Food delivery growth likely to remain flat q-o-q in Q4: analysts

“Margins would have been flat in Q4 on a q-o-q [quarter on quarter] basis as it already saw sharp improvement in the previous quarter. We don’t expect a similar massive improvement in margins in the near term,” said Karan Taurani, analyst at Elara Capital. Swiggy is likely to see a sharper rise in margins than Zomato, according to Taurani.

Contribution margin is a key metric for profitability. Zomato’s adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) in its food delivery business, which excludes Employee Stock Ownership Plan (Esop) costs, saw an improvement to 4.3% of gross order value (GOV), a key metric, in the December quarter from 3.5% in the previous quarter, driven by the hike in platform fee and other strategic calls. Similarly, Swiggy saw a significant improvement in adjusted Ebitda margins of its food delivery business, from 1.6% in the September quarter to 2.5% in Q3, further fuelling its 5% guidance in the medium term.

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“Yes, we saw margin improvement driven by increase in platform fees for customers and other cost efficiencies and optimizations. We believe the margin should not only sustain, but continue increasing from here to stabilize around 5% in the next few quarters,” Rakesh Ranjan, head of Zomato’s food delivery business, said in the Q3 letter to shareholders.

The online food ordering ecosystem has been experiencing a slowdown over the last few quarters, hurt by lower consumption. Swiggy and Zomato—which currently form a duopoly in the food delivery segment—have also acknowledged the shift while remaining optimistic that it won’t have an impact in the long run.

Change in gross order value

Zomato reported a GOV of ₹9,690 crore for the December quarter, up 17% year-on-year (y-o-y) but just 2.3% compared to the previous quarter, regulatory filings showed. Rival Swiggy reported a gross order value of ₹7,436 crore. While this was a 19.2% y-o-y improvement, on a sequential basis, its GOV grew just 3.4% in October-December.

“It (October-December) is a quarter which is slightly softer than other quarters, but we are growing at 19.2%, which is within the range of what we’ve guided to the markets about 18-22% growth for the category,” Rohit Kapoor, CEO of Swiggy’s food marketplace, told analysts during the Q3 earnings call in February.

Both firms also face rising competition from newer players like Bengaluru-based Swish—which recently raised $14 million in Series A funding led by Hara Global and Accel—and Gurugram-based Zing. These new companies seek to learn from established food delivery startups such as Swiggy and Zomato, which began small and grew into well-capitalized, listed companies within a decade to form an integral part of the urban and semi-urban household ecosystem.

“Macro conditions impacting the segment will likely remain more or less the same. However, we can expect stable double-digit growth in the range of 20-25% in topline for both firms,” Ashutosh Sharma, vice president at Forrester Research, toldMint.

Analysts also remain modest about their expectations regarding 10-minute food delivery propositions, noting their impact on the overall business will be minuscule.

The firms are also exploring avenues beyond food delivery, with the recent introduction of Pyng by Swiggy (professional white-collar discovery) and the expansion of District by Zomato. Analysts said the fourth quarter will likely highlight their expansion plans.

Quick commerce performance

Cash burn in quick commerce will continue to hurt bottom lines for both firms in the fourth quarter, as they continue to invest heavily in ramping up dark store operations and entering more cities, Forrester’s Sharma said.

“Quick commerce will continue to drain their profit for the foreseeable future, though some of their actions towards achieving profitability will start bearing fruit in the medium term. I expect them to continue to burn cash and invest in operations,” Sharma added.

Swiggy has already seen a negative impact on its margins of Instamart, weighed by rising competition in grocery delivery and heavy capex costs. Its contribution margin for the quick commerce business declined to a negative 4.6% in the past quarter from a negative 1.9% three months ago.

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In a letter to shareholders, Swiggy said Instamart’s margin was impacted by a mix of reasons, including dark store expansion and replacements that are yet to mature in terms of scale, heightened competition leading to higher customer incentives, increased investments on customer acquisition and activation, and seasonal investments on store and delivery network to cater to peak event volume, that is, heavy volumes seen during peak timings during festival periods.

Zomato’s Blinkit lost ₹103 crore in Q4, a sharp reversal from its break-even bottom line in the previous quarter. “The losses in our quick commerce business this quarter are largely on account of pulling forward the growth investments in the business that we would have otherwise made in a staggered manner over the next few quarters. As of now, it seems like we will get to our target of 2,000 stores by Dec 2025, much earlier than our previous guidance of Dec 2026,” Zomato’s chief executive officer, Deepinder Goyal, said in the shareholders’ letter.

“Q4 will give us an idea of the rate of store additions and possibly the outlook on profitability in quick commerce,” Elara Capital’s Taurani said.