Zomato exits 225 smaller cities due to “not very encouraging” performance in recent quarters

“Recently, in the month of January, we have exited around 225 smaller cities which contributed 0.3% of our GOV (gross order value) in Q3FY23 (October-December),” Zomato chief financial officer Akshant Goyal said in the company’s shareholders letter.

According to Zomato’s annual report for 2021-22 released in August last year, the food ordering and delivery business was present in more than 1,000 cities.

“Performance of these (225) cities was not very encouraging in the past few quarters and we did not feel the payback period on our investments in these cities was acceptable,” he added.

However, during the post-earnings analysts call, responding to a query on whether withdrawing from these cities had any impact on the company’s costs, Goyal said: “Not very material”.

The Gurugram-based company on Thursday reported that its consolidated revenue grew 75% to Rs 1,948 crore in the October-December quarter, even as its loss jumped five times to Rs 346 crore. This includes the numbers for its quick-commerce business Blinkit and business-to-business vertical Hyperpure.

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On a year-on-year basis, the company’s adjusted food delivery revenue for the three-month period ended December 31 saw a 30% increase but witnessed a decline on a sequential basis. In the December quarter, Zomato clocked adjusted revenue for food delivery at Rs 1,565 crore, compared to Rs 1,581 crore in the September quarter, and Rs 1,200 crore in the quarter-ended December 2021. The company defines adjusted revenue for the food business as revenue from operations as per the financials plus customer delivery charges.

The company’s management attributed this to an “industry-wide slowdown in the food delivery business since late-October”. Zomato said that the sluggish trend was witnessed across the country but was more pronounced in the top eight cities.

Zomato’s GOV – the total monetary value of orders including taxes, customer delivery charges, gross of all discounts, excluding tips – for its food delivery business was almost flat growing only 0.7% quarter-on-quarter to Rs 6,680 crore for the December quarter.

In the shareholders’ letter, Goyal added: “It remains a challenging demand environment, but we are seeing green shoots of demand coming back in the recent weeks, which makes us believe that the worst may be behind us”.