Zomato eating into Swiggy's market pie with Gold loyalty scheme: HSBC

Zomato’s new version of its ‘Gold’ loyalty programme is helping it win market share from rival Swiggy, according to a report by HSBC. It said that the market shares of Zomato and Swiggy are expected to diverge to 57 percent and 43 percent, respectively, in FY24.

From March quarter onwards, the Gold programme will cause a negative impact to Zomato's unit economics in the range of Rs 10-12 per order which could concern investors, according to the HSBC analysts.

“However, we believe Zomato will be able to offset this impact from its continued push for higher take-rates and lower costs. In the coming quarters, as the company absorbs the impact of Zomato Gold, EBITDA margins should continue to improve,” the note said.

In January, Zomato reintroduced its loyalty programme with a focus on food delivery at an introductory price of Rs 149 for three months. It is Zomato’s fourth iteration of its loyalty programme in the last few years. Before launching Pro Plus in 2021, Zomato had introduced Pro in 2020 which replaced the original Zomato Gold membership programme.

The brokerage also expects the food delivery market to grow by 9 percent in the March quarter, compared to its earlier estimation of 15 percent.

“While the food delivery industry is expected to remain weak in 4QFY23, there is no reason to assume that over the medium term (2-5 years) growth can’t be sustained at 15 percent... Migration of annual users to monthly users should continue with increasing awareness and per capita income,” said HSBC analysts.

“We reiterate that food delivery growth in India is not so much an issue of migrating from the Food Services Industry, but rather a shift from home cooked food,” they added.

The company has piloted multiple new services over the past year even as industry experts have said that the growth of the food delivery sector – a metro city phenomenon – is expected to slow down.

While Zomato's gross order value expanded 85 percent to Rs 5,500 crore between Q3 FY21 and Q3 FY22, the growth lost steam to come in at 21 percent between Q3 FY22 and Q3 FY23.

Last year, Zomato had launched an inter-city food delivery service called ‘Legends’ that seeks to enable customers to order from popular restaurants in other cities. While it was piloted without any restriction on who could use the service, it has now been bundled exclusively with its newly-launched Gold subscription programme.

In February, it launched a new service through which it aims to sell quick and cheap home-style meals to students and office-goers.