Swiggy, Zomato may face margin challenges in food delivery segment amid competitive landscape

Quick commerce continues to be margin-negative in the short to medium term, even as platforms aggressively chase scale
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PTI

India’s food and delivery giants Swiggy and Eternal (Zomato) are grappling with narrowing margins even as their core restaurant delivery businesses edge closer to break-even. While platforms like Eternal and Swiggy have demonstrated operational maturity in food delivery, aggressive expansion into adjacent verticals like quick commerce, loyalty programs, and cloud kitchens is weighing heavily on profitability, noted analysts.

“Overall food delivery margins saw moderate expansion in the third quarter as AOV (average order value) remained flat amidst higher urban inflation and higher discounts & cashbacks,“ said Amnish Aggarwal, Director – Institutional Research, PL Capital

The competitive heat, coupled with demand fatigue and changing consumer behaviour, is further compounding the challenge.

“Margin compression is being driven by rising competitive intensity, leading to higher delivery subsidies and marketing spends,“ said Sandeep Abhange, Research Analyst, Midcaps, LKP Securities Ltd.

Rising Cost Pressures

Despite moderate gains in core food delivery EBITDA, the overall margin picture remains weak due to ballooning costs tied to expansion and infrastructure-heavy verticals. Zomato’s Blinkit, for instance, reported an adjusted EBITDA margin of -1.3 per cent as of December 2024—reflecting the high costs associated with scaling dark stores, logistics, and staffing for 10-minute delivery.

“Expanding dark stores and higher employee costs, especially in Blinkit and new café ventures, are additional pressures,” noted Abhange of LKP Securities Ltd.

Quick commerce continues to be margin-negative in the short to medium term, even as platforms aggressively chase scale.

“Quick commerce has seen explosive growth but the high infrastructure cost, weak AOV, and heavy discounting make it margin-negative in the short to medium term,“ said Aggarwal.

Shifting Consumer Behavior and Demand Fatigue

Consumer demand, once a tailwind, is now becoming a drag on food delivery economics.

Order frequency has also softened, as more consumers shift back to dining out—where restaurants are increasingly offering deeper discounts compared to what they pay in aggregator commissions.

“Inflation fatigue has capped the purchasing power of consumers despite income levels rising nominally… coupled with a rebound in dine-in as restaurants offer deeper discounts,“ added Aggarwal.