How should we think about EBITDA break-even in the Blinkit business? The general understanding was this should happen sometime in the second half of FY26. How should we think about it in this context?
Garima, that's not really a milestone we are focused on. For us, the way we look at the business is that there are parts of the business which are more mature, which are already EBITDA positive. We mentioned that there are cities already north of 3% Adjusted EBITDA margin. There is a reasonable size of our business today which is already reasonably profitable, and then there is cost of expansion, opening new cities, new stores, acquiring new customers. Eventually the Adjusted EBITDA that we report is a weighted average of these two parts of the business. We see Adjusted EBITDA margin or break even more of an outcome of all of these things and not really something that we are chasing as a goal right now.
Linking the 3,000 stores target, is the higher marketing spend happening in the existing cities or in cities where there is no one else? Is all the marketing spend skewed towards newer markets and geographies? On a per-acquired-customer CAC basis, is more spending happening in existing markets or new markets where you have to educate people?
Marketing spend is still skewed towards the larger cities because we also have a significant amount of non-serviceability in the existing larger cities, and that's where the larger volume of the business is. But we are also spending significantly now in the emerging cities as well. On the CAC tier-1 vs other markets question - It's not significantly different.
On food delivery - since macro is causing headwinds, for you to reach your medium-term mark of 20%+, is it just that macro has to get better, or are there other interventions? And as quick commerce growth remains elevated, food delivery growth may stay subdued for foreseeable future - so is 20% more of a longer-term target than medium-term?
That's right, Manish. That's how I would also characterize the current situation. In terms of whether we're totally macro-dependent, or can we do something else for growth, it's not like that those attempts to expand the market have not been done in the past, but the headwinds have been strong, including the soft discretionary demand in India in the last few months. But from our side, we'll continue to focus on creating newer use cases to order food from restaurants and hope that the macro environment improves, which will bring growth back in the business to the levels that we think it should grow at.
Your gross margin had 300 basis points of expansion in the QC business and contribution about 70. The shareholders' letter says incremental 230 basis points of cost was all linked to first mile bit and some bit of gross differential. Can you explain that differential as to what drove the 230 basis points of cost, was it all first mile or was it something else?
So, the entire margin expansion is not just on account of this business model change. There is actually a meaningful margin expansion outside of that also. Right now, I would say, therefore with respect to this 3 percentage point gross profit increase, the cost side increase is on account of the supply chain costs that were moved from the sellers to us. We're not giving a split of how much of the contribution margin gain is because of the business model change and how much of it is because of other efficiency and operating leverage, but that's what I wanted to highlight that it's a combination of both.
Can you give some color on your most penetrated or mature city. What is the growth looking like there? This would help us build confidence about your top one or two mature cities on growth.
Manish, we do keep sharing these data points from time to time, and what I can say right now is nothing material has changed for us to highlight at this point. So, if you had good confidence in the business last quarter, I believe that should continue.
On District - INR 50-60 crore loss range for last few quarters. When will losses come down? From a medium-term perspective, where will the inflection point be?
So, Swapnil, FY27 should be better than FY26, in terms of losses in the business. That's how I would put it without really pinpointing a particular quarter, but it should happen in the next few quarters.
On the 'Others' segment new initiatives - losses now comparable to going-out side losses. Any outlook on where bigger investments are going and how should these trend?
So, Ashwin, most of these losses are on account of our expansion in the Bistro business, which is a 10-minute food delivery service that we're building, and I will try and give some update on that business in the next quarter.
Can you provide color on large cities vs smaller cities in terms of AOV etc.? And on food - are we less upbeat on recovery here vs what the shareholders' letter suggests?
We mentioned last time that the AOVs are not very different. The margins may be slightly lower in smaller cities as of now, but that's also because they don't have that kind of assortment that we are able to provide in larger cities in most cases. So that's all that we want to share at this point, but we'll try and see if we can include more details in the future shareholders' letters. On food: We've said that we expect a slow uptick in growth rate, but we do expect that growth rate will keep going up from here.
On QC - any sense of your market share on NOV basis vs 3 or 6 months back vs now?
Hi Manish. Thank you. We do internally have a sense on market share. We do try and track it basis some sampling data that we do, but we're not sure about it because all our competitors are private companies. So, I would not want to conjecture on, therefore, numbers around market share, unless they're public.
On the 3,000 store target by next year - how should we think about store reach, 2-3-4 years out? FMCG companies have 8-9 million outlets, direct reach 1.5-2 million. How should we think about this 3,000 number 2-3 years out? Why can't it be 2000 or 1,500 instead of 1,000 stores in next 15 months?
Currently our viewpoint is that our current geographical footprint helps us cover about 20% of the overall targetable retail market that we're looking at. We believe that most of the profits and the high-quality profits that we can target, reside in maybe the top 40% of the targetable market. So, that's where we are but even with this 20%, we don't have the kind of coverage that would help us to cover the entire geography. We want to be conservative in this expansion because our cost of supply chain expansion is substantial. (Akshant: We're also early in this business, so we'll respond to what we learn. It is very clear to all of us that the opportunity is large, but how large it is, is still unknown. We've been slightly conservative right now in our guidance in terms of timeline of getting to 3,000 so that we have some room to actually make changes to how we want to grow if we have to.)
My questions are on the quick commerce business. First, this quarter witnessed a big increase in MTU addition for Blinkit. You did allude to higher ad spends and investments towards this in the letter. Is this set to continue, and hence should we expect elevated ad spends going forward as well?
Hey Garima, this is Albinder. What we are seeing right now is that there are new consumers out there in the market, and if we are targeting them, we are able to onboard them at a reasonable marketing cost which is why we spent more on marketing this quarter as well. So, till the point that we keep seeing this trend, we will keep investing however much that we can to basically power more growth. So, you should expect this to continue in the next quarter as well.
In the last quarter, you mentioned that every new customer cohort breaks even for you at CM level in month one itself. Is there any change to this metric, especially since MTU addition has gone up so much?
No. We haven't seen that change yet, Garima. As long as we see a healthy CAC and a healthy LTV, we won't shy away from spending more on marketing because we're actually acquiring good quality customer base.
Is this strategy a sort of change or modification, has this anything to do with what you're seeing from a competitive intensity perspective?
Not really. It's also a function of scale of the business. Now that we are at about 1,800 stores, it's a much wider geographical footprint. So, our addressable market has also expanded in the last few months and quarters. As a result, the CACs are not going up when we spend more because there is sort of operating leverage on the marketing costs now.
When I see the NOV to GOV for quick commerce, that has sort of moved down by a couple of percentage points. So, is it more of the ongoing festive season and the ongoing different sales which everyone is doing, or is there an increased competitive pressure which you are seeing right now?
Gaurav, it's mostly because of the change in mix of products. So, JAS quarter has a couple of festivals, Rakhi being a big one. That is one of the reasons that you will see the difference being there. (Akshant added: as the share of general merchandise and non-branded products on the platform grows, we are likely to continue to see this trend, which is also why we highlighted that we believe NOV is a more relevant metric to track versus GOV.)
How should we think about revenue to gross profit going from 80% to 90% inventory transition? How should that formulation change? And what would the remaining 10% inventory be - higher ASP products or low-frequency selling products?
Gaurav, because of the step change of 80%, you saw the revenue growth meaningfully increase. So, that one step change has happened. Now it should be incremental from here because 80% to 90% will result in some more dissonance in the comparable revenue, versus the past, but that step jump is behind us. (Albinder added: We still have sellers on the platform who are selling different products for which we feel that the seller-driven model is better. The sellers also prefer that they stay on that model. The percentage of NOV which comes across as margin is going to be more impacted by mix change going forward rather than the change in the percentage of business which is on inventory versus not on inventory.)
My first question is on food delivery. Last quarter we called out that we'll focus on driving growth, and profitability will remain constant. But this quarter we see profitability actually improved while growth pick up is limited. Was there some change in strategy or the elasticity of additional spend is not leading to higher growth?
Hi, Nikhil. So, the main delta here is increase in platform fee that happened in the middle of the quarter, which we did not anticipate or estimate at the beginning of the quarter, when we declared the last quarter's result. And our increase in platform fee was more of a reaction to what our competitor did. So, that's why you see the growth in margin versus our earlier guidance of margin perhaps remaining flat.
If you would have invested those additional earnings to acquire more users or gain more market share, you could have done that. So, rather than absorbing or letting profitability flow through - that's the decision I want to understand.
So, the decision on how much to invest for growth is a function of what kind of customer acquisition cost or reactivation cost for dormant users that we see. So, it's more driven by that rather than a specific P&L budget and till the time these costs are reasonable, and they make sense from a long-term LTV return perspective, payback perspective, we would naturally prefer to spend and grow the business, but we have to stop at a point where these numbers don't make any sense anymore. And typically, that's the zone, that's the sort of threshold line that we operate with irrespective of how much budget or P&L room we have to spend on growth.
On Blinkit side - higher marketing spend is because of larger size. Is it fair to assume that this kind of elevated marketing compared to previous quarter will continue in future quarters as well? And it has no implication from higher competitive intensity I assume, right?
Yes, at least likely in the near term, and that's what Albinder mentioned in response to a previous question that we do expect these levels to continue at least for now. Yeah, that's another variable and we're assuming that to remain constant when we give this guidance. If that changes meaningfully in one way or the other, then this outlook can change.
On Blinkit. You indicated that you've ploughed back some of the incremental contribution back into marketing spend. Would it also be fair to assume that some of it has gone into price as well to make your products on the platform more attractive? Contribution per order has improved, but EBITDA per order hasn't - is that the marketing spend gap?
Yes, that was the first point in one of the answers. (Akshant: In point 1 of question 7, essentially that's what we mean there.) It is an interplay between some gains in operating leverage and increased marketing expenses, yes.
On District. Any sort of guidance on how you see the trajectory for sort of contribution or profitability playing out in District and how we should think of growth and profitability for that business? Fair to assume around INR 60-70 crore of losses, continue at a 30% growth trajectory?
So, Aditya, we should expect growth to be around the current level of ~30% year-on-year. That is what we are expecting right now and profitability in percentage terms should improve. But as we mentioned also in question 11, we expect the absolute losses to sort of remain range bound around the current levels. It's possible, but our guidance is more at an annual level because on a quarterly level there can be seasonality for some of these events, concerts, movie releases, or let's say IPL event and so on. So, there is a lot of seasonality in this business and a couple of weeks of swings can lead to one quarter, not doing well versus same quarter last year. But what we are trying to guide is more on year-on-year growth than quarter-on-quarter.
Why keep that 20%+ guidance? Why not make it like 15%+? What gives you confidence that there's a 20%+ market and not a 15% market or low-teens or mid-teens market?
Guidance cannot be always close to the current growth levels. Then it's not really a guidance. So, the reality is the current growth rate number, which is around 15%, but whether you give guidance of 10% or 20%, you will have no basis for that. It's a judgment call and in the last letter we did say that for this financial year, we're unlikely to be at 20%, and we're expecting a 15% sort of year-on-year growth. But longer-term, our view on 20% remains as of now. And if that changes, we'll communicate, but that's where we are right now.
On QC - previously you said as you transition to 1P, the benefit of that should be immediate, but now you've mentioned that it will take four to six quarters. What has changed for you to change that view on immediate transition of margin versus four to six quarters on 1P transition?
So, what we mean by four to six quarters is the timeframe to fully realize it. What we meant last time and maybe we can clarify if there was any confusion is that the realization of the margin gains will start happening immediately, which has happened even in this quarter. But the overall margin accretion of 1% will take some while, because it requires you to negotiate with brands, you're signing contracts directly with brands, and that process cannot happen in one shot.
On store expansion - you plan around 2,100 stores by Dec quarter and 3,000 by March 2027. You had earlier guided 100% NOV/GOV growth this year, but with accelerated investments, will we be close to 100% NOV growth in FY27 as well?
Yes, Swapnil, I agree. Currently if you look at the growth rate, it's much higher at 137%. So, I do expect the year-on-year growth to remain above 100% for the next one or two years at least.
On contribution margin not improving meaningfully despite 300 bps gross margin expansion - some first-mile investments done. At some point you'll see benefits of doing first mile on your own. Could that 100 bps inventory model benefit actually be much higher over a period of 1-2 years?
Swapnil, the overall percentage of our cost which resides in the first mile for brands is way too small to make a significant dent here, so it will not change.
On food delivery growth - 14% growth could have been much higher given minimum order value changes. Is the full benefit of that yet to be realized? Apart from that, is there any other trick up your sleeve to accelerate food delivery growth?
You're right, Swapnil. The full impact of that change will appear in the December quarter and outside of that, as we've also mentioned in the letter, we expect a slow uptick in growth rate in the near term and there is no silver bullet that we have as of now.
We've added almost 1,200 odd dark stores over the last year. Any sense over the last two/four quarters on proportion towards tier 1, tier 2, tier 3? Is the skew towards tier 2, tier 3 increasing? And do you envisage middle-mile or warehousing expenses kicking in as you densify tail cities?
Hi Ashwin. So, more than 70-75% of our store addition continues to be in the top 10 cities. While the number of city count seems to be exploding, but number of stores in these long tail cities is really small. So, majority of the business and the success of the business is still linked to how well we do in the top 8 to 10 cities, and that remains the focus. Not really Ashwin, because most of these tail cities are being serviced by warehouses which also serve large cities. There have been only very few locations or states where we did not have that back end infrastructure. Our network design on stores already takes into account the fact that we have to be mindful of the backend warehousing cost. The cost of expansion into the tail cities is not very high, at this point in time for us from a backend supply chain cost perspective.
On new MTU additions this quarter - you mentioned high-quality customers. Are these new customers in the segment or are they coming from one of your competitors?
Abhisek, it's hard for us to clearly demarcate where the new customers are coming from. We just know whether they're new to platform or not. But for the majority of the customers that we're talking about, we believe they would be new to quick commerce in general because one, we have the largest network of stores, so we're targeting the biggest geographies and also we are spending for growth in the segment and targeting new customers. So, that gives us confidence that most of them are new to QC in general.
You mentioned steady state proportion of in-sourcing will be about 90% inventory. What is the 10% you're keeping outside? Fast-moving or slow-moving items?
So, Abhisek, there are some categories where it's operationally easier for us to work with sellers than actually directly source it from the manufacturer. There are no large categories there, but actually a bunch of small products and SKUs that just operationally don't make sense for us to own directly and that's why we're going to let sellers run that business.
We have built a positioning where customers pay for convenience. Now that you have competed a little on the pricing front, does that impact our positioning in customer's mind?
Abhisek, our positioning is that we want to be a customer first organization and do what is in the best interest of the customer. As we get larger and we get more efficiency benefits, what we will continue to do is also give our customers the confidence that Blinkit will also be the best price platform for them, which basically means we have to run our operations a lot more efficiently, we have to pass those benefits on to the customer, and we think that that is the right thing to do for our customers.
On the take-rate 300 bps QoQ - nearly half seems to come from first mile change. Did the rest come from advertising? FMCG companies are reportedly raising QC advertising budgets significantly - is that true, and if so, have you reinvested ad revenues into customer acquisition?
So, Vijit, what we're saying is that a large part of this 3 percentage point increase is on account of business model change. However, this business model change is also leading to costs going up. First mile cost is only a part of the reason of for costs going up. So, when we move this business from sellers to directly on our platform, the supply chain cost, which includes first mile cost, went up and hence that entire gain on the top-line margin because of the model change did not flow through to contribution margin, which is also consistent with what we've mentioned in the past that the net gain or net flow through eventually should be 1%, part of which we have realized this quarter and the balance will keep flowing through in the next four to five quarters. Outside of that, we haven't seen any major bump in ad revenue in the last quarter which we would want to talk about. It is sort of business as usual on that front.
QC marketing spends went up 4x YoY and 40% QoQ. User growth was 2.3x YoY (25% QoQ). When marketing expenses stay elevated, is that proportionate to new user additions, or also for retention work? If you add another 3-4 million users in Q3, will spend just go up commensurately?
It's mostly new user acquisition, Vijit. Ideally, there should be some operating leverage there.
On store additions - 250 in Q3 and ~200 average beyond that. Should we think about this as pretty steady, or will there be spurts? And costs related to inventory model change - all above gross profit / contribution line, or some additional costs between CM and Adjusted EBITDA?
It's very dependent on what we learn over the next few months as well. This is our current view. But if we find opportunities to grow even more rapidly, we have a store opening team which can possibly open a lot more stores every quarter as well, and we will take that opportunity, if and when it comes. Everything is above CM.
My understanding was given M3 retentions are good on QC side, and marketing intensity of peers is going down, your marketing cost or CAC should come down. But this is not the case. What am I missing?
Manish, the understanding of this might not be correct because, typically, if a space is growing and multiple people are spending, then everybody usually has access to a wider chunk of customers that they can target for conversion, and you will see lower CACs. Even if the other folks are not spending, we might be taking 80% or 90% of the overall growth in the segment, but that doesn't necessarily mean that we'll get the lowest CAC. That's not how digital marketing works, which is the largest predominant portion of our marketing expenses.
How many SKUs would be available in a city like Bombay or Delhi versus a tier 2 city? Is the hero SKU or core cohort materially different?
Manish, so, obviously, when we talk about tier 2 and tier 3 cities, the availability of assortment to customers is multiple times lower than the larger cities. The primary reason for that is that the supply chain depth needed to make those products available is not there and we have to build it from scratch, and that's a process which we are going through. And we have found reasonable success doing it so far, but you can be assured that number is multiple times lower than what it is in Delhi or Bombay or Bangalore. A tier 3 city would not even be close to the overall number of SKUs there.