Eternal Limited (ETERNAL) Earnings Call Transcript & Summary

Ladies and gentlemen, a very good evening, and welcome to Zomato Limited's Q2 FY '24 Earnings Conference Call. From Zomato's management team, we have with us today Akshant Goyal, Chief Financial Officer; Albinder Singh Dhindsa, Founder and CEO, Blinkit; and Kunal Swarup, Head of Investor Relations. Before we begin, a few quick announcements for the attendees. Anything said on this call which reflects outlook for the future or which could be construed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance and actual results may differ from those statements. Additionally, please note that this earnings call is scheduled for a duration of 45 minutes, and we'll be starting directly with the Q&A section of the call. [Operator Instructions]

First question is from the line of Mr. Sachin Salgaonkar from Bank of America.

Congrats for a great set of numbers. I have a first -- a few questions. First question, I just wanted to understand the increase in food take rate. Obviously we've seen a sharp increase. I presume a part of it is on the back of platform fees. And part of it is on the organic take rate increases, what you guys are doing. Possible to help that breakout? And a bit of idea in terms of how should one expect that to move ahead.

Yes. It's not a very -- I mean there is some increase. And we don't -- we can't share the split of the various components of that increase, for competitive reasons, as you know, Sachin, but largely I -- we could say that partly the introduction of the platform fee helped. And slightly better performance on ad monetization also helped.

Got it. And Kunal, while you guys were experimenting on the platform fee, is it now fair to assume, to say that this is now here to stay and this will continue?

Look. We keep experimenting. Yes, it is here to stay as of now, the quantum, et cetera. We'll keep experimenting and fine-tuning as we go along.

Got it. Second question is regarding the loyalty program. Given that it's so effective for you guys, I was wondering if you are thinking of a similar loyalty program on the Blinkit side.

Nothing as of now, Sachin.

Okay. And again, in the past, you guys were thinking about launching one more app, which is dining out. Any incremental updates on that?

No, Sachin, nothing at this point. We're still sort of debating that internally.

Got it. And Blinkit AOV clearly had a sharp increase. I presume a part of it is on the back of some of the iPhones you guys sold as well as electronics. Again, possible to understand how to look at this going ahead? Obviously you guys said that it will be fluctuating going ahead, but directionally, given the mix of electronics, should we expect that to increase a bit going ahead?

Sachin, the AOV that we reported excludes the GOV that we get from the iPhone sale. We only include it in the revenue that we make from the sales of iPhones. We don't include the GMV because that will skew the AOV unnecessarily. And the overall AOV movement, like you said, right, like, it's dependent on a lot of factors. Product mix is the biggest one obviously. And right now there is -- I don't think there is a significant swing based on any of the new categories that we've added, right? I think it's just business as usual, yes, business as usual.

[indiscernible], yes.

Okay. And apart from iPhone, anything else you guys stripped from this entire GOV what you guys report?

No.

No.

Got it. And last question is on bookkeeping. I just wanted to understand. Depreciation, amortization reduced this quarter. And ESOPs also increased on a Q-o-Q basis. Anything to read out there?

Yes, look. Depreciation, a large component of that is due to the intangible assets as part of the acquisition that we made for Blinkit. Now part of that intangible asset had a 1-year sort of depreciation cycle, so that piece is out, and therefore, the depreciation that you saw is slightly lower. And on the -- your question on the ESOP piece: Yes, there has been a little bit of an increase, but we broadly expect to end at the guidance of 450 crores that we gave for the year of FY '24.

Next question is from the line of Mr. Ankur Rudra from JPMorgan.

Congratulations for the quarter, in terms of the profitability and the growth here. Maybe starting with the food side: clearly nice to see the monetization from platform fees, which is -- seems to have helped your take rates to an extent. How do you think about user behavior as a combination of both the user delivery charges and platform fees? Do you think there is a limitation in terms of how much you can optimize this? Do users start thinking of the two together? Because obviously the delivery charges have been falling because of your Gold program, but do you think this is a one limiting point? Beyond the point, you can't optimize it.

So I think, like, 2 things here. One, I think the platform charge right now is fairly nominal, right, so I don't think like it really right now shows up in any demand elasticity from a consumer standpoint; also because I think the competition, the other aggregators are also charging it right now, right? So we were the sort of like follower here. So even from a comparison standpoint, it's something that customers were already paying on the other platform, one of our largest competitor, so hence, I think, in this quarter, as we've rolled out the platform fee, we haven't seen a meaningful impact on demand elasticity.

Understood. On the Blinkit side, again good to see store breakeven given that your addition rate [ used to suggest ] 8% or so net adds for the next 2 quarters and you've already achieved breakeven. What prevents you from achieving profit breakeven much faster than your stated target?

I think it's just we are seeing a trend of increasing margins in the business. And order volume is also increasing, which basically helps us with contribution profit, right? So there is -- I think this is more of equation of when these 2 lines meet that we will be able to just break even, so I don't think -- we are looking at is -- what has built the long-term sustainable business rather than what helps us get there faster because we want to take the kind of calls which also help our business grow into the future year, 2 years, 3 years down the line.

So there is a fair bit of, I think, new store addition, Ankur, which is yet to happen, right? And we've alluded to that in one of the questions. So I think that will be a short-term drag on the margins. And hence, on balance, the guidance that we've given on breakeven is first quarter of next financial year, but theoretically if we were to not open any new store from now on, then of course, yes, we can get to breakeven much sooner.

No, I understand. I mean I was just saying that your addition rate is effectively around 8%. I mean the 69 store you're planning to add for the next 2 quarters. And if you grow at the rate you're growing, the incremental contribution margins from the new stores -- or the incremental hit [ from ] contribution margins from the new stores will be compensated by the profitability you'll get from the existing stores. It just looked like maybe you get there faster, but fair enough. Last question, on your free cash flow has been positive now for the first half and probably for 2Q -- I mean first -- 1Q as well. Given where you are, any change in thoughts on capital allocation, new area -- newer areas of spending going forward, including potentially return of cash or large acquisitions again?

Nothing, Ankur, no update or no at this point. We haven't really thought of anything yet.

Next question is from the line of Mr. Vijit Jain from Citi.

Congratulations, great set of numbers again. My question is on the loyalty program pricing. Can you talk a little bit about how are you thinking about the pricings here? You -- one can see that the pricing for renewals and new sign-ups keep changing, so how -- is it fair to say that competitive activity in terms of how -- is currently focused mostly on the loyalty program side; and how you think about gaining market share, meeting profitability, et cetera? And also, obviously your competitor has a slightly different loyalty program versus you. Is that aiding you in any way, in any form?

So I think like Zomato Gold pricing is a business call; and it depends on various factors, including competition. Also I think it's a fairly new program, so we are still discovering what is the right way of pricing it and learning with every passing month and quarter. So yes, I think that's sort of we'll keep doing that. And as we mentioned in our letter, the idea is to make sure that we keep our service affordable for our customers and, at the same time, create incentive for them to be loyal to our platform. And so far, I think that is shaping up well.

And Akshant, just related to that, if I -- I mean you -- thanks for that disclosure which is share of Gold GOV went from 33% to 40% Q-o-Q. If I do that math, it seems to suggest that non-Gold would have even declined, so are you mainly converting existing users into Gold? Or is there a fair degree of brand-new customers getting onto Zomato and signing up for Gold right away?

So see. New customers is a very small portion of our business. The new user addition is fairly constant and consistent with the past trends, so majority of the, therefore, incremental Gold members are, I would say, our existing customers.

Got it. My last question here is just the overall marketing spend this quarter. It went up about 13%, 14%-odd for the first time in a while. So if you could give a broad sense of where that was spent. And also, on the salary side, it went up 20%. I understand this is a wage hike thing, but anything else to call out on that? Or is September '23 the trend run rate for both?

Yes, I will say September '23 is a trend run rate for both. On the marketing side, I think, largely in the last quarter, we underspent on Blinkit, the quick commerce business [indiscernible] disruption we had, and hence, for a large part of the last quarter, marketing efforts were muted, yes, and hence, you see an increase right now. And likewise on the employee costs bit, I think it's largely to do with the annual increments in our business which happens in September quarter. And hence, the number that you see, I think, is more representative of what is going to be going forward.

Next question is from the line of Mr. Manish Adukia from Goldman Sachs.

Most of my questions are around growth across food delivery and Blinkit. Now firstly, just Akshant, I wanted to get clarification. I think in the shareholder letter you've mentioned that you're expecting 25% to 30% Y-o-Y growth next quarter in the food delivery business, but you also said that it will be high single digit. And you called it moderate, so I just want to understand. I mean high single digit or 20% or 30% seems like a pretty good number. You're calling it moderate because you're not happy with that number and you think there's further upside to that growth number. I just wanted to get a clarification.

No. I think we're calling it moderate because I heard a lot of people from sell side expecting a 15%, 20% growth in that quarter. So we [indiscernible] -- I mean we felt our business plan here is relatively moderate compared to what the sell side was expecting, so we just wanted to call that out.

Helpful. The second one, just again maybe if you can give additional color, Albinder or Akshant, on the Blinkit number, a very strong growth this quarter. And you've mentioned that, next quarter, you expect growth to remain high, so again, should we think about that, in terms of the quarterly run rate that you've been doing in terms of growth, that kind of growth can be maintained? Is that what you're alluding to when you say growth rate to be high?

Yes. I think, I mean, somewhere in the same range. We are expecting that. That is the BAU sort of growth that we've been witnessing in the business, so far, so [indiscernible] as well.

Got it. Helpful. And on Blinkit, staying on Blinkit: So I think you've also mentioned that -- new city expansion, which has so far not been a focus area. Now you'll selectively be looking at that as well from a growth driver perspective, so over the next 1 to 2 years -- would you be able to give any sense as to how many new cities you could potentially expand into?

Manish, I think, even in the past, we've been doing this selectively, so it's not like we'll start doing going forward. So we have opened out like a store or 2 each in some cities just to test the depth of market in the country in general. And I think overall I would say that we've been pleasantly surprised with the demand for this service across cities which are much smaller than the cities that we have a meaningful business in, so I think with that -- in the same spirit, I think the idea is to continue testing a few more markets, but I don't think that's going to be a meaningful portion of the overall size of the business in the short term. But this is more to sort of build growth channels for much longer term.

Got it. Helpful. And then last question, again on Blinkit. You've mentioned that in some cities Blinkit's GOV is already more than that of Zomato. Would you be able to give us any sense maybe, if at a particular city level or, let's say, at a catchment area level, what's the maximum ratio of Blinkit GOV to Zomato GOV? Just trying to get a sense like, let's say, from a 5- to 10-year perspective. Like you called out it's going to be much larger. What kind of scale or ratio are we potentially looking at?

At this point, there are cities where the ratio is in the 1 to 2x range, right, so it's not order-of-magnitude higher than Zomato, but I think the trend line will suggest that, that could change in future.

Next question is from the line of Mr. Gaurav Rateria from Morgan Stanley.

Am I audible?

Yes, Gaurav.

A couple of questions. The first, where did the contribution margin improvement come from in the food business? Because it appears that the take rate improvement got more than offset by the increase in delivery cost.

Yes, Gaurav, like we mentioned earlier in one of the questions that was asked -- the same question was asked earlier as well. The incremental margin was -- came in from things like platform fee and ad monetization. And that kind of made up, more than made up, for the decrease in the delivery charges that you saw.

My question was like wouldn't it already be part of your take rate. I -- my question was that the take rate increase, after taking into consideration all of these revenues, have got more than offset by the increase in delivery cost, so what are the element that really drove the increase in contribution margin?

So the contribution margin has increased by, I think, like 10 basis points, right?

20 basis points...

[ Yes. 2.5% ]...

6.4% to 6.6%, 20 basis points.

So sorry. Your question is not clear, I think. So what we're trying to say is that contribution margin increased as a result of, I think, more revenue per order. And some part of that increase on revenue per order got offset with increase in costs given, of course, the fact that this is a seasonally, I mean, a quarter where there is rains. And hence, we know and we plan for increase in delivery costs, so that happened, but net-net, as a result of the two, the contribution margin still increased by about 20 basis points.

Got it. Second, Gold members are already at 20% of the total MTCs. Is there any theoretical limit where it starts peaking out?

No, I don't think so, right, because it's not like there is a trade-off here in any way between Gold and non-Gold members, right, in terms of the benefit, but I think we do expect -- having said that, that we do expect the pace of Gold membership increase here -- or to slow down from here on because, of course, like, these are usually the more frequent customers who want to become members. So from here on, the pace might definitely slow down.

Okay. Third question, on quick commerce, how long typically a new store takes to come to breakeven at the contribution margin level. Or put the same question in another way, if you look at last quarter, what could have been the drag from the new store additions on your contribution margins?

Gaurav, there is -- see. This is still a very, very nascent market with like very deep penetration, so depending on whether we are opening stores in localities where we already had a store and we are opening new ones, the breakeven might be really, really quick. We are going into a new locality altogether in the city where we exist. It will be a different number. We are going into an entirely new city altogether. It will be an entirely different number, right, so there is no one number we can point to and say that this is how long it takes for us to break even. And when we look at breakeven of the store, we are looking at all the costs, including what we have to do to supply the store as well. So I don't think there is -- that is something that we even talk about or disclose that, "This is sort of the average time that it takes for us to open a store," right? In terms of your second question that -- I think the number of stores that we opened this quarter -- I don't think that it was a meaningful drag because, once we start the stores, some of them lie in the first bucket where we are opening in existing localities, but we don't think that the drag was meaningful. It was offset by the increase in the overall margin of our existing stores.

Got it. The last question is what's the synergy we have achieved already from Hyperpure and Blinkit businesses. And what's the potential?

Yes. So I think the synergy is largely on the infrastructure side because the warehouses and the sourcing relationships we have for Hyperpure is -- sort of like becomes one. And this is especially true on the fruits and vegetables fresh produce side, where we're going back to the farmers or farmer producer organization to source these products from them, right? So I think, at least on that part, I would say that the 2 businesses are fairly joined at the hips. And that has helped us build up -- that has helped us actually offer a much higher-quality F&V at great prices to our customers, which is very important not just from the margin standpoint but also because fresh is usually your entry point for a lot of our new customers, right? So -- and giving them a good experience on this category really helps us with high retention down the line. So I think that way is I think -- I would say that sort of all that integration and synergies is fairly well realized by now at this point.

Next question is from the line of Mr. Swapnil Potdukhe from JM Financial.

So my first question is with respect to the Gold orders. So I would like to understand. Like, on a per order basis, has there been any increase in investments that you do in the -- Gold? Because my sense is that we saw some fluctuation in the Gold prices during the quarter. And there has been also some free membership rollouts through various tie-ups, so basically on a per-order basis, Gold order, does it have a higher dilutive impact on an absolute basis compared to the previous quarter is the question.

Yes. So like, Swapnil, we would not want to disclose that because it's -- I think it's part of the strategy of how we invest in growing the business, right, so I would not want to share specific details to your question, but in general I think what you've pointed out is that, one, the overall Gold membership base is increasing for us. And two, the fact that Gold orders today are lower contribution margin than non-Gold, that is a fact as well. And third I would say is that, going forward, I think a part of our incremental margins from here on in the business will perhaps come from reducing the impact, negative impact, Zomato Gold order has on the overall P&L, right? So I think that's all that we can share at this point.

Sure. The second question is with respect to the contribution of ad income to your take rates. Now we have been calling out and saying that this -- the ad income has been one of the drivers of your take rates for some time now. Now one way to look at it is like the macros are challenging for restaurants, and they are spending more. What happens once the macros ease? Would we see a reversal in the contribution of ad income to your take rates?

That's possible, Swapnil. We don't know that yet, but that's possible.

Okay. And another question on ad income is with respect to quick commerce. So now we have the World Cup going on. Have you seen any sharp increase in ad spends by brands on quick -- on Blinkit platform per se? And if yes, can you talk about the sustainability of that trend?

I think, Swapnil, if -- and they are not, obviously, visible in the JAS quarter because most of the games -- actually the World Cup started sort of after that, right, so I would not say that there was an impact, meaningful impact, in the September. And usually, like, we have regular ad spends from brands for different events, activities which keep happening throughout the year, so there is nothing abnormal in terms of ad spends and brand spends at that time on the platform. I think it's fairly in line with what the usual spends are. It's just that some brands might be up during some months and the others might not be.

Okay. And just last one: On the ESOP side, there was a sharp Q-o-Q improvement in ESOP cost. Now I understand that's -- that also may be a fact because of the increase in the share price, but we have given a guidance of around 4.5 billion spends towards ESOPs for the full year. Any change in your guidance? Or how should we look at the costs from a next year perspective as well? If you can answer that, that will be great.

On your first question. FY '24, we should ballpark in at the -- similar to the number that we've given as -- in our guidance, so I don't think we'll be very off from the 4.5 billion number. On FY '25, we are not giving any guidance yet.

Next question is from the line of Mr. Abhisek Banerjee from ICICI Securities.

So again congratulations on the numbers, really excellent performance. So in terms of your platform fees, what will be the attachment rate? As in what proportion of orders are you charging platform fees right now?

Abhisek, essentially we introduced the platform fee during the...

Almost 100% of the orders have the platform fee...

Sorry. You were not audible to me. Could you just repeat that?

[indiscernible] all the orders now -- I think almost 100% of the orders have a platform fee now.

Perfect. In terms of the ad revenue monetization that you spoke about, how is that increasing? Is it on the basis of more restaurants advertising? Or is it that the existing restaurants are advertising more? Or have you actually increased the realization of -- from per ad or per click? If you could help us understand that.

Yes. So in the last year or so, I would say majority of the ad income increase has come as a result of more advertisers or more restaurants spending money on ads. And a little bit of that is also because of the increase in pricing from our side, right, but I would say majority is driven by the volume increase.

And that holds true for this quarter as well.

Yes, that's right.

Perfect. Now you have hinted about user behavior change post becoming Gold members, in the shareholder letter. Now from some basic analysis, I can see almost Gold members ordering 7 to 8 times per month vis-à-vis maybe 2.5, 3 times for people who are regular users but don't have Gold membership. Now do you actually see these people who are becoming Gold members moving to that 7, 8 kind of an average number? And if so, what is your time frame that this plays out, from your understanding?

So Abhisek, I think part of this frequency jump that you are alluding to is also a result of essentially like multiple users starting to order from just like one account, right? So you see this trend where the orders consolidate into one account just because one person has bought the membership, so therefore, this delta in frequency, I would not fully attribute to just the user becoming a member. There is a decent bit of an uptick, organic and sustainable uptick, in frequency, but the order of magnitude will be much smaller than what you mentioned.

Understood, understood. And in terms of the MTU increases, that is basically coming from the large number of annual transacting users who would probably be ordering once a year or once a month -- once a quarter earlier and now they are moving into the MTU base. Is that understanding correct?

Yes, that's right.

And also we are acquiring new customers every month, so part of that is also driving the increase.

Understood. On the working capital front, there was a reduction again this quarter, and pretty sizable, so could you just give us some understanding on how that came through given the sharp growth rates that you have shown?

Yes. Like we mentioned in the past also, Abhisek, essentially working capital swings happen because of the day on which the quarter ends. So the last quarter, June 30, ended on a Friday. This quarter, 30th September, ended on a Saturday, which meant that we carried 1 more day of payables on our books, which increased the current [ liabilities ] and which reduced the net working capital, right? Because we have a weekly settlement cycle, around the mid of the week, so depending on which day the quarter ends, therefore, could have an impact on the -- massive impact on the working -- net working capital.

Got it, but if I look at the various businesses, right: Blinkit also operates on a seller model, right, so is there any meaningful difference in the working capital intensity in Blinkit and food delivery? And as Blinkit grows faster, do you see the working capital requirements reduce further, or is it just the other way around?

There's not much of a difference. The slide -- we'll have to see the -- on the other side, advertising income can increase the working capital due to some receivables, right? Now -- but as such, we don't see much of a difference on the food delivery and Blinkit side. What will cause a little bit of difference is Hyperpure because their inventory and receivables will increase slightly due to scale, but order of magnitude, I think food delivery and Blinkit are the large businesses. And they will continue to drive this trend for the foreseeable future.

Got it. So just to understand one point that you mentioned. So advertising business, basically you do not collect the money upfront. Is it not a budget allocated by the restaurant?

It depends. Part of it is advanced payments, but I think a larger part is postpaid once you sort of reconcile accounts and as against the agreed targets. And so therefore, I think a majority of the ad income is postpaid and hence adds to the working...

Got it. Now coming to Blinkit. In the -- in terms of the customer charges, would you be able to give us some clarity on how that has moved?

I don't think we are providing that information, but they have not moved significantly over the last...

[ They are fairly ] consistent, [ yes ], nothing special about...

Understood. And just one last question, on the AOV range for Blinkit. I know you mentioned that it fluctuates, but is there now any sense of a broad range which you think is a best case and a worst case kind of guide rail for us?

I don't think that we still are -- we'll want to commit to a number right away. I think ours is still a fast-growing business. And I think we're still in a fairly early stage of figuring these things out, so I think we will let it play out and see where it goes.

Next question is from the line of Mr. Ashwin Mehta from AMBIT.

Can you hear me?

Yes.

Yes. So 2 questions. One, in terms of Blinkit, what portion of our dark stores are owned versus franchisees? And how do you manage inventory in a scenario where non-grocery SKUs are increasing, where the frequency of sales will be lower? Is it the third-party sellers that are taking the inventory risk for us? And do we have more dedicated sellers? Or these are sellers which will be selling on other platforms as well.

So Ashwin, on the first part, I think the breakup ratio of our own versus partner is roughly the same, I think, that it has been historically, so we operate roughly half of our stores and our partner operate half of the other stores. On the as we are increasing more and more categories, I think part of our job is to also find the sellers and also convince the sellers to be able to take the risk to sell higher-margin but long-tail products which have a lower frequency, right? So that is something that we negotiate with the sellers that are on the platform. What kind of risks are they taking? What kind of data we can actually provide them to give them the comfort to actually invest behind these long-tail categories. So, so far, we have not seen a meaningful change in risk profiles for our sellers either, even when they are expanding into lower-margin categories, partly because we also help figure out with the brands what should be the terms of trade that make the entire business viable for them even if the mix of non-grocery products is increasing.

Okay. Just one more, in terms of, say, ad monetization as a percentage of GOV on Blinkit, approximate sense on where we are. And given that transaction models are gaining traction from an advertising perspective, where do you see a potential possibility of this going?

So I don't think we are providing any guidance on sort of what percentage of our revenue is coming from ads. However, like we'd mentioned in a letter a couple of quarters ago, that we do have a programmatic ad bidding platform on Blinkit which is used by most of the brands that are operating on the platform. And it's a self-serve model. And I think that is a performance-, marketing-driven model which we think in the long run aligns with the fact that brand spends are also going to move to bottom of the funnel and more transaction led.

Next question is from the line of Ms. Garima Mishra from Kotak.

I again had a question on the transacting user base. Now you cited the 5% to 6% Q-o-Q increase in transacting users, and it seems to have been aided by Gold. Now logically, pace of attachments to Zomato Gold over time should slow down, so do you think, even in that scenario, this 5% to 6% Q-o-Q growth, MTUs should be maintained?

Like, I mean, it's a very specific question, Garima. Like overall if you'll take a longer-term view on this -- I mean Q-on-Q is hard to say, but I think the longer-term view on growth, as we mentioned in the letter and response to one of the question also, is that majority of the growth should be driven by growth in MTU, or MTC as we're calling it, monthly transacting customers, given the fact that our current monthly user base is much smaller than the annual transacting user base. Now I think -- the pace of that change, I don't think it's going to be linear. There will be periods of time when, either because of demographic change or incomes going up or macro changes, this frequency will increase. And there could be a period of consolidation where we just sort of -- MTCs might flatline a little bit, so I think that is very hard to predict. And there is sort of no floor there in terms of at least -- I mean there's no floor in terms of a minimum number there, right, but I think overall our view long term is that MTC should compound from here on. And that should drive majority of the order volume growth from there.

Okay, understood. Second question: Based of your intelligence and understanding, where are you in terms of market share in the food delivery business?

We have no point of view on that. I think it's a highly competitive market, so very hard to measure market share.

Understood. Okay, third question, and I'm quoting this from the shareholders' letter. So eventually we cared more about growth in absolute contribution profit rather than contribution margin, so are you somewhere indicating that at 6.5%, 6.6% these margins are good and basically you'll let this margin be and focus on growth?

No, I don't think we are saying that.

So then how should we interpret this statement?

I mean it's a theoretical statement, right? I mean we are not saying what you are saying. I think that's a deduction. Margins, we think -- I mean we've in the past guided that we want to get to 4% to 5% EBITDA margins in this business, which translate to more than what we have in terms of contribution margin right now, right? So we would look to expand the margins, but I think like basic corporate finance says that eventually at some point the ROI on every dollar that you spend on increasing the size of your profit pool should make sense, right? So in which case, the margins may or may not go down. That's the only point we are saying.

The next question is from the line of Mr. Aditya Soman from CLSA.

So just one question for me, if you think of quick commerce versus food delivery. I think we all understand that the overall market, addressable market, in quick commerce is much larger, but on the competitive dynamic, would you also say that's a lot easier given that in a lot of pin codes basically you could be the only player? And even -- would that be a fair statement, to say that the competitive dynamic is much easier and likely to stay easier? Or that is incorrect.

We don't think so, Aditya, because we also will have neighborhoods where there will be 4 or 5 quick commerce players operating. And not only that, we are -- there are also the larger players like Amazon that we have to deal with, but I think that's subjective, whether we would say that the competitive dynamic is easier in the quick commerce business. I don't think that is true. And we would also not want to operate as if that is true.

Fair enough. No, that's interesting. And in terms of benchmarking: So in -- again, I mean, in food delivery it's fairly obvious who you could benchmark to or not, but would you say in quick commerce, as you mentioned, I mean, as -- you could benchmark to everybody from direct quick commerce competitors to Amazon, to Reliance or whoever?

So I don't think we benchmark to anybody because there are -- you could take a different point of view and start moving your business to that side. I think we are the category creators in this business. We are the largest quick commerce player. And I think it is our job to actually create this market, so I don't think benchmarking to existing heuristic makes sense, because that will make us skew our business towards that heuristic, which we would rather be the inventors in the category rather than benchmarking ourselves to somebody else.

Next question is from the line of Mr. Samarth Patel from Equirus Securities.

Can you hear me?

Yes, we can.

My first question is regarding Blinkit. So there is 35% quarter-on-quarter increase in fixed costs. Could you give some idea between brand marketing and costs associated with employee addition and wage increment and how this relates to our dark store network expansion strategy in medium term?

I think this is mostly the base effect of disruptions in the previous quarter. So there were some fixed costs that we didn't have to bear because we were not operating for a week or so. And there were disruptions in the business for a longer period of time, so that's why you're seeing that increase, but the levels that we are at right now, like, these are the actual fixed costs level that we generally operate at.

Okay. And would we be adding more employees for the dark store expansion in the Blinkit side of things?

I think we kind of have to, but that's above the contribution.

Okay, okay, got it. And the second question is related to the question that a previous participant asked. So we have been implementing aggressive pricing strategy for Zomato Gold membership in this quarter in response to the competitive pricing, so can you just give -- can you just elaborate on the strategy behind this? And we expect our funding gap to narrow down at the contribution level, so those are 2 contra things, right? On one side, we are -- we have been aggressive in terms of pricing; and we expect our funding gap to narrow down at a contribution level from Zomato Gold. So your thoughts, yes.

[indiscernible]. One is past and one is future. I think that's the difference, so what we are saying is that, from here on, we expect that the delta between a Gold and a non-Gold order in terms of margin should reduce, right? Past could be different. And I think this is like a 5-, 6-month-old program, right, so it's I think there's also a process. I mean, more than competition, there's also a process of figuring out what is the right way to price the service at. That depends on the value that the customer sees in this product, so I think we believe that we have a fair handle on that now and that hence we could be more sharper in terms of pricing more effectively going forward.

Thank you. Ladies and gentlemen, we will now conclude this conference call. Thank you for joining us, and you may now disconnect your lines.