Zomato shares tumble 15%. What's cooking?

Shares of online food delivery aggregator Zomato tumbled nearly 15% to Rs 44.35 in Wednesday's trade after the company relaunched its Gold subscription programme.

This comes almost 30 months after Gold was replaced by Zomato Pro, which was also shut down last year.

The new Zomato Gold membership is being offered at Rs 149 for a three-month subscription.

This is a discount on the Rs 999 quarterly membership.

Under the programme, subscribers will get free deliveries at restaurants that are within 10 kilometers on orders above Rs 199. Gold members will also get discounts on food deliveries and dining out.

"Zomato has relaunched its loyalty program ‘Zomato Gold’ on an invite only basis. This comes against the backdrop of tapering GOV growth, driven by slower addition in monthly transacting users and lowering of ordering frequency. While this move could potentially assuage growth concerns, an integrated loyalty program offering for Zomato and Blinkit could be a better proposition, in our opinion," Nuvama Institutional Equities said.

Also, amid reports that Zomato is shutting down its 10-minute food delivery service 'Zomato Instant', the company said that it is not shutting down the service.

At 11.25 am, the scrip was trading 7.3% lower at Rs 48.3 over its previous day's closing price of Rs 52.1 apiece. The stock has also fallen 20% year-to-date, while it has plunged 52% in the last one year.

The brokerage firm JM Financial said that the development is in line with the management’s earlier commentary that it will soon reinstate a revamped version of the loyalty programme.

"The relaunch of the loyalty programme is important due to growing concerns on sequential growth in Zomato’s food delivery business and the high likelihood of the company having lost some market share to Swiggy in recent quarters as the latter had continued to run its loyalty programme, especially when ‘Pro Plus’ was absent," the brokerage firm JM Financial said.

While it is pertinent to note that loyalty programmes typically do run the risk of hurting margins, we believe Zomato has enough levers to support the programme without hurting its food delivery contribution margin of +4.5% which was reported in 2QFY23, the brokerage added.

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