjusted EBITDA breakeven.
We think we are close now. In terms of timeline, I think internally we are aiming to get there by quarter four of this fiscal year. I think that's a internal goal that we have as a team. You know, but we think that if we slip on that, I think it should not be later than Q2 FY24, which is September 2023 quarter for getting to a breakeven on Adjusted EBITDA at the Zomato level.
I think that's a broad outlook and essentially internal plan that we're working on, and we thought we should share that with everyone here now that we are getting closer to this milestone. Now moving on to Blinkit.
You know, we had last in couple of quarters ago given a guidance or rather a budget of $400 million investment in the next couple of years. I think the business has surpassed our expectations so far in terms of growth as well as losses reduction compared to where we were six, seven months ago. You know, we wanted to now update that overall budget and guidance to down from four, I mean, from $400 million down to about $320 million.
I think given where the business is today, and the path forward that we see, we think we should get that business also to breakeven with an investment of $320 million starting January 2022, right? This is not a guidance starting from today. We've already invested about $150 million in that business.
Including that, the overall budget or estimate is $320 million for getting that business to breakeven. In terms of timeline on Blinkit, you know, we don't have the kind of visibility that we have on the Zomato business. I would not venture into guesstimating on by which quarter we get there.
I think it's still early days. But the update essentially we wanted to share with you was just on the overall investment that we think that business would need. With that, you know, let me hand over back to Herschel and we can get into the Q&A.
Thank you, Akshant. Ladies and gentlemen, we will now start the Q&A section of the call. If you wish to ask a question, please use the Raise Hand feature. We will announce your name on the call and unmute your line, post which you can proceed with your question. Please ensure that your name is visible as name followed by your organization name for us to be able to identify you before we take your question. We will wait for a minute while the question queue assembles. The first question is from the line of Mr. Vijit Jain from Citi. Please go ahead.
Hello. Can you hear me?
Yeah, Vijit. Hi. Go ahead. I can hear you.
Hi, Akshant. Congratulations on a great set of numbers, Akshant and Deepinder. My first question is on the food delivery business. There's a fairly decent QoQ improvement in take rate on a reported revenue basis around 40 basis points, right? Or about INR 2.5 an order. Just wondering where this is coming from. Is it restaurant mix? Are you loading more advertisements or there is higher negotiated commissions here? If you can elaborate on that. I'll just follow up on Blinkit next.
I think actually it's a combination of, you know, all three that you said, as well as, improvement in customer delivery charges, right? I think what we are seeing with the restaurant industry bouncing back post-COVID, I think the ad spends are increasing now on delivery. The take rate, the blended aggregated take rate or rather the implied take rate has also gone up as a function of, you know, us driving parity on take rates with some lower take rate restaurants.
I wanted to clarify that we are not, when we talk of take rate increase, we are not actually increasing the top end of the take rates for restaurants, but rather, essentially normalizing take rate at restaurants which could be at lower take rates right now.
That's playing out. As I said, ad sales is improving, as you pointed out, and we're also seeing improvement in customer delivery charges. I think as a combination of all of this, we are seeing the revenues going up.
Great. Thanks, Akshant. My second question on Blinkit. Just trying to understand, with the unit economics that you've reported, is there an outlook to by when, you know, any legacy infrastructure-related expenses will be out of the P&L? I mean, whatever was, you know, pre the transition into quick commerce.
That's one. Second, with this new outlook on cash burn, you know, when I look at your July month burn rate and analyze it's about maybe $140 million-$150 million a year. Right? Is that an understanding that, you know, the burn rate is probably going to only go down on an EBITDA level here even when you have integrated Blinkit into Zomato? Those two questions.
Yeah. Vijit, yes, I mean, post the transaction closure, yeah, we expect. I mean, anyways, as you're seeing from the numbers, the losses are coming down. I think that should continue going forward post the transaction as well, as synergies kick in.
Yeah, we expect that trend to continue. To your first question on any legacy costs, I think there is none in the system as of now. I think pretty much that business is fully pivoted to quick commerce and both the revenue and the cost structures right now are totally aligned to the current business model.
Got it. I'll just jump back into the queue for more questions. Thank you so much.
Thank you. Next question is from the line of Mr. Gaurav Rateria from Morgan Stanley. Please go ahead.
Am I audible?
Yes, Gaurav.
Yeah. Hi. Congrats on good set of numbers. Two questions. Firstly, the selling and marketing spend has been in a very tight range, yet we have seen an acceleration in the MTU growth in the last quarter. What drove this better growth in MTU?
Is it more coming from conversion of the annual transacting customer into MTU? And if you could highlight some of the initiatives that actually can drive the higher conversion and frequency, which you have mentioned as one of the key growth drivers in the medium term.
Yeah. Gaurav, you know, I don't think we would wanna talk about the initiatives here because that is like core strategy for us for the business. Your observation is right. I think the growth in MTU is coming from increasing conversion retention or essentially the other way to look at it is conversion of annual transacting users to monthly transacting users. We are definitely seeing that as well as we are seeing growth in frequency of repeat customers. I think both of them are driving order growth you know which was pretty healthy in the last quarter.
Got it. Second question was with respect to your comment on the inflation-related headwinds that impacted the cost. Are these largely absorbed in our P&L or are there more to come, because this might come actually with some bit of a lag effect. Are these headwinds largely behind us or there's more to come in the coming quarter? Thank you.
Again, hard for us to comment on that, Gaurav, at this point. We don't know, honestly. I think so far, essentially in the last couple of months, these headwinds have existed and they continue to exist, but it's hard to call out whether we have fully seen this play out or not. I think it's a function of larger macro issues and, you know, which most economies are going through. Can't comment on whether that is behind us or not.
Okay. Thank you. I'll fall back in the queue.
Thank you. Next question is from the line of Mr. Vivek Maheshwari from Jefferies. Please go ahead.
Hi, good evening. Two questions. One is on, you know, on what earlier participant asked on the MTU deduction. I understand you can't, you know, give more information, but the other way of, you know, asking you is, let's say, what happened in the last three quarters, for example, when the number was stable and this time around when the number has moved up. What has been different, you know, this time around versus the last three quarters, for example?
There's no difference. There's nothing different that we did or happened, I think, Vivek, right? I mean, even if you go back, I mean, while last 2-3 quarters were flat, but if you look at a much longer term and maybe let's say you look at year-on-year MTU growth, I think that has been healthy. That is what we've been saying in the last few quarters as well, that our business is lumpy and not always linear.
Over a longer term, where you at least look at year-on-year trends, things will look more linear than versus looking at quarter-on-quarter trends, right? I think this quarter therefore nothing different happened. There is not much seasonality that we see in this quarter anymore.
I think some people have this notion that April to June quarter has IPL and therefore there is usually a bump. At least in our business, we have stopped seeing any meaningful bump due to IPL in the last couple of years. Yeah, nothing different about this quarter. I think it is just growth catching up on this bit, which was long due, and we expect this trend to continue.
Okay. You know, a related question on the AOV, which you mentioned in the press release, a slight increase. There was this theory that, you know, once things normalize and first quarter arguably was the most normal quarter in last, you know, in couple of years, we have not seen AOV going down, so there will be a food inflation aspect, there will be premium restaurants, there will be differential pricing.
But do you think that this is the number where, you know, from which one should be building assumptions into the future or there is still that risk of bunched up orders getting, you know, split and therefore AOVs coming down?
Not going back to the historical level, Akshant, but is there a possibility it settles down still at a lower level than what we are currently at? Or it will be, you know, fair to assume that this is the right level what we saw in the earlier quarter?
Vivek, there are no guarantees. I mean, that can always happen, right? I think, but if you look at the historical data, and even if you go back two years, I think the AOV has not moved pretty much, right? I mean, we disclosed our FY21 and FY22 AOV in our May shareholder letter and that AOV was in both those years, it differed by only INR 1, INR 397 and INR 398 rupees, right? That ballpark, that is where we are even now, and that hasn't changed, right? That historical data gives me confidence that, you know, perhaps, you know, we are in, you know, close to steady state in terms of AOV.
There will always be counterbalancing forces here, which will push, pull the AOV up or push the AOV down. Given that we have a long enough history and data points on this metric, you know, I feel that there is not much downside here on the AOV front.
Interesting. Last question, you know, on, let's say, EBITDA break-even. If you look at this quarter, let's say food delivery was almost zero and Hyperpure was marginally here and there. Essentially the loss is coming from unallocated expenses of about INR 1.3 billion, right?
Yes.
From here on, for break-even to happen, do you think food delivery EBITDA jumps up further quarter after quarter? Or is there something in the unallocable expenses also or losses also which will. Because this number has been between INR 1.1 billion and INR 1.3 billion, right?
Yeah.
Is there some lever here or it's primarily led by food delivery, you know, EBITDA jumping up going ahead?
Yeah. I think it will largely be driven by food delivery EBITDA growing. I think unallocated costs are, I mean, we've been working on bringing our fixed costs down as well. I think that is the reason why we've been able to absorb a lot of, you know, a lot of increases on the salary front, et cetera, which would have otherwise made this number much higher, right?
We are working on all aspects, and, you know, critically looking at all costs. Having said that, I think the unallocated costs will remain range bound around the number that you see right now. Majority of the reduction in Adjusted EBITDA for Zomato as a company will come from, you know, incremental EBITDA from food delivery going forward, and also Hyperpure losses coming down.
Got it. Thank you. Wish you all the best.
Thank you, Vivek.
Thank you. Next question is from the line of Mr. Manish Adukia from Goldman Sachs. Please go ahead.
Yes. Hi, good evening. Thank you so much for taking my questions. I have two questions, both follow-ups on the earlier questions asked by participants. First, when we think about Akshant, when you guided to profitability by Q4 of this fiscal year or latest by middle of next fiscal year, what are the assumptions that are driving that profitability?
When you think about, let's say, different levers that you've talked about in the past, be it in terms of take rates, rider costs, marketing spend, et cetera, or AOV, where do you have the most amount of visibility that, you know, some of those numbers may move up higher and so you get to profitability?
If you can just help us understand the breakdown of, you know, from here until, let's say, next three or four quarters, what are the one or two key metrics that will drive that higher profitability? That was my first question.
Apologies, Manish. I don't think like this level of detail we want to share. I think as you would appreciate, these are going to be key drivers of our strategy and we are in a highly competitive market. I don't want to put down, you know, unit economics today and unit economics when we are breaking even at Zomato, right?
I think having said that, I mean, just to reiterate what we have said is that this improvement from where we are today in losses to break even is going to come from Adjusted EBITDA food delivery going up, which is going to be a function of both, you know, the revenue side levers improving as well as the cost side levers where we expect efficiency and improvement, right?
Beyond that, we don't wanna venture into talking about individual metrics and how they're expected to trend, you know, because these things are tactical and we take very real-time calls on some of these things. So I don't think there's any. I mean, from our perspective, it's gonna be very hard to share more than this.
Sure. No, Akshant, I appreciate that. Just a quick follow-up on that. As far as your rider costs are concerned, was June quarter, let's say, the peak of that? I mean, the impact of, let's say, inflation or higher fuel costs, that would already be reflected in the rider cost in the June quarter, and from here on, that number should only improve or, you know, stay stable. Is that assumption correct?
Not necessarily, Manish, because the current September quarter, you know, we have rains, which has a adverse impact on the cost for us, the delivery cost, right? We'll have to watch out how this quarter plays out in terms of, you know, how intense the rains are in the country and that will drive the outcome on delivery cost. I know from there on, perhaps I would agree with you that we should see an improvement in reduction in delivery cost going forward.
Thank you, Akshant. My second question is again, you know, on MTUs, which have been discussed quite widely on during the call. Again, just coming back to that discussion, when we look at your MTU trends over the last few quarters, and we appreciate that, you know, there's been COVID impact in the last couple of years as well, but it's been quite volatile, the MTU numbers, and like you've rightly called out, it's been lumpy and some quarters it's also been negative.
Now, when you look at the last quarter where you grew 1 million, which was improvement versus the previous two quarters, is that run rate something that you're internally happy with? Again, there was a media interview of Deepinder, I think last month where I think the guidance was of a slightly higher annual number.
Just want to understand when you think about ATU to MTU conversion and the current run rate that you see, is that in line with where you think your long-term growth rate numbers would be? Or do you think there could be more upside to those numbers?
Manish, I think, look, internally, we optimize for GOV growth. I think that is the north star metric for us, right? While doing that, it's not always necessary that MTUs need to grow, right? Because, you know, periodically you will figure out there is a bad quality customer cohort that you have, which you are okay losing, right, which could lead to a lower growth in MTU or a reduction in MTU, which is fine.
Overall, I think as long as directionally the GOV is growing, right, which means that orders are growing and your AOV is stable and, you know, I mean, a minor variation on MTU is fine. We don't necessarily therefore obsess over MTU growth.
I think it's more an outcome of the things we do and the products and features that we launch, which over time drives MTU growth. You know, for example, if you compare June quarter's MTU to the last quarter or last year's June quarter, you've seen a healthy 35 odd percent growth, right?
I think that is in line with how the GOV has grown and the orders have grown in that period. I think broadly, we expect that trend to continue, right? There could be ups and downs, but I think as I said earlier, that on a year-on-year basis, we should see a healthy growth given that we have so much room to grow here, compared to where we are today.
Sure. Thank you so much, Akshant, and team, and all the best.
Thank you, Manish.
Thank you. Next question is from the line of Mr. Chirag Shah from CLSA. Please go ahead.
Yeah, hi. Thanks for taking my question. Hi, Deepinder, and hi, Akshant.
Hi.
Akshant, thanks for the opening clarification. Indeed, a cash break-even achieved on the entire business is a big milestone, so congrats on the same. Deepinder, if I look at the previous five quarters and read the operating metrics trend, it appears that the pace of change across various operating metrics is wildly different, and that was one of the question from the previous participant as well.
Now, it could very well be a conscious strategic decision from a perspective of shift from a network rollout phase to the focus on profitability, or it could be because we have already reached a certain scale stage in terms of network. For example, one of the striking thing is that active delivery partners haven't grown much in the last several quarters.
Does it indicate that the focus is now shifting from recruiting more riders on the network to rider productivity? If that is the case, then it is a big positive in terms of how operating leverage can really kick in.
Chira g, what I would say is that change is always slow and then it's actually fast, right? I think you don't wake up one day and say, "Now I want change," and then change happens overnight. I think over the last year, we have been like really prepping and working hard to set up the like infrastructure to make this change happen.
Like this quarter is when all of those things actually started to happen. I think that's what really happened. We have been focused on the quality of business as well as growth. While we have been working on a lot of these things since the last year, some of these things just only went live this quarter. None of the
I mean, whatever we, like, achieved this quarter, I think it's all an outcome of the work that we've done over the last 12 months. Nothing that we did last quarter brought about the outcomes that happened last quarter here.
Understood. Deepinder, that's super useful. You know, and just sticking to that point around active delivery partner numbers, right? I mean, if you look at the last three, four quarters, that number has moved in a very narrow band.
Yeah.
The question that I'm asking is that, you know, are we out of the network rollout phase and focusing more on productivity incrementally for the last three, four quarters? Or there is still more, you know, more to happen in terms of, delivery partner improvement and restaurant partner increase, at the same pace at which we were doing earlier?
No, I think this number will go up, as we grow in terms of number of orders, because, I mean, we can't grow in number of orders, let's say 2x, 3x, and still be on the same number of, active riders, right? I mean, this number will also grow. So far the last quarter has been good because we have been able to get some efficiency gains out of the network quite a bit. This can't flatline here. This number also has to grow.
Sure, sure. On CAC, Deepinder, you know, given that 90% of our business is from repeat users, more than 50%-60% of new customer addition is organic, which is what we discussed last quarter as well, what impact do you think it is now at least having on the CAC going forward?
Yeah. I think, Chirag, CAC, I think CAC numbers are stabilized for us at very acceptable levels. I think our marketing spends are also pretty steady now. I think unlike two, three years ago when again, they used to be very, very skewed in one quarter versus other. I think now we are in a state where we are acquiring a similar number of new users every month by spending slightly lower amount on marketing spends every quarter, right, going forward. CAC, therefore, remains at a healthy level and slightly keeps coming down slightly. I think we are at a pace of new customer addition, which we are happy with.
You know, it's the right balance of growth versus continuing to improve our platform and retention, so that incremental new user retention over time continues to go up.
Sure. Thanks. Before I get back in the queue, good one on the sustainability report published in June 2022. I have more questions, but I'll get back in the queue. Thanks.
Thank you, Chirag.
Thank you. Next question is from the line of Mr. Pranav Kshatriy from Edelweiss. Please go ahead.
Yeah, hi. Thanks for the opportunity. I have two questions. Firstly, you know, we can see some reduction in number of dark stores in Blinkit, in last three months as well. Where should we see this number stabilizing? The second question is again, you know, can you throw some light on how much is the difference in the delivery cost per order for Blinkit and Zomato? These are my two questions. Thank you.
Pranav, I think yes, you're right on dark stores. The overall number has decreased, but I think you know, we are now at a place where you know, it might go up again as we sort of churned out the stores that did not make sense. I'm talking on the basis of the knowledge I have, talking to the Blinkit team, right?
Of course, we still don't own the business, so can't comment on the detailed strategy part. I think from what we know, we think you know, we are at a place where the numbers should stabilize now, more or less. As we look to expand post the deal closure, we might see an increase.
As far as delivery cost is concerned, I think this is right now, I think, very similar to the levels we see in Zomato, right? I think post-integration, hopefully, as we mentioned earlier, we're expecting some benefits to accrue, as we integrate the two fleets and that should then hopefully lead to reduction in losses.
Sure. Thank you. That's it from our side.
Thank you. Next question is from the line of Mr. Swapnil Potdukhe from JM Financial. Please go ahead.
Hey, hi. Thanks for the opportunity. A couple of questions I have. First is on the media articles which are circulating and the talk about Zomato, and there's a mention of the new organizational structure, which is expected to be, you are expected to revamp it with four CEOs and then Deepinder at the top. Could you just help us like on those thoughts like give some clarity on that?
Swapnil, I think, look, right now, we know it's in the media, but so far I think, it's been an internal announcement. I think I would say that, you know, we're looking at reorganizing ourselves as we get into a place where there is more than food delivery as a business that we need to run. At some point in future, perhaps through a public announcement, we'll give you more clarity on the thought process behind this.
I don't think there's anything to worry about on that front. I mean, it's internal restructuring just to get the teams and incentives aligned, and the org structure aligned, you know, to the next three, four years of, you know, going forward as a business.
Right. Secondly, on the dining out business, if you look at the last three, four quarters, the revenues from the business has not really moved significantly between INR 60-70 crore roughly. What has been the reason for that, and how do you see that business evolving going ahead? Just to follow up on that, how should we look at the margins?
Because even margins, despite the revenues not moving much, the margins have been slightly more volatile in this business. Any thoughts on that? How should we look at both the top line as well as the margins part?
Swapnil, I would say that, I mean, as we mentioned earlier, that we are rebuilding that business. I would say that we should expect these numbers to stay at the current levels for at least the next one or two quarters. Thereafter, I think as we get more data on how the rebuilding is going here and how the customer traction is, then perhaps, you know, we could share more color on the expectation here on revenues and margins, right? I think this business for us is always going to be profitable, right? That we know.
It's not going to take capital, but it's a function of getting the product right and the monetization model right here, which could really lead to a massive jump in the revenues here down the line. I would say we are still at least one or two quarters away before it really starts taking shape.
Right. Any sense on the number of restaurants who are paying customers in this business? If you can help on that.
Yeah. We have that number is not public, Swapnil. I would refrain from sharing it.
Okay. No worries. Thanks a lot for the opportunity.
Thank you.
Thank you. Next question is from the line of Mr. Aditya Suresh from Macquarie Capital. Please go ahead.
Thanks for the answers . Just two questions. One is, are you able to provide me updated insights on your transacting user mix? You used to provide things like high frequency transactors, the top eight, et cetera. Any updated insights there in terms of that mix? That's one. Second is, are you able to provide me color here on employee expenses and share-based payments and how that kind of trends in the next few quarters? Thank you.
Yeah. Aditya, on the MTU mix, I mean, there is no incremental insight to share. I think we did share some details around this in our last two quarterly letters, right? We'll keep periodically giving an update as and when there is material movement in those trends. In absence of that, it's fair to assume that pretty much, you know, the older disclosures are where we are in terms of the mix.
On your second question, I think the ESOP expenses, as we had also indicated earlier, we're expecting them to come down going forward, you know, because the way these numbers are accounted, the accounting charge is front-ended and as therefore we move forward, the accounting charge is expected to continue coming down. The overall employee expenses outside of share-based compensation also I think, you know, we don't expect that to move beyond the 15%-20% annual increase range. Yeah.
Thank you.
Thank you. Next question is from the line of Mr. Ashwin Mehta from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity and congrats on good set of numbers. Akshant, one question in terms of Hyperpure growth, which grew pretty smartly this quarter. Is there a component of you starting to supply fresh to Blinkit out here or it is largely due to possibly higher supplies and the increase in restaurant base that you're having?
Yeah. Hi, Ashwin. It's the latter which you mentioned, which essentially I mean, we haven't done anything outside of supplying to restaurants so far. This business growth therefore is like to like in that sense, if that was your question.
Okay, fair enough. The second one is in terms of from a competition perspective, if you look at the disclosures from Prosus, it appears that you seem to be winning share. Any reactions that you're seeing in the marketplace or anything that you expect in terms of competitive intensity going forward?
Yeah. Ashwin, interesting question. I think this is, I mean, this keeps changing honestly every quarter, every month.
Every week.
Every week sometimes, yeah. I think the competitive intensity and tactics are very dynamic. I mean, this has been experienced not just now but over the last two years, also, right? There's nothing out of the ordinary therefore that we see right now, and the period of aggressiveness and then it's going to the other extreme.
I think that swinging pendulum is always on, right? We're watching that keenly and as I mentioned earlier also, I mean, while it's a highly competitive market and it's important for us to continue monitoring what everyone else is also doing.
Okay. Thanks a lot, and all the best.
Thank you, Ashwin.
Thank you. Next question is from the line of Mr. Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Thank you. Just a couple of follow-ups. First of all, Akshant, the number of orders per rider per day, you know, have been rising for last three quarters. This quarter was a fairly strong jump. Was that a big factor in the improvement you saw in the contribution margin?
How should we, you know, expect the number of orders as riders are carrying, you know, going to carry going forward, increase or improve, you know, from the current level of what, 560 orders per day?
I'm sure, Mukul, these are our estimates because I don't think we disclose either of these metrics, either orders per rider per hour or orders per rider per day, right? But directionally, I think-
Number of riders are the same.
We don't even disclose the orders. Anyway, I think directionally your question is. I think if I can rephrase your question, you're asking that is improvement in delivery fleet efficiency leading to improvement in contribution margin, right? That was your first question. Your second question was how do we expect the number of orders to grow from here, right?
I think on the first one, as I mentioned, I think in response to one of the questions earlier that, I mean, so far last three, four quarters, we've not really seen any much improvement on the delivery cost. In fact, it has gone up materially in the last one year, which is one of the key reasons why the contribution margins had come down in the last few quarters.
You know, going forward, you know, once we expect that to change and we expect the delivery cost to come down. Again, I want to re-emphasize that, you know, we want this to happen along with increase in earnings per hour for our delivery partners, right? This is not us versus delivery partners.
I think, you know, there has to be a business case where they make more money per hour while our cost per order comes down, which is essentially us sharing the benefit of increasing efficiencies, you know, with our delivery partners. I think that's the thought process here, and we think that's going to play out now in the next few quarters, as things stabilize on that front.
On your second question on orders, I think, yeah, I mean, again, we continue to see a healthy order growth over the last few quarters as the GOV has grown and along with MTU growth, we think that's frequency growth is also going to be a key driver which will overall lead to a steady increase in orders going forward.
Right. The other question was, you know, in terms of further growth on the food delivery side, you know, the relative movement between AOV and volume.
Mm-hmm.
You indicated that AOV, you know, you don't expect it to move too much directionality. What has been your experience over the last, you know, quarter or so between a, you know, people kind of returning to offices and office orders picking up versus the inflation which has, you know, also kind of taken up the overall order value. If you can give some sense of how the movement has been and do you expect the proportion of single orders to increase going forward as people come back to office?
Yeah. Mukul, I think AOV growth. I think a couple of levers you mentioned which impact AOV, which is people coming back to offices and hence the order size going down. Second is food inflation which has been more stark in the last quarter which has resulted in menu price increases.
Third, I would also say is that as the customer delivery charges go up, we see the order values going up as well because customers the basket size starts increasing once the delivery charges go up, right? Fourth is again the mix of restaurants on the platform in terms of premium restaurants versus the other restaurants. So I think there are multiple forces at play here, right?
Each of them either leads to an increase in AOV. At the moment we've seen an increase. That's what we have shared in the letter with everyone.
Sure. If I can squeeze one last question in, and I don't know whether you can share the data. You mentioned that, you know, the take rate improvement has been on account of, the lower end of, you know, restaurants kind of moving more towards, the average. Is it possible to share, what portion of your restaurant partners are still meaningfully below the average take rate? Or maybe, you know, to put it another way, do you still see a meaningful upside to the take rate ex of, delivery cost?
Yes. I would respond to the second part of your question. Yes, we do see, I think, some upside which will continue to help the overall take rates go up in the subsequent quarters. Yeah, we do expect that to happen.
Great. Thanks a lot for answering the questions.
Thank you, Mukul.
Next from the line of Mr. Karan Danthi from Jetha Capital. Please go ahead.
Yeah. Thank you, management, for taking my question. I have two questions. You know, the first was on moats and market share. You know, I think there's a little bit of confusion around how a business like yours builds a sustainable moat over the next two or three years. You've already demonstrated you're pulling away from your number one competitor.
If you could just echo once more, if we're sitting here sort of two or three years from now, you know, what are the moats you're trying to build such that your market share trajectory continues along its very favorable path? Then secondly, on the frequency, you know, and MTU question, I think you're showing very consistent growth in frequency.
You're still short of, I think, global benchmarks on that, you know, on that metric. Others have used a loyalty program, you know, clever couponing and other things to drive frequency up. I'd be curious to know whether you're gonna, you know, perhaps, revisit, you know, the programs you have, you know, to sort of keep driving further frequency. 'Cause I know you mentioned you have about 2 million people who order, you know, 50 times a year or something. If we can take that 2 million and make it 10 million, obviously there's a big, you know, impact on the business. I'm just curious as to if there's any way to do that, forcefully.
Yeah. Hi, Karan. Thanks for your questions. Answering them one by one. On your first question, I think our focus is always on a couple of things here, you know, which we think, I mean, and a lot of things lead to those two things. I think our focus remains on building continuously increasing the quality of our service.
I think that's very important in a business like this, where the customers are very sensitive to the service. I mean, you're talking of food consumption here and almost real-time delivery, right? It's a perishable product which you are delivering to customer within 30 minutes. Therefore the expectation on the service levels is very high, right?
I think that remains one of the key area that we focus on as a business, and I think that in turn drives a lot of other things which leads to growth in the business and improvement in economics and, you know, propensity and inclination of customers to pay for the service as well, right? That's one. The second is, I think also leading from that is, and some other things is brand, right? I think eventually, we think it's important in a business like this to have a strong customer brand.
Whatever we do therefore should continue to build that brand, which in turn further helps us retain customers and therefore significantly impacts our economics as well as growth going forward, right? From therefore, I think from our vantage point, these are the two things we focus on, and that is what leads to whatever that's happening in the market and also in terms of our own growth. Sorry, boss, can you just repeat your second question, Karan? That slipped through my mind.
Yeah, no. The question was frequency and how, you know, any plans to revisit your loyalty programs in order to drive frequency higher.
Yes. I think loyalty programs, I would say is just, you know, one of the vectors here and we continuously think about that and how can we reinvent that, so that it remains a strong value proposition for the customers, while at the same time it doesn't burn a hole in our pocket, right?
I think more than that, I think if you have to go from where we are today and meaningfully increase customer frequency, you know, we'll have to look beyond just loyalty programs and look at introducing newer use cases which perhaps leads to a lot of the current offline spend on restaurant food on our platform, right? Continuously looking for innovative products and features which will enable that.
You know, for example, we piloted an instant food delivery option last quarter, which is still a relatively small pilot. I mean, I'm highlighting that just to indicate to you that these are things that we're looking for, which we think will meaningfully impact the frequency of our users on our platform in the medium to long term, in addition to just, you know, the loyalty programs.
Perfect. Thank you. If I could just lodge one more in there. Just on the ad business, if you could just address the maturity of the ad product and where it goes from here.
Yeah. I mean, there are two elements there, I mean in terms of monetization. One is the ad business that we get from restaurants for our food delivery business, right? That's already baked into the food delivery numbers that you see.
The second bit there is the restaurant ad spend for our dining out product and business, the listings business, right? I think just keeping the monetization aside, I think at a product level, we think you know, we have a fairly mature product and evolved product. Given that that is the business, legacy business for us, that is how you know, Zomato started monetizing 10 years ago.
I think, therefore, I think in terms of analytics or data mining, you know, or even essentially making it informative for the restaurants and demonstrating the kind of ROI they get and the benefits they get, slicing and dicing data and showing returns to them, I think on all those aspects, we think the product is there. I think right now for the ad sales revenue to go up, it's more a function of actually driving sales and growth and traffic on the platform, which should then, given the strong product, lead to incremental growth in revenues.
Thank you. Next question is from the line of Mr. Ankur Rudra from JP Morgan. Please go ahead.
Hi. Thank you for taking my question. Just one broad question, Deepinder and Akshant. You've mentioned in your letter that you've responded to the environment and focused on profitability fairly successfully so far. The question is, you know, at every point in your business' evolution, you have faced with multiple trade-offs. What was the trade-off this time which perhaps brought forward your profitability targets?
Like, I mean, there's no intentional trade-off we made, right? I'm sure, I mean, if we don't focus on profitability, if we spend more on growth marketing, we would have seen higher growth, right? I think the core principles.
It's not like we're not spending what we could spend on marketing.
Yeah. I mean, we've not really cut down anything meaningfully. I think it's also evolution of the business. I think this business will not always remain loss-making. I think overall, the industry has gone through a heavy investment phase in the last three, four years. Now the core of the business is large enough, right, to actually throw up cash meaningfully, which is more than what we need to invest at this point, right?
While one can argue if the environment was not the same, what would be our profitability? You know, my guess would be it won't be materially different, right? Of course, you can slightly over-invest into growth, but I don't think it is going to be an order of magnitude difference from where we are today.
Most of the work to get here was done when our stock price was at its peak, so.
No, no. Got you. I was just curious about is there any initiative you chose to kill, beyond just, you know, focusing on growth?
No.
Okay. Understand. Thank you. Best of luck.
Thank you, Ankur.
Thank you. Next question is from the line of Mr. Devesh Mehta from Investec. Please go ahead.
Thanks for taking my question. Can you shed some light on what proportion of the customer delivery charge increase could be attributed to the rain-related increase in cost, which we see in delivery as a consumer? The second question would be, if you see the delivery cost borne by Zomato has increased only by 5%, but GOV is up by 10%. Is this gap sustainable going forward because it's from utilization and other variables?
Yes. Devesh, I missed your second question, so I'll ask you to repeat it, but let me answer the first one first, right? Yeah, you're right. I think at times when it rains, as I said, our delivery costs go up and a portion of that, I mean, it gets recovered from higher customer delivery charges, right? In the last quarter, I would say that the impact of that could be around 20% on the incremental delivery charge that we saw in the quarter because of rains.
All of that is passed on to the drivers and none of it is retained by Zomato, right?
That's correct.
Okay. The second question was the customer delivery charge borne by Zomato is up only by 5%, but GOV is up by 10%, and customer delivery charge borne by customers is up by 20%. How it can be seen is that higher cost is out of the whole delivery cost, a higher share is borne by customers, specifically in this quarter. Is this trend going to remain as is or is there something off what I'm reading?
No, I think, I mean, we expect directionally, as I said, I think customer delivery charges to go continue going up and delivery costs to come down. So the delta between them, therefore, which you are alluding to, I think should continue reducing.
This is the first tranche of that delta.
Yes. That's correct.
Fair enough. Thanks a lot.
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 Mr. Rahul Jain from Dolat Capital. Please go ahead. Mr. Rahul Jain, are you there?
Yeah. Yes, sorry. Can you hear me?
Yes, Rahul, we can hear you. Please go ahead.
Yeah. Hi. Congratulations on strong number. I just wanna ask one question, which is, we're trying to optimize the cost or the profitability in the business, but what would be the key growth KPIs that would make you revisit this? Is it in terms of a minimum threshold order or revenue growth you would like to keep before you try and optimize beyond this?
Yeah. I think, like, Rahul, we're not thinking of the business like this. I don't think we're optimizing growth and profit right now.
Growth versus profit.
It's not growth versus profit in our minds. I mean, our business is trending in a direction, and given the large market, we don't see any reason why we can't grow at healthy rates along with driving profitability, right? Levers for growth are different from discounts and, yeah, money-driven things nowadays. I don't think us driving for profit will reduce the possible growth that we have in the business.
Yeah. I appreciate maybe if I could rephrase in a different way. I'm sure that growth would come because of the adoption of the behavior and also because with higher growth, the profit would come. In any eventuality where we are not seeing growth, what is that order growth or any other metric threshold that would make you think to reinvest even more, even at the cost of profitability, so that your growth aspirations are met?
I would say, Rahul, it's a hypothetical question at this point, right? I mean, if it becomes a reality, we'll think about it. But I don't think, I mean, we are at a place where we worry about that at this point.
Yeah. Just one clarification to the earlier comment related to this delivery cost. I think you said there is a 20% increase in the delivery cost in this quarter. Is this because if there are rain-specific incentive and those are passed on to the customer, essentially the customer delivery charge increases per order.
If you don't have those incentive anymore, the charges to the customer goes down and the earnings for the rider goes down. Eventually you have to compensate it once this rain incentive are not passed on to customers, which will go up in the subsequent quarter.
Rahul, sorry, I'm a little confused, but I think what we meant when we said 20% was essentially the share of customer delivery charge increase that we have seen in the last quarter can be attributed to rains in the quarter. Right? I'm not sure if you had the same understanding.
INR 2.5 increase.
Yeah, 20%. Yeah, correct. Hypothetically, if the increase in customer delivery charges was INR 2.5, INR 0.5 of that was because of rains in the last quarter. I think that was the question which we got. I'm not sure if you are on the same page on that right now.
Yeah. Taking the same example, if this INR 0.50 came because of that, now, let's assume once the rains are behind, the same cost is not charged to the customer.
Yes.
Therefore to that extent, the earnings of the rider goes down by INR 0.50, which need to be compensated by Zomato to ensure that his earnings are intact.
No. It doesn't work like that, you know, because I think the expectation for earning during rains is higher than usual, right? If it is not raining, right? If I'm expecting to make INR 100 an hour during non-rain times, then that expectation, let's say, for example, hypothetically goes up to INR 150, right?
Whereas, I can only recover a portion of that from the customers, right? And therefore, when this reversal happens, we actually have a positive impact on contribution because the overall cost benefit that we have here is larger than the revenue that we forego.
Understood. Appreciated the color. If I could squeeze in one more. You had good margin in this Hyperpure business. So is there a way to see this business that what are the kind of margin on a steady basis this business can achieve or maybe in near to medium term, any ballpark margin aspiration that you have here?
Yeah. Also we have, I think, shared in question 14 of the letter that we expect 5%-10% EBITDA margins here in a steady state. I think that's what the aim is at this point, and then we'll see how we go from there.
Thank you, ladies and gentlemen. We will now conclude this conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you, everyone.
Thank you.