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Zomato Ltd
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Ladies and gentlemen, good day, and welcome to Zomato Limited Earnings Conference Call. From Zomato's management team, we have Mr. Deepinder Goyal, Founder and Chief Executive Officer; and Mr. Akshant Goyal, Chief Financial Officer, with us on the call today.
Before we begin, a few quick announcements for the attendees. Anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statements may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Akshant Goyal from Zomato. Thank you, and over to you, Mr. Akshant.
Thank you, moderator. Hello, everyone. Deepinder and I welcome you to this call. We hope you all got a chance to go through our shareholder letter that we shared yesterday. And we also hope you like the new format. We both are here to answer any incremental questions that you may have, which we may not have covered in the letter. With that, I request the moderator to please take the first question.
[Operator Instructions] The first question is from the line of Chirag Shah from CLSA.
At the outset, also thanks for the interactive format of the shareholder communication, indeed, very useful. So I was hoping to understand what proportion of incremental customer acquisition is organic. I would assume that majority of it would have moved in favor of organic? And if that is true, what is the impact that we see on the overall CAC and A&P spending going forward, especially in the context that we now have presence across 1,000 cities covered.
Yes. Hi Chirag, thank you for the question. So yes, so I think one context here for our business. So we did not start as a food delivery business. We already had a thriving dining out and listings business in India, which meant that even when we started our food delivery business 4, 5 years ago, a large portion of our new users or food delivery were actually organic, right? And that percentage has actually increased over time as a presence as a brand has become much wider in the country.
And a large portion, I would say majority, more than 50% of our new users every quarter are still organic, which means our CAC, we believe, is lower as compared to platforms who are stand-alone food delivery players or who don't have the legacy as a brand or a business that we enjoy in this country. And they continue to trend in a downward direction year-on-year which overall makes the economics going forward healthier and in a way, leading to the improvement that we have seen in the overall P&L business in the last 3, 4 years.
Sure. My next question is to Deepinder. As we look for adding adjacencies to our core food delivery business, what are the thoughts on the super app structure that some of your peers seem to be pursuing versus the app within the app structure that we seem to be looking forward to? Just your thoughts on the overall customer experience, brand association between the 2 models?
Chirag, so we haven't seen the super app work in India so far. And we are -- I think the jury is still out whether super apps will work or like super brands will work. So we are still figuring it out, I would say.
Understand. Actually, I have more questions. Can I go ahead with my questions, moderator? Or should I go back in the queue?
The next question is from the line of Vivek Maheshwari from Jefferies.
My first question is on your -- the letter talks about in uncertain terms about the focus on reduction in losses as well as accelerated growth. Is it that easy to balance the 2 at this point of time, given that for incremental customer, you still need to have subsidies out there. And if you don't do that, then I mean, basically balancing the 2, how easy or difficult it is, because I think the letter clearly talks about focus on profitability as well as a reduction in losses as well as accelerated growth?
So Vivek, actually, in this business, losses reduced because of growth, right? Because as your -- a portion of your business, which is a -- I mean there's a segment of your customer base, which is profitable. And as that segment of -- as that portion grows, your contribution -- overall contribution dollars start to swell, right? So I think as we grow faster, actually, it becomes easier for us to reduce our losses because operating leverages kick in and their scale benefits and economies of scale in the business as well. So we don't see that necessarily being a choice that we have to make all the time, especially at the current scale of our business. And the last few quarters, last couple of quarters, we've seen business grow sequentially quarter-on-quarter while the losses have come down, and we expect the same trend to continue from at least from where we are today and what we see on the ground today.
Okay. And a follow-up to that question. How different this is from then FY '18, '19, '20 when you were growing very rapidly and the losses were also swelling. Do you think the scale is now right for you to derive operating leverage because I would have imagined if you still want to get the end customer on to your platform, you will still need subsidies, right, which will mean that you still need to incur a fairly high amount of cash burn? So -- and particularly, you will go down the curve, right? It's not let's say, so to speak, the premium customer is already there on the platform. So the incremental customer will be dilutive, plus you will need more subsidies to get him or her on the platform?
So Vivek, FY '18, '19, we were starting off our business, right? And I would say, at that time, the share of orders that we get from new users on our platform every month was way higher than what it is today. Today, more than 90% of our business in a month is actually from repeat users. So -- and back in FY '18 '19 because it was largely every month about acquiring more users, which were new to the category. We had to spend money on acquiring them and then also making sure that we incentivize them to make a repeat order on our platform and create that habit and ecosystem that we wanted to.
I think where we are today, the overall scale of customer base on our platform is now meaningful enough that even at a healthy new user addition pace, majority of our business is repeat where we don't spend money on subsidies, right? Where people are coming to a platform for the convenience and assortment that they get or choice they get. And that business actually is not required to be subsidized.
To add more color to this, I think most of the growth over the next couple of years will come from repeat frequency going up, rather than us getting a lot of new customers on to the platform.
While in absolute terms, it's interesting because, Vivek, we are still acquiring more new users every month than we've ever done in our life, right? So when we started in FY '18, we started from 0, right? But we were acquiring, let's say, 0.5 million users a month. Today, we are run rating 3x, 4x of that, right? So our new user addition in absolute terms has actually grown over the last 2, 3, 4 years, but their share in our monthly business has gone down because of a very high repeat customer base. I hope we're able to make sense here.
Right. So just to conclude, basically, you are saying that from a GOV standpoint, the frequency will go up from -- on a percentage basis, much more than the new users that you will be getting on to the platform?
Yes. That's correct. And when we say frequency, we actually look at it more from an annual frequency, more than monthly frequency. Our penetration of monthly transacting users as compared to annual transacting users right now very low. So as you would have seen in our data that we have about 50 million annual transacting customers, but of that, only 15 million order every month. So as more people order every month, we expect our annual frequency to go up multiple times from where we are today for which we don't intend to spend money on subsidies or discounts.
Got it. And my second and last question, can you just talk about the Blinkit to the extent you can? And I mean, the press release just talk about hyper local and your intent to participate in that. But given how the market is crowded, the full stack grocery baskets are not able to breakeven at the current levels and all the dynamics in India in terms of MRP and all. How do you -- why is such an obsession with grocery? And what is your expectation from this business if you take a 2-, 3-, 5-year view?
So the -- Vivek, first of all, I think it's not just grocery. I think we look at it as a broader commerce play grocery could be one of the categories that customers purchase on our platform, if you talk about the Quick Commerce business and I am here not talking about Blinkit. I'm just talking of our philosophy on quick commerce and why we think it's attractive, right?
So I think in the past, whenever in India, at least, the online grocery space has run in a particular format, which you are questioning right now, whether it will work ever or not, given you're saying that these businesses have not broken even. But we are approaching it differently where the distribution model here is actually not centralized warehouses, but they're actually local micro warehouses dark stores. And we are using our existing capabilities on the hyperlocal delivery side to be able to deliver some of these products to customers within a few minutes, right? So I think while the product being sold to customers is still grocery, but the manner in which we are doing is different. And the capabilities that we already have are also different.
So it's not very like-to-like in my mind. And more importantly, I think right now, the online penetration on grocery is so small in the country. We don't think of it as us taking share away from existing incumbent side. I think there's so much to grow in terms of penetration. So the market is very, very large and it's too early to worry about competition here. I think our guiding principles here are that we want to be efficient with the capital here, and in the past, we have been -- we have demonstrated that. We've been more capital efficient while building our food delivery business as compared to anyone else in India and we'll keep that same principle in mind and keep building this business because we do believe that our existing business gives us the right to win and build a much larger business, which will also create a much more defensible business in the long term for us.
So just a follow-up question on this, because this is one point which a lot of investors are talking about in today's conversations as well, which is basically, if you look at the supply side, the neighborhood stores, the mom and pop kirana that India has number one, and number two, the use case for a 10 to, let's say, 30 minutes delivery and the number of players who are here, do you think that the market is right to acquire or Blinkit or whatever, whichever form you will ultimately do this?
Particularly, on the inorganic side, given that the market is far more competitive, and I don't know if the use cases are as much to justify the number of players that we have in this space. So what happens next? Is it consolidation because it looks very difficult, at least to me as an analyst, how will you make money in the medium term, given the kind of competition plus the neighborhood store, which is a very efficient system in India?
So Vivek, appreciate that. I think -- and look, we went through the same cycle and journey on our food delivery business when we had same questions that we were posing to ourselves back then. And now, of course, there are other shareholders who think about the company also. So I think eventually, we do think there is a market and this is a model which actually is more efficient than the kirana model, and that's why it will work, right?
Because reliably delivering groceries or other products in minutes is not something which kirana offers even in India, right? So while they are efficient, they are lean cost structures but the consistency of service that we are aiming to provide here to customers through the Quick Commerce that we are thinking about is in our mind, going to beat that experience. And I think that's the only scenario under which it will grow and it will really play out. And M&A, build versus buy, of course, it's a separate debate and we're not getting into that right now. But idea is that as long as we're paying a fair value for what we are buying, then that should be okay with everyone.
The next question is from the line of Sachin Salgaonkar from Bank of America.
My first question is an extension on the Quick Commerce. Akshant, I'd like to hear from you, how do you guys look at the unit economics of this business and especially given the point that you mentioned about consistency of service is important. So what kind of investments one should largely look from a warehousing and logistics purpose?
So yes. So I think here, in addition to -- if you compare this to food delivery business, then there's an additional element of having a back-end supply system, which supplies to these dark stores. And then we, of course, fulfill them to the last mile delivery fleet that we have, right? And we have to look at the business here overall, therefore as a package in terms of some CapEx that we may need to do and some operating losses that we need to fund and make sure that over time, we see a line of sight to just getting profitable from a unit economic perspective, right? So I think too early for us to give you color on specific unit economics levers here and how they are trending. We don't have the data or not authorized to share the data with you right now because the only access we have is to Blinkit data as a shareholder, right? But at some point in time, I think once we get into this business, then we'll be happy to provide you more color on this.
And I remember in your previous quarter, is you mentioned the chart saying that there is 1 core business to start off with. And in second year, there will be a second core and eventually in the longer term, there would be other cores and just staying on that point, does this essentially means that any potential acquisition in Quick Commerce business is at least a year away or this turning of core is 1 year away, as you had mentioned earlier?
So no definite time line in our head, Sachin. I think we'll take it as it comes, and we don't necessarily need to acquire every business that we invest in also. I think some of the investments are done with the objective of working closely with these companies and strategically aligning with them over going forward. So yes, as of now, I think we will take it as it comes. If and when we need to -- if there's a reasonable case for doing M&A versus not?
Got it. Second question is, you guys had mentioned that currently, there are no plans on making any more minority investments, but the existing companies might need more capital. So is it fair to assume that on a proportional basis as and how when these companies look for capital, you guys will inject in that?
I think most of these companies are doing really well. We don't think there is an imminent need for raising money in these companies. I mean, as far as we know, and we take a call, if we come to that point when these companies are raising funds on whether we want to maintain our pro rata stake or not or even letting the round go, right? So we're open to that. We haven't decided on that yet because we haven't come across -- or at least we don't believe that these companies are at this point going to raise capital.
Okay. Third question is, I just wanted to understand the impact of higher inflation on your business, both on wage inflation for gig-economy workers as well as any impact on demand?
Sachin, it's very hard to actually be able to isolate the impact of these things, right? I think what we are seeing in business that overall -- what we are seeing in our business is that this business continues to grow and cost is still coming down. But I do believe that there are definitely some headwinds here on inflation, which would be impacting consumer demand. But notwithstanding that, we are still seeing the business grow, which is great. And on the cost side as well, yes, I mean, there is a pressure because of the fuel price increases. We talked about that in our letter also. But we recently seen Government of India give some relief on that. So hopefully, that should further help us on our profitability journey.
And last is a bookkeeping question. What all goes into unallocated cost?
So these are -- so as we mentioned also in the table, these are essentially server and tech infra costs, these are corporate salaries and corporate overheads, these are costs, which are not allocable to any business that we run.
The next question is from the line of Ankur Rudra from JPMorgan.
Thank you for doing the call and also for the additional disclosures this quarter. We would obviously love to have some more on a regular basis, a bit of more higher frequency. The questions I had was on contribution margins to start off with. If you think about the relationship on a structural basis between the delivery costs for Zomato as a platform, earnings for delivery partners and external costs outside of the control, like fuel and social security costs as the platform matures, what's the level of control you have over this? And how do you see this evolve?
So Ankur, essentially, if we are in a steady state, I think the response to this question would be different. But where we are today in our journey, if you, let's say, look at a specific neighborhood, right, and how we see this evolving in a particular neighborhood. If you take that example, is that over time, the order density is going to go up, right, which essentially means that the -- that neighborhood will mature in terms of there being more restaurants and there being more customers who are ordering from those restaurants, which will lead to more orders within that small neighborhood.
That will drive -- that should lower the delivery radius, we can, right? Because right now, we have in some localities and most localities, the delivery radius are way more than what we would ideally like to have. And what we see in future and as that happens, where the order density in a neighborhood is going up and the delivery radius is going down, the delivery cost will come down massively because the delivery cost largely today are per order payout to delivery partners is a function of distance they travel. So as that happens, the savings that we make from where we are today are going to be meaningful and some of that we would share with our delivery partners so that their earnings also go up from what they are today, right?
So I think we are on a journey or a stage where we are on that journey today, Ankur. And so from here on, I think there is a long way before we get to a place where some of these impacts will have to directly pass to customers to stay at the same place from a cost perspective.
As a follow-up to the contribution margin question on the broader basis in your investor letter, you highlighted that your levers for higher contribution margins journey to double digits include restaurant commission rate, ad sales and delivery charges. Could you talk about how you see this go up across the platform? Have you already have -- I mean, Zomato I feel has one of the highest merchant take rates globally. And also, you'll probably be more successful over ad sales and customer delivery charges. So how do you see this evolve over the next 3 to 5 years to achieve your double-digit aspiration?
So I think, first of all, I think -- we don't think that we -- we don't agree with the comment that you made that we have the highest commission rates globally on food. I think our understanding is that take rates, for example, in U.S. are close to 25%, 30% I think you may be getting confused because of how some of the metrics are reported in different countries. So for example, revenue is reported differently, net of discounts in U.S., which could give an impression that the take rates are lower. But if you will talk to response there, the take rates are north of 25%, right?
So I think therefore, we think that's not a factor and that sort of comparison we think is valid. And in general, I think when we talk about revenue, whether it is commission rates, what we get from restaurants or some customer delivery charges. It's a function of what value we are bringing to these stakeholders, right? And as long as we continue increasing that value to the customer or to the restaurant, we would -- we expect the willingness of the other side to pay us more over time. And that's what we have seen in the last 3, 4 years where our revenue per order has grown consistently. And even if you compare the last 4, 5 quarters, it's been trending well.
And going forward as well, that's the expectation that it's up to us on how we drive convenience for our customers, how we drive growth for our restaurant partners. And if we are able to do that job well, then we don't see any challenges in them willing to pay us more for the service.
Just a quick question on the Quick Commerce side. There's been some discussion so far. But the broader point for me, it seems like you're defining yourself as a hyperlocal business, with an intention to diversify beyond food. I'm just curious, is this a relatively new realization? Or was this always a plan? Also how does it impact your EBITDA positive expectations over the next 2 or 3 years?
Sorry, Ankur, I didn't get your first part of the question. Can you repeat that?
Yes. The first one, the question was in the hyperlocal side. This is -- I think, defined recently yourself as a hyperlocal business in the recent investment letter beyond this food delivery. I was curious about, is this something you always wanted to do in the last 2 or 3 years? Is this a more recent thing because earlier it was food and grocery, is it still around the food like the ecosystem, it seems beyond that. Can you comment as well?
So I think our last 3, 4 years were largely about building the food delivery ecosystem in India, right, and building this business first. And we've gone through a journey where there's hyper competition, where there were questions on economics of this business, whether it will be sustainable or not. So for sure, I think we did not start food delivery with a mindset of building up quick commerce business 3 years down the line. I think the thought process has evolved as we have seen food delivery settled down into a large industry and market with compelling economics. And now as we think of a future forward in terms of what we can build on top of what we have and where do we have the right to win, we think quick commerce is a great adjacency for us in that respect.
But over the last few years, we have always been thinking about that these are the moats that we have and what can we do with the moats that we have. Hyperpure business is also one of those businesses that we built basis the strength that we already had. So I think the concept has been around for the last few years, but the specificity of like Quick Commerce is maybe a couple of years old.
Appreciate that. Last question just on the EBITDA target or, let's say, turning EBITDA positive as a group. Maybe I can merge the question. Basically, do you think potential foray into quick commerce and you highlighted $400 million investment, which would include losses, would that push out the breakeven for the company compared to what you thought before? And also a related one is this $400 million is -- I think you said CY '22, '23, we're already halfway through CY '22. So will it be effectively $400 million divided by -- approximately $20 million burn for the next -- on a monthly basis for the next 18 months?
So Ankur, the way we think about it is that, look, we have a cash balance in the bank today, right? And we want to get the company to profitability without diluting anymore. I think that's how we're thinking about it, that with the current $1.6 billion that we have in the bank, we should get to a profitable business on an aggregate basis as you define it on a group basis, right? Now with that, we don't necessarily feel the need to get to profitability sooner by not doing the commerce. I don't think that will be the right way to think about doing or not doing that business.
I think as long as our food delivery business, is increasingly becoming profitable. And we are seeing -- and we are allocating a reasonable budget for our foray into quick commerce as and when we do it. And we remain within these sort of framework of being capital efficient, then I think a few quarters of here and there in terms of getting to EBITDA breakeven at a group level is fine. That's how we think about it.
The next question is from the line of Garima Mishra from Kotak Securities.
Can you please highlight the differences in customer behavior that you witnessed between your operations in, let's say, metro and Tier 1 cities versus other cities? And is the LTV-CAC equation significantly superior for Tier 1 customers?
So in terms of customer behavior, of course, I think in more larger cities or metro cities, specifically within that also in more affluent or densely populated neighborhoods, the order frequency is higher, right, of customers, the order values are also higher. So that variation is there, and it's not necessarily a function of different cities, but within cities also that variation exists. Eventually, as you rightly said, it's a function of CAC to LTV, and that's how we measure and then, of course, there are some cities where you have to take a long-term LTV-CAC, right? Because currently, those cities or neighborhoods are not profitable.
So there is no LTV in a way. I think what we watch is that how are those cities or neighborhood trending in terms of some of these underlying customer demographics, how are the number of restaurants is growing in those neighborhoods because of our presence or post our presence. And as long as these trends are in the right direction, we think it makes sense to be -- continue to be present in these cities. And at contribution margins, which are not way south. And over time, we see the contribution margin improving and that which is what we have seen even in larger cities. So I think that's how we sort of think about it.
Okay. Understood. And for FY '22, is there any quantification that you may help us understand with as to what is the growth of these top few cities, let's say, top-10 or top-20 cities, whichever way you segregate it internally versus some of the other cities in the mix?
So top-8 cities are 60% of our business, right? So our overall business cannot grow without these cities growing. And we haven't shared or don't want to share specific data on the growth rate of these cities but suffice to say that they're growing at a pretty healthy rate, which is not very different from our average growth rate right now.
Understood. And I think you alluded to some of your other businesses early on in the call. So can you highlight the progress that you're making on your restaurant subscription, Zomato Pro, Hyperpure businesses? And how long before these businesses can become profitable at a segment...
Yes. So our dining out business is profitable even now, although it's very small in scale and size today. And the focus there is to get the scale back that we had pre-COVID which we lost in COVID because of dining out became irrelevant in India for almost 2 years. So I think that business is already there and profitable. And I think as we mentioned in our letter, we're working on our product update there, and we hope to scale profitably going forward in that business. Hyperpure, again, we've covered that in the letter, growing nicely. We are behind the investment phase in terms of expanding into new cities, and we're now every quarter seeing the margins improving in that business. And I mean, the focus on profitability there is no different than food delivery, and we expect to make progress every quarter going forward.
The next question is from the line of Mukul Garg from Motilal Oswal Financial Services.
Just 2 questions from my side. I just wanted to understand on profitability side, how should we see the correlation between order frequency, commission rate and order density you guys just spoke about it. Because when you see the -- when do you see the benefit of operating leverage actually start playing in them if I look at your growth this year, growth was very good. You also added about 40% more restaurants over the last 2 years, which would help with your density.
But the frequency as well as order density continue to remain very flattish over the last 3 years. So how should we see them grow in the next 3 to 5 years.
So I think, yes, it's a good question, Mukul. I think you're referring to the annual order frequency, right?
That's correct.
So yes, see, that's the point that I was making earlier that our current annual order frequency is about 10x a year, right, which is not even once a week, right? I mean getting to once a week is about 50x a year. And if you refer to our Q3 shareholder letter, we had shared a data point on -- in terms of number of people who are ordering at least once a week on a platform. And that number is a small 1.8 million. This was as of December last year. And that's where I think to our earlier point, the growth opportunity is in terms of increasing frequency because of the 50 million people today, 1.8 million people are ordering once a week, right? That number going up to 10 million, 15 million, 20 million people will mean a meaningful growth in our business without even really acquiring any new user theoretically. And that's the opportunity that we're excited about.
So sir, just to follow up on this. Is there any benchmark or any thought process which you guys have, how should we see the growth both in order frequency as well as the density part because what I see right now is that the delivery boys per ride is not even taking them on an average 1 order. So how should we see these methods grow over the medium term?
So Mukul, that's what I said. I think we expect the frequency average annual frequency to grow up from 10x we have to ideally 40, 50 at least for a much larger number of users than we currently have. And on your second point I think if I'm not wrong, you are referring to the utilization or efficiency of the delivery fleet where you're referring to number of orders they're delivering per hour.
And that number actually is north of one right now. So I just wanted to correct you that it's close to 1.5 or north of that. And that's a driver of delivering cost per order. I think as that metric goes up, which goes up with density of orders, we will see the delivery costs come down.
Sure. The second question was on the competitive intensity in this food delivery space. How should we see that from a medium to long-term perspective, will it be a scenario that you and Swiggy will have pretty much equal market share with a little to differentiate the 2 companies? Or do you see clear differentiation, which Zomato is driving which can move the needle in terms of market share.
I think, Mukul, you should tell us that, like we don't know how this will pan out. I think we essentially look at what we are doing internally. We obsess with customer service, we obsess with our NPS of delivery partner, the restaurant partners, and I think market share is an outcome of that. So it's a large and competitive market, off-line and which was -- so it's essentially something that we don't worry about too much. It's an outcome for us rather than something that we want to drive.
The next question is from the line of Abhishek Bhandari from Nomura.
Thank you for the detailed letter. I have 2 questions. One, Akshant, if you can just correct me here. If I add your adjusted EBITDA and your contribution margin, I come to a total cost of around INR 1,300-odd crores for FY '22. Now understandably, the adjusted EBITDA is variable in nature. Could you help out of this 450 of company level overhead, how much is variable and how much is fixed.
And a related question is while Deepinder spoke about a medium-term path to profitability. But you guys have any time line on your core food part excluding of quick commerce foray where you think your adjusted EBITDA at group level could start turning 0?
Sorry. Can you just repeat your first question? Are you referring to the unallocated cost in the adjusted EBITDA and your question with regards to how much of that is variable or fixed related to that?
Yes, you can explain that, but that's fine. You can explain in that, yes.
Yes. So I think most of it -- I mean, the server and tech infra cost, I would say, semi-variable, right? Because as we scale, we have to spend more on that. But outside of that, I would say they're largely fixed and these costs grow with inflation pretty much right now. We're not looking to add meaningful number of employees going forward. I think we are well stocked so these cost therefore should be looked upon as fixed cost largely. And hence, the operating leverage that we spoke about is what is going to play out even further as we go forward.
Okay. So could you share some timeline around your internal vision of taking it EBITDA-neutral business on the core food excluding the hyperlocal part?
We don't have any time lines for this. We are actually operating on a like as soon as possible mode.
Deepinder, let me ask you another way. If I heard you correctly, you said that you have enough money of $1.6 billion, which is enough for you to eventually turn the business profitable. So should we think that is the kind of burn you're looking before we could start seeing that EBITDA front?
No, no, no, not at all. We want to hold as much cash as possible. And yes, we're not going to spend all of it, no way.
Okay. So Akshant, the second question is at multiple times in the letter, you've written that the core focus is top cities. And I think you also mentioned most of the frequency increases is going to be the incremental demand driver or the growth driver I'm just curious why expand so dramatically into new markets doesn't it take away your bandwidth and rather you focus more on driving up some of the frequency in the mature markets because it seems that tier-1 markets are maturing rapidly for you.
So this is a very scalable product or category, right? I mean once we have this in X number of cities, launching this in another 1x or 2x or 3x actually doesn't take away bandwidth. It's the same system that we are taking to newer markets and in fact, more data points make the system the overall business more robust to my mind. So we're not compromising on tension here or level of commitment to larger cities when we expand to smaller cities both in terms of our time as well as our balance sheet.
And what you've also seen in the last 2, 3 years, when we expanded from the first 10, 15 cities that we were in to the next 500 that some of these cities now within the top 100 are getting to unit economics positive in a meaningful way and much larger than in size than what they were when we launched them 3 years ago.
So the thesis is that the similar journey is going to play out in cities numbers 500 to 1,000. And as I said, there's no incremental cost of expanding and launching and being there first, I think, gives us the first mover advantage yes. So that's how we think about this.
Sure. And my last question, Deepinder, if I look at most of the global food delivery companies even if those are working in developed markets like U.S., where people have the habit of paying a convenience fees and as you said, take rates are particularly higher yet those companies are probably not turning profitable, they don't have a near-term visibility of turning profitable. So what gives us the confidence that our path to profitability would be sooner rather than later and we won't burn the entire money what we have.
I think what gives us the confidence is that we actually don't look at them. We just look at our own business, and we know that we will get there. So.
So -- but by the way, I think DoorDash has turned profitable now and so has Uber Eats or Uber Rides. So these businesses are now turning profitable.
But we know our business very well. We'll get there.
The next question is from the line of Vijit Jain from Citi.
My first question is with the -- you used to -- you had a GOV retention trend chart in the DRHP/RHP for FY '17, '18, '19. Do you have an update for those cohorts look like in terms of GOV retention in FY '22? That's my first question.
So Vijit, that trend continues. We haven't shared that data because we felt that there is no incremental value to sharing that data beyond what all of you already have from the disclosures we had in RHP. So that trend continues, and we are seeing over time a set of customers, orders more on our platform every year, and that number keeps growing, which means that as a business, we compound with just the same set of customers, right, which is a point we are repeating a number of times on this call. But I think that's the character of this business where the compounding is really strong once customers get used to the platform.
Yes, sure. Sure, sir. And my next question is when we look at some of the marketing expenses, obviously, part of it is above contribution and part of it is below. Are all discounts above contribution margin? Or do you account for the absolute new users somewhat differently?
No, no, so all our discounts are above contribution. And in our parlance, we call marketing spend as money that we spend on digital marketing APL, right? or any other channel that we spend money on acquiring customers? So that amount is below contribution and all the discounts and subsidies are accounted for in the contribution.
Sure. And just one final question from my side. With this expansion into about 600, 700 odd cities this year, can you give a sense of what is the cost structure right for running some of these cities in -- some of these cities may be subscale, you may have very few orders in them. But is there a tangible cost that you're incurring in just being live in those cities?
So Vijit, we keep iterating on this. I mean we don't report it, but there are number of cities which we pull out of when we see that nothing is panning out in those cities and there's no sense in continuing to be present. So the number that we report in terms of the cities that we add is net addition, right, in a way because there are some cities that we pulled out of. So we look at individual city P&L regularly. And as long as we feel the investment in that city is within a certain bound and it's making sense in terms of how we are -- how the ecosystem in that city is growing, then we sort of continue with that city, otherwise we pull out.
And one last question on the dining out business. This quarter dining out business would have been in general back, right? So is it that this is post-COVID recovery and people are going back into restaurants in any way, restaurants are full and so restaurants are maybe not spending as much as you would have before on advertising on your platform. Is that what is happening in your view? Or is there more to what you need to do in terms of product update there?
I think it's both Vijit. So over the last 2 years, I think perhaps October, December was the quarter -- October, December last year was the quarter when we, for the first time, saw the dining out market in India really coming back in full scale. But again, as we said, the restaurants were then full so -- but we still made a meaningful progress in terms of some of the revenues in that business for us coming back. Now we saw a pullback again in Q4 because of Omicron in January, which meant that restaurants again were shut in that quarter for a decent period of time.
And we'll see how it goes going forward. But to our mind, I think over the last 2 years because Zomato has been now associated as a primarily food delivery brand in consumers' mind. We also -- we believe that we need a product with the refresh and upgrade to bring that association back in consumers' minds, and that's the work that we're doing on our side while we still wait for full recovery on dining out from restaurants remaining open standpoint.
The next question is from the line of Hiren Dasani from Goldman Sachs Asset Management.
Thank you. So generally, at a high level, the high level criticism, which at least we heard the most about Zomato as an investment is, a, you guys are not focused on profitability, b, you guys don't Interact enough and c, you guys have some crazy capital allocation policy. And hopefully, on all the 3, the disclosures you have made in today's call, there should be some meaningful incremental progress. I just wanted to put on and ask you a question on the last part of the capital allocation and referring to question 28 and 29 in your release. So $150 million of short-term loans, is that, first of all, already given out or needs to be given out?
Part of it is given out, part of it is pending. We'll see if they need it, I mean, we've essentially committed to it, but whether we really give them the money or not is a function of whether they need it or not.
Okay. And as per your question 29, effectively, are you saying that the business plan of Blinkit means that eventual $400 million total loss funding should be sufficient to get them to the path to profitability? Or do you think beyond that the cash infusion will be required at the Blinkit level.
So it is very hard to look beyond 2 years in this business right now. I think, in fact, I would say very hard to even look even for the next 2 years and put a number out. But we thought we should do that given the questions we were getting, as you rightly said, on Quick Commerce and even on this call, there have been a lot of questions raised on viability of that business. So I think this is where we are today, where we feel comfortable that this should be enough an upper bound given what we know as variables today and the knowledge and information that we have. But I think we'll keep updating the group and everyone as we get new information or data points as we go along.
Okay. And also the fact that if at all you decide to kind of acquire controlling state there, right? And you also have to think about the valuations of the entire tech consumer Internet space how they have kind of come off since the last round of trending of Blinkit. So are you -- how are you looking on those lines? And if you need to do that or you are seeing at this point of time that we may not even go down that route.
So Hiren, I don't want to comment specifically on Blinkit because there is nothing definitive that we have to share on that front. So far, it's just a financial investment for us. But I mean, answering this question theoretically for any M&A that we do, right? I think we are very conscious. We don't want to overpay, right? So we haven't done that in the past or any deal that we've done. So we'll follow the same principles and we have a strong and independent Board. and we are on a strong governance process for any M&A, not just on valuation, but also on other things on the rights we are getting in the business and so on. So we'll follow the same process here. We have that muscle well built, and we're not going to make any mistake on that front.
Ladies and gentlemen, we are extending the call by 15 minutes. We'll take the next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.
I'm just extending the debate 1 of the previous analysts started on the obsession with Quick Commerce. Grocery delivery as a concept has been at least as old as food delivery if not older and these companies like Blinkit have been around since 2013, '14, and they were not really able to scale up flip-flop on the strategy multiple times, shut down the business in multiple formats. In fact, Mr. Albinder Dhindsa once made a comment that same day delivery has no use case in India.
Now there is a U-turn in the stands with this concept of 10-minute delivery. So just to take a step back and look at it, is it like a solution looking for a problem and it's a familiar fad, which can die down after some time. I'm talking about the overall industry and concept as a whole, not specific reference to Blinkit.
Yes. So sorry, yes. So see, we've also had our U-turns on grocery, online grocery, as a business, right?
Twice.
So in fact, before our IPO, one of I mean, interestingly, it was the other way around, everyone used to pester us for getting into that business, but we could not see any light at the end of the tunnel and not on economics, but largely on the product market fit from a consumer standpoint, as you pointed out, right? And we've tried, therefore, twice on our platform, we shut it down. I think what changed this time is, as I mentioned, when we looked at this business in context of quicker deliveries than what was real the case even quicker than food in some times, the PM has changed and the customer value proposition became much stronger than Kiranas for the first time, I guess, in the last 7, 8 years in this industry.
And hence, if we, for example, take a city where the GMV's in online grocery was stagnating for the last 5, 7 years. They are today multiple times of the GMV that we have seen in those cities or neighborhoods today. So we have seen - therefore, I think our first problem to -- our first hurdle to overcome when we think of this industry is a large enough market. I think we think there is in this format. And then we come to the second question of whether this is a sustainable business from an economic standpoint. We're also increasingly over the last 12 months as you've seen some of these businesses progressed and also the fact that we have a large food delivery business, which is synergistic, makes us confident that economics will work here and there is a large enough market out there, which could be accretive to the profits in our business in the long term.
To add to that, yes, I think customer cohorts for the like quick commerce businesses are very, very good. So that is the product market fit there. Some of these customer cohorts are better than the food business that we have. So it's not like necessarily or an answer looking for a problem. I think there is product-market fit there in that business.
Sir, just on the $150 million loan, right? In case hypothetically, if we assume that Zomato will acquire Blinkit at a future point in time. Will this loan be converted into equity? Or this will still remain like an interrelated happy loan, Any thoughts on that front?
That should be irrelevant, I think, I mean, hypothetically, if we acquire a business in a subsidiary whether we convert it into equity or should not matter unless I'm missing something here.
It is -- it is relevant, right? It matters especially when there is dilution for the minority shareholders. But okay, my final question is...
Debt is in the subsidiary, right? The dilution will not be at Zomato level.
Sure. And one last one clarification. Your DRHP calls out an average monthly frequency of over 3x by users on your platform. Some time back, I heard you mentioning annual ordering frequency of 10x a year. Where exactly is the disconnect?
That is true. So that's the whole point that every customer is not ordering every month. There are people today who order maybe once in 2 months, so they're active on our platform and maybe different set of customers are ordering 3 times a month. So that is why we have a 15 million customer base who is ordering every month and a 53 million customer base, which is ordering every year.
Sure. So you mean to say that the 15 million cohort of average monthly order efficiency is 3x. And then you look at it as a superset of 50-plus million.
That's not what I'm saying. So I think that 15 million could be different customers in different months. So it's not a cohort within the INR 50 million cohort who's ordering 3 times. So if you are ordering in a month and not ordering in the next month, you get counted in the 15 million for the first month, but not for the second month.
[Operator Instructions] The next question is from the line of Aditya Suresh from Macquarie.
2 questions. The first is in the contribution margin section, you mentioned long term. Can you help qualify that for us? Is it 10 years, 20 years? Any comments on that?
I think in our head, definitely not 10 years. I think it should be lower than that.
I guess the second piece is on the high-frequency transactors, which you used to disclose, right? And there's this fantastic metric, which helps kind of understand the business. Last quarter, it was at $1.8 million. Any update on that?
So that wasn't quarterly, Aditya. We actually disclosed a number on a yearly basis of CY '21. And the idea of that disclosing that metric was to showcase that it's a small fraction of people who are ordering once a week. Today, and that number should grow from where that is today. So we're not planning to disclose that number every quarter, but maybe once in a while, with reasonable frequency, we can share an update so that we know how that is progressing.
And maybe just a final piece around the delivery partner, ordering. So you mentioned that basically it's slightly north of one. Any targets you have in mind over the next, say, 3, 5 years? And what specific taking to kind of achieve that higher efficiency intensity, therefore, to drive kind of delivery charges lower? And kind of -- is this kind of where the quick commerce fits in, in terms of driving your delivery partner order efficiency.
Yes. So I think Quick Commerce will definitely add to that. But I think even without that, there is a large room there for us right now to improve. And essentially, it's a function of reducing the idle time of delivery partners on our platform, right? And as long as they are occupied all the time that they're logged into our system, we would end up decreasing the overall cost of delivery while at the same time, making sure that they make more money every hour. So I think fundamentally, that's the principle. And yes, as we plug more use cases into that, like quick commerce, it's only going to get better.
[Operator Instructions] We'll take the next question from the line of Gaurav Rateria from Morgan Stanley.
So the first question is on multiple levers on unit economics that you talked about, commission rates, delivery fee, actual delivery cost. What stage of journey these initiatives are some probably will fructify much earlier in the next 1 or 2 quarters, some will take a little bit of a medium-term view to fructify. And -- what is the risk that competition kind of toes the line or they toe the line because some of these initiatives, success of this will be function of how competition behaves. So what's your take on that?
I think competition is not the only factor. I think we are a 3-sided marketplace, right? And any imbalance in this marketplace makes the marketplace degrade very rapidly, right? So it's important, therefore, that as we push along on our unit economics journey, we do it in a sustainable manner. And hence, if our stakeholders, like restaurant partners or delivery partners or customers, for example, are not seeing enough value in what we are offering to them. Even without the competition, I think the marketplace will degrade. So it's a very fine balance that we have to run with, and there are multiple variables, as you rightly said, which makes it very complicated to do this in a very linear way across each of these 5, 6 levers, right?
And that's why we want to stick to contribution as a metric and retain the flexibility of playing the -- going up or down with individual elements. Our aim is to make sure that we've proven contribution from here on every quarter without necessarily doing that for each of these is specific individual levels, I mean I hope I answered your question, Gaurav.
Yes. That's fair. Got it. Fair. The second question is around trying to understand the synergies between quick commerce and food delivery both from an operations side as well as from a customer acquisition side, given that they both are operating as or they might operate as independent businesses. So how should one think about synergy, both on operations and customer acquisition side?
The separate business is just from a customer lens, right? I mean if we do go ahead with 2 separate brands, then consumers think of it as 2 separate businesses. But behind the scenes, it is an integrated tech. It is an integrated CRM. It is integrated delivery fleet. And I think that is where the synergies will come both on customer side where we have a large customer base on food delivery, which whom we can cross-sell quick commerce and vice versa.
And likewise, on the delivery fleet side, operations side, which we just discussed, where the cost of delivery should come down because of higher utilization and efficiency.
Yes. Sorry to belabor on this point, but if I look at the delivery architecture for quick commerce, it's from 1 point to multiple points of customers in the locality, whereas from food delivery, the partners have to toggle between multiple restaurants at multiple locations and then they have to deliver at multiple different end points, right? So the delivery architecture looks very different. So does the integrated delivery architecture really work well? Or I'm not sure if my understanding may not be correct.
This could be the situation today. I think of it this way that in a slightly more mature market on both quick commerce and food delivery. Delivery partner's job is to pick up something from point A and deliver it to point B, right? And whether the point A is a dark store or a restaurant will eventually not matter that much in a mature market. So these models, therefore, may start off differently because we want to get to scale. We want to get to SOPs, which drive consistency in services and so on. But over time, I think the real value of the business will unlock once we integrate all of this in a fashion which makes it really a fungible from a delivery fleet perspective.
Got it. Last question, you had also taken an NBFC license probably to do some activity around the fintech side. So any -- if you can elaborate on what exactly you're looking to do there? And will it be a capital-intensive business, typically, NBFCs are capital-intensive businesses, and that's the reason I want to understand a little bit more clarity on what you're planning to do there?
Yes, just to clarify, we haven't taken a license yet, I mean, we applied for it and getting the license is a process in itself. So when we get it, we would see on how exactly -- see the fundamental idea is to not build as a separate business right now. I don't think we're going to deploy meaningful capital in lending as a business, but to just -- that NBFC to be an enabler for the growth of our restaurant ecosystem or delivery partner ecosystem. If we do see a way of doing that without risking meaningful capital. So that's how we think about it.
The next question is from Ashwin Mehta from AMBIT Capital.
Just 1 question in terms of the dining out business from a product refresh perspective what are you looking to do in terms of this business? And from a longer-term perspective, this was what your original business was. So from a longer-term perspective, how do you scale up in terms of this business? Because this, from a profitability perspective should be additive to your business.
I think we can't say more details. This is -- I mean, we should wait for the new product here. I don't want to say anything beyond that. But you're right. I mean this has been a business which used to feed some of our losses in food delivery few years ago. And I think we know how to build this business better. Context has changed in the last 2, 3 years. And hence, we think this side of the product needs that we think and we were on to doing that right now. And once we have an update, we'll share it with you.
And just 1 more question in terms of, say, your top 300 cities constitute almost 99% of our GOV. But in terms of indicators for how the remaining 700 or at least the 400 that we added earlier, how are things panning out there? Are we having to say, subsidized delivery or spend materially in terms of discounting there to entice people.
Most of these new additions are few weeks old right now, right? I mean, of the first 500 that we launched, right, we exited some cities and the balance contribute pretty much -- I mean broadly to 99% of the business. The last 500 odd cities that we launched post October 2021. So and some of them have been launched as recently as last couple of months. So very early right now, but I think I explained our thought process behind how we look at city expansion and what we watch out for. And hopefully, sort of that answers the question that you have here. Happy to repeat that in case you missed that.
No, I'll kind of look up on that if I missed it -- just 1 follow-up in terms of Hyperpure business. And how does it fit in with your quick commerce strategy because 1 of the ways to make quick commerce profitable would be how you do the fresh supplies piece, and that's where Hyperpure could kind of come in, so how are you thinking on those lines?
Yes, Ashwin, I wish you did not ask that question because that's one of the elements of synergy in our business, which is not very obvious, but it's going to be a big driver of better economics for us because Hyperpure is a business that we've built now over the last 4, 5 years, it's become meaningful in size. And growing well. So yes, I think there are synergies there, which is what also excites us and gives us confidence about the economics of the quick commerce business as and when we get into it.
Thank you, ladies and gentlemen, due to time constraint, we will be able to take the last 2 questions. The next question is from the line of Pranav Kshatriya from Edelweiss.
I have 2 questions. Firstly, can you elaborate...
Yes, Pranav. Go ahead. We can hear you.
So can you please elaborate this quarter's increase in contribution margin. How much impact this delivery cost reduction has happened? And is clubbing deliveries has been a measured driver of that is what I'm trying to say.
So first part, Pranav, we cannot answer. We don't want to share that. I think it's fine detail. And to your second question, we're not looking at batching orders as a big driver of our delivery costs going down at least for now. I think in our minds, it results in an inferior customer experience. And there are enough lower-hanging fruits to bring the delivery cost down at this point rather than starting to batch orders. So batching is a small percentage of our orders today, and we don't see that changing right now.
Sure. And my second question is regarding the loan which has been given to Blinkit . So Blinkit seems to be burning a lot of cash and you have extended the loan for the immediate capital requirement. Do you -- I mean, qualitatively, if you can answer it, they will require funding in a shorter term, this will help them tide over for a much stronger period. And has the burn that sort of came down from when you funded them last time around? That is what I'm trying to understand.
Yes. Pranav. I think the losses are coming down. We've indicated that in our letter. And I think they are well capitalized for the foreseeable future.
The next question is from the line of Varun Ahuja from Credit Suisse.
I think most of my question has been answered, but I'll just take 1 question on the grocery side. I just want to understand the thought process of putting this 400 million number there. I know you mentioned there are a lot of uncertainties that are involved right now. And it looks like it's a core business that you think as of now because all synergies you're talking about. So my understanding looks like given it is such a huge opportunity, the losses or the investments may be lot more higher than 400 million. Why are you constraining yourself with 2 years 400 million? Is there anything else in your business model? How did you arrive at it. Anything that you can share on that front?
So Varun, we think that's a lot of money for doing a business. We are not starting this business from scratch, right? I think the answer would have been different if we were to be a new business doing quick commerce, but we already have a business that is synergistic to Quick Commerce. We already -- I mean, we are a team that has gone through 1 cycle of building a business similar to that right? I think -- so I think that drives our -- that drives our thinking in terms of how much capital that we would need going from here. given what we know and also knowing that competitive intensity is actually going to come down from where we are today.
I think given the markets and how that changed in the last 6 months, we don't think we are in a scenario which is -- I mean, like had we been in the same environment as 2021 in terms of capital markets, we could have seen 3, 4 more quick commerce startups getting funded, which would have made the environment way more competitive than what it is today. So on the competitive intensity bit, we are actually happier than what we were 6 months ago. It's come down, and that also drives how we think about losses going forward, which I think we should be -- this current market environment gives us a good window to actually scale this business quickly without really spending too much capital.
Sure. Just given the model that you are looking at, obviously, at the outset, given you're working, you may have a lot more detailed working. If you have to build dark stores in each and every place then obviously you're looking at 15, 20 minutes. And the outset looks like the investment will be lot more and obviously then to acquire customers. So that's where the question is coming from. I understand you already have a business, but in terms of operating a dark store maybe require a little more physical presence?
Sure Varun. let's discuss it once we get into this business, we can hopefully share more details with you at that point.
Next question is from the line of Swapnil from JM Financial.
So I had a couple of questions actually. So your employee costs have seen a sequential decline. So just wanted to know if you had done some [ retention ] over there. And can you also give some trends on your current headcount? And will you need to add going ahead as we continue to scale up.
Yes. So no, no headcount reduction Swapnil and we're not seeing any pressure on the employee cost. As I said, I think we don't plan to hire meaningfully from here on and the cost -- employee cost in general, should grow with inflation from here from today.
Okay. But any particular reason why sequentially, the cost were down by around [ 7% to 8% ].
Let me check that. Which the number you're referring to on employee cost, I don't think the cost.
Employee cost, ESOPs. So it was INR 195 crores last quarter, and this quarter, it is INR 181 crores.
Swapnil, let me get back to you on this. I'm not very clear on the question. So maybe you can connect offline and I can give you a clarification. But in general, I would say that cost is stable. So there could be some understanding gap here, which I can fix separately.
And the second question, you have mentioned that growth in your business in the past has not been linear. So can you give some sense on seasonality, how should we look at it? I would have presumed that IPL is something good season for you, but apart for the rest of quarters.
Yes. So the lumpiness in growth is, I think, partly because of seasonality, but largely has been because of, I think, more larger macro factors and also the nature of industry and state of the industry, I would say, or the category. So I think it's been driven more because of that, where we saw intense period of competition in food delivery and then that is a consolidation, right? So I think the lumpiness was driven largely because of that in the past. There is some seasonality, but it is in our business, but not something, I mean given our growth rates, we typically -- I mean, that gets sort of overshadowed with a strong growth that we see quarter-on-quarter. So nothing much to add there.
Okay. Okay. And just 1 last question. In the P&L there is a mention of delivery and related charges. So can you explain how this is different from availability fees that we used to report from the time of the IPO?
So this is essentially all -- I mean this is payments or rather the payouts that happened with every partners, net of the customer delivery charges that we get.
Okay. So is it -- you basically mean this is the same as the availability fees, which was at the time of IPO...
That's correct. Yes.
Ladies and gentlemen, that was the last question for today. We will now conclude this conference call. Thank you for joining us, and you may now disconnect your lines.