Sometime back Blinkit had almost no competition, that is no longer the case now. Even as a Zomato shareholder, I ended up buying on Flipkart Minutes, Bigbasket and Zepto recently due to better pricing and discounts. In short, from a business with an edge, its now getting reduced to a commodity business with multiple players. Sales Growth will continue , however its tough to do profitable growth. In conference call someone asked a question “How many players will survive in quick commerce”, Management reply “We ourselves are not sure whether we will survive or not…”.. that may have been in lighter vein as that was put that way, but that seemed to me truth coming out of their mouth!!! so the very next day I completely exited. While future will tell whether it was right or wrong, however I have better sleep now as Zomato was a big holding for me. I moved to more surer stories.
The company that controls the ecosystem always wins. Rapido, already a leader in ride services, can leverage its network to reduce delivery costs—a key component in food delivery. Swiggy also has its Genie network, but the question is: what will Zomato do now? The industry is becoming ultra-competitive.
There’s almost certainly no way that Rapido is going to break even at ₹25 per delivery.
If you look at the financials of Swiggy and Zomato (whose food delivery business is mature), you can see their operating profit margins are in the region of 10-20%.
So of a ₹450 order of McChicken, about ₹360-405 go in operating costs (payment to restaurant, delivery guys, ancillary costs such as customer support, rider training, management etc).
For Rapido to achieve similar operating margins, they would need have their operating costs at ₹187-210. So assuming ₹199 goes to the restaurant, they have only ₹10 to spend on delivery and other aforementioned costs.
Most likely Rapido is operating at a loss to try and break into a duopoly that is dominated by two players.
Yeah rapido did the same thing with their cab service. And initially the difference in price on rapido vs uber was pretty big but it has decreased over time. I expect the same to happen here.
In food delivery, the biggest cost is paying the delivery partner. Zomato spends around ₹60–₹70 per order on this. But if a company like Rapido can do the same job for just ₹40-₹50, it can give more discounts to attract customers and still make similar profits. This shows that even a small change in delivery cost can completely wipe out the profits from each order. That’s how fragile the business model is in such a competitive market.
A look at the top investors in Rapido. Surprise, surprise Swiggy is the second largest investor in Rapido
Choice of Rs 199 appears mischievous as at Rs 200 delivery charge’s would become zero and the entire dynamics would change.
The era of free delivery is over.
At the outlet, the same product costs ₹199. On Rapido, it’s ₹234.
Yet, Zomato’s price remains higher than both.
Why? Because Zomato is targeting a specific segment—customers who cannot visit the outlet themselves or wait an hour for delivery.
In effect, the Total Addressable Market (TAM) includes corporate Indians with high-paying jobs who willingly spend ₹300 on a ₹200 meal—not just for the food, but for convenience, speed, and reliability.
Zomato is no longer aiming to serve every Indian. It’s now focused on monetizing the top 0.6% of the population who can afford these privileges—and are willing to pay for them.
think of it this way. Rapido is able to offer this only because they are burning money. they might be able to impact the mkt in the shortrun but what will happen when they have tobe disciplined with the money.
Its not that zomato, despite all the scale is making 20-30% ebitda margins on food delivery. best comparison would be Zepto, they also created a stir by burning money. We all can see what happened.
What rapido is doing doesn’t seem sustainable…they will probably burn money for the next year or so…after which they will also have to increase rates…what i feel is that the player with the most strong balance sheet will emerge victorious at the end… zomato has close to ~20000 cr on it’s balance sheet…I think they are well positioned to fight any competition especially one that is burning cash to survive.
Agreed. Zomato/Swiggy, and other e-commerce platforms, all follow a similar model. They are unlikely to run out of money, as they will likely secure further funding. The same was said about Zomato/Zepto initially. Eventually, Zomato/Swiggy will likely lower their inflated prices, and this competition will reduce their current high valuations. This will impact their margins as well. Indians do not mind multiple apps on their mobiles and will turn to Rapido if they find better deals there. Rapido just need to work on their UI, which I am sure they will. A 400+ PE ratio is not sustainable in the long run despite all the scale. Right now Zomato is the best bet for short term thats why its commanding high valuations.
Free dollar printing will eventually end. Where will the funding come from? QCommerce firms will be in deep trouble.
This has been the argument for the past three years yet no funding has been stopped.
The funding won’t stop and will keep coming. As it is a sunshine sector and as per capita income increases, the sector will also grow. Many more players will be entering this sector. The problem is with the valuations. They are coming with IPO with high valuations, giving exit opportunities for old investors. This paves the way for new investors and analysts giving high targets to entice new investors.
Let us assume that funding will continue. But looking at the conditions in the US, I feel the funding will come at a steep cut in valuations. Look at the case of CRED.
Lol funny to see people thinking zomato requires more funding more hereon…zomato has already raised 20k crore…it’s food delivery business generates healthy cash…swiggy has 8k cr…food delivery business generates healthy cash…I think rapido and zepto will be in trouble and will require funding as they dont have any cash generating business…not these two!
zomato’s food delivery is cash-generating? i think that is just Adjusted EBITDA . They add back esops, ignore rent, and call treasury returns ‘core ops’. i dont think so that it deserves to be called profitable
Cash flow from operations does not include other income…most of it has come from food delivery alone in fy23-24…my earlier posts were explaining adjusted ebitda…latest post was regarding why I think eternal will not require additional funding…hence raised issue of cash flow to explain why I think it will not be required…ambanis and adanis can raise 1000s of crores but everyone has a problem with zomato raising money…anyways…closing my views here…cash flow from operations is positive…food delivery generates good profitability…the current business grows at 50-60 percent per year…and the balance sheet has 20k cr cash…I believe it is one of the better new age companies to debut on the bourses…personally invested so if I go wrong I lose money…rest is up to you!
while its true that the cfo has excluded other income in accountings way,zomato cash flow should be viewed from its overall capital structure the 8.4k crores raised through qip is a major contributor to their current position so i think its a bit stretch to call it a cash rich business without factoring that in.while food delivery is improving in profitability its still supported by adjustments like adding back esops and rent paid which is real spending so it does not makes sense. quick commerece is still in red but growing fast which means future fundingmight be needed.topline growth is stronmg no doubt but sustaining yoy 50%+ while alo trying to achieve profitability is not easy,zomato has 20kcr of cash but it hasmostly came from investors through ipo and qip, not exactly profits.if blinkit keeps burning cash and they keep chasing 50% growth even that pile will not last forever.
For 2023-24 PAT is only around 350 crore I guess. The remaining CFO is coming from non cash expense. Have they given CASH PAT for 2023-24? I guess they haven’t.