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Eternal's fourth-quarter report paints a complex picture of a company navigating the evolving landscape of online food and grocery delivery. The headline figure, a steep 78% year-on-year drop in net profit to Rs 39 crore, immediately signals challenges. This decline is primarily attributed to the continuing losses incurred by Blinkit, Eternal's quick commerce arm. While the company acknowledges these losses, it remains committed to aggressively pursuing market share in this sector, prioritizing growth over near-term profitability. This strategy reflects a belief that capturing a significant portion of the burgeoning quick commerce market will ultimately yield substantial returns, even if it necessitates short-term financial sacrifices. The rationale behind this approach warrants careful consideration. On one hand, the quick commerce space is undeniably experiencing rapid expansion, driven by consumers' increasing demand for instant gratification and the convenience of having groceries and other essential items delivered to their doorstep within minutes. By investing heavily in Blinkit's growth, Eternal aims to capitalize on this trend and establish a dominant position in a market with considerable long-term potential. However, this strategy also carries significant risks. The quick commerce sector is fiercely competitive, with established players like Zepto, Swiggy Instamart, Amazon and Flipkart all vying for market share. This intense competition puts immense pressure on margins, as companies are forced to offer discounts and promotions to attract and retain customers. Furthermore, the operational costs associated with quick commerce, such as last-mile delivery and real estate expenses for dark stores, are substantial. Blinkit's rapid expansion, marked by the addition of 294 dark stores in the quarter, has exacerbated these costs, contributing significantly to its operating losses. The question then becomes whether Eternal can effectively manage these costs and achieve sustainable profitability in the long run, or whether the pursuit of market share will ultimately prove to be a financially unsustainable endeavor. The decision to shutter Quick, Eternal's 15-minute food delivery service, and Everyday, its homely meals offering, further underscores the company's strategic shift towards focusing on areas with a clearer path to profitability. CEO Deepinder Goyal's statement that these services lacked a viable route to profitability without compromising customer experience highlights the challenges of balancing service quality with financial sustainability. This decision suggests a willingness to cut losses and allocate resources to areas with greater potential for returns. However, it also raises questions about the company's ability to innovate and adapt to changing consumer preferences. While focusing on core competencies is a sound business strategy, it is equally important to explore new opportunities and avoid becoming complacent in a rapidly evolving market.
Food delivery, while still Eternal's largest business, is experiencing a slowdown in growth. Goyal attributes this sluggish pace to a combination of factors, including weak discretionary spending and the rising influence of quick commerce on both operations and demand. The weak discretionary spending reflects broader macroeconomic trends, as consumers become more cautious with their spending in the face of economic uncertainty. The rise of quick commerce, on the other hand, presents a more direct challenge to food delivery. Quick commerce platforms offer consumers a wider range of options, including groceries, household items, and even prepared meals, all delivered with exceptional speed. This increased convenience and variety are attracting consumers away from traditional food delivery services, impacting their growth. The impact of these factors is evident in the company's guidance for food delivery growth. Eternal has given a long-term guidance of 20% annual growth in food delivery, but it has been missing those estimates for the past two consecutive quarters. This raises concerns about the sustainability of the company's food delivery business and its ability to maintain its market share in the face of intensifying competition. In response to these challenges, Eternal is focusing on three key vectors: wider assortment, better affordability, and lower delivery time. Expanding the assortment of food options available on its platform, offering more competitive prices, and reducing delivery times are all aimed at attracting and retaining customers. The delisting of approximately 19,000 restaurants during the quarter, while impacting order volumes in the short term, reflects a commitment to quality and food safety. This move aims to weed out substandard eateries and ensure that only reputable restaurants are available on the platform. While this may lead to a temporary dip in order volumes, it is expected to improve the overall customer experience and build trust in the long term. The introduction of a new metric, net order value (NOV), further demonstrates Eternal's commitment to transparency and accurate reporting. NOV, which is gross order value (GOV) minus discounts funded by brands, sellers, banks, or the platform, provides a more realistic picture of the actual value of orders placed on Blinkit. This metric is particularly important given the increasing share of non-grocery category products being sold on Blinkit, which typically have higher maximum retail prices (MRP) compared to their actual selling prices. By reporting NOV, Eternal aims to provide investors and analysts with a more accurate understanding of the company's financial performance.
The article highlights the dynamic nature of the online food and grocery delivery market and the challenges that Eternal faces in navigating this complex landscape. The company's commitment to aggressive growth in quick commerce, despite the associated losses, reflects a belief in the long-term potential of this sector. However, the success of this strategy will depend on Eternal's ability to effectively manage costs, differentiate itself from competitors, and adapt to changing consumer preferences. The slowdown in food delivery growth, driven by weak discretionary spending and the rise of quick commerce, presents another significant challenge. Eternal's efforts to address this challenge by expanding its assortment, offering better affordability, and reducing delivery times are crucial to maintaining its market share and achieving its long-term growth targets. The leadership changes within the food delivery segment, with Deepinder Goyal stepping back into the driver's seat, suggest a renewed focus on innovation and strategic direction. Goyal's emphasis on experimentation and constant innovation highlights the importance of adaptability in a rapidly evolving market. The overall outlook for Eternal remains uncertain. The company faces significant challenges in both its quick commerce and food delivery businesses. However, its commitment to innovation, strategic investments in growth, and focus on customer experience provide a foundation for long-term success. Investors will be closely watching the company's performance in the coming quarters to see whether it can successfully navigate these challenges and achieve its financial goals. The competitive landscape remains fierce, and Eternal's ability to differentiate itself and create a sustainable competitive advantage will be crucial to its long-term viability. The pressure to achieve profitability, while simultaneously investing in growth, presents a delicate balancing act that will require careful management and strategic decision-making. Furthermore, the macroeconomic environment will play a significant role in shaping consumer spending patterns and demand for online food and grocery delivery services. External factors beyond the control of Eternal, such as inflation, interest rates, and geopolitical events, could significantly impact its business performance. Therefore, Eternal must remain agile and responsive to changing market conditions to effectively navigate the challenges and capitalize on the opportunities that lie ahead.
Source: Eternal Q4 report: Net profit plummets on Blinkit losses; food delivery stays in the slow lane