Zomato should tweak its Zomato Gold programme - experts explain why

While Zomato's loyalty program, Gold, has been a driver of business volume since its relaunch earlier this year, analysts and experts believe that some adjustments may be necessary to mitigate its impact on the company's profitability. While loyalty programs promote customer loyalty, they must also make economic sense in the long term, experts suggest.

A Mumbai-based analyst told ET that while the programme holds appeal and could assist the company in gaining an edge in the market share competition, it must eventually contribute positively to the profit margins.

In the company's recent earnings report for the September quarter, Zomato's Chief Financial Officer, Akshant Goyal, revealed that Gold members were responsible for 40% of Zomato's food delivery gross order value (GOV). However, Goyal noted that a Gold order is less profitable than a non-Gold order due to the impact of programme benefits, such as minimal delivery charges or free delivery for orders above a certain value.

Zomato reported a net profit of Rs 36 crore in the September quarter, up from Rs 2 crore in the preceding quarter. The company's strategy of offering discounts to drive Gold adoption resulted in a more significant increase in membership numbers than expected.

While there is confidence in the trend of increased orders from loyal customers, it is crucial to prevent any negative impact on food delivery profitability, noted an analyst. The analyst believes the company likely has strategies in place to enhance margins from Gold customers without hindering growth, emphasizing the need for a concentrated effort in this area.

UBS Securities, in a research note last month, highlighted that Zomato had reclaimed much of the market share it lost to Swiggy, especially after the relaunch of its loyalty program in 2023. However, to encourage Gold adoption, Zomato had been offering subscriptions at discounts, a tactic expected to change in the future.

During an analyst call, Goyal indicated that the pace of Gold membership growth is anticipated to slow.

As of September 30, Zomato reported 3.8 million Gold members, compared to 2 million in the previous quarter. In comparison, Swiggy One, Swiggy's subscription service, had a subscriber base in the "low-single-digit millions" as of late August.