Zomato Q2: Blinkit Turns Contribution Positive For First Time Since Acquisition

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Foodtech giant Zomato’s quick commerce arm Blinkit turned contribution positive for the first time during the quarter ended September 30, 2023 (Q2 FY24).

In its shareholders letter, released along with its financial statements for Q2 FY24, Zomato said Blinkit’s contribution margin as a percentage of gross order value (GOV) in the overall business improved from -7.3% in Q2 FY23 to +1.3% during the quarter ended September 30, 2023.

The company calculates contribution by subtracting store costs, warehouse expenses, packaging and handling costs, and recruitment expenses for delivery agents, among others, from its revenue.

It must be noted that this is the first time Blinkit was contribution-positive for the whole quarter, having turned contribution-positive in June 2023. The major milestone ensured that the quick commerce arm of Zomato was at the front and centre of the shareholder letter this quarter.

Blinkit recorded 45.5 Mn orders during Q2 F24, up nearly 24% quarter-on-quarter (QoQ) compared to the 36.8 Mn in the previous quarter, and up 74.3% year-on-year (YoY) compared to Q1 FY23, when it recorded 26.1 Mn orders.

The bumper jump is also reflected in the GOV, which rose 29% QoQ and 86% YoY to INR 2,760 Cr in Q2 FY24.

“Part of the reason for high growth was the low base effect, given the temporary disruption in the business in the previous quarter (as mentioned in our last letter),” said Blinkit cofounder and CEO Albinder Dhindsa. 

“On a YoY basis, the GOV growth was 86%, as expected and in line with the past. GOV growth was largely driven by same-store sales growth as we continue to focus on serving more customer needs and ensuring consistency of service levels,” Dhindsa added. 

Zomato CFO Akshant Goyal expects Blinkit to deliver another record-high quarter in Q3 due to the festive season.

Meanwhile, Blinkit’s net addition of new stores stood at 28 during the quarter under review, taking the total store count to 411. Giving more details on geographic expansion, Dhindsa said the quick commerce platform is aiming for at least 100 net new stores within FY24, and expects to exit March 2024 with around 480 stores in total.

Commenting on the impact of geographic expansion, Dhindsa said Blinkit’s adjusted EBITDA margin should only improve, guiding the platform for a break-even by Q1 FY25. “Having said that, what we really care about is that our existing stores increasingly make more contribution profit and at the same time the new stores that we open ramp-up at a pace that we expect them to (or better),” added the Blinkit CEO.

“…even if the aggregate margin falls as an outcome, we would not worry about that because the underlying business is solid and the fall in margin is then more a function of rapid good quality expansion in the business,” Dhindsa said.

The average order value (AOV) at Blinkit rose to INR 607 in Q2 FY24 from INR 582 in Q1 FY24. It also rose 7% YoY.

“…part of the recent uptick in AOV was also driven by the improving assortment and GOV mix in favour of high ASP (average selling price) categories such as electronics, toys, books, beauty products, home décor, festive needs, among others. While the ordering frequency of these categories is lower, their ASP tends to be 3-4x higher than other categories, thereby driving up AOV,” the Blinkit CEO explained.

Zomato CEO Deepinder Goyal reiterated his bullishness on the quick commerce business and said it can surpass the food delivery business.

Goyal said Blinkit is seeing profitable economics not just at a store level but also at a city level and some of the cities are now operating at similar contribution per order as the food delivery business in those cities. “So even from a potential profit pool perspective, we think quick commerce is a larger opportunity than food delivery,” he said.

Overall, Zomato reported its second profitable quarter in Q2 FY24, posting a PAT of INR 36 Cr.

Shares of the company ended Friday’s session 8.3% higher at INR 116.40 on the BSE.

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