Is this the year of reckoning for Zomato?
It has been a rough year for start-ups engaged in the food business in India—including Zomato.
After going on a an acquisition and expansion spree in India and abroad, 2015 saw Zomato scale down its business in nine out of 23 countries and shut shop in four cities in India. Can the current financial year be the turning point in its lifecycle?
The signs of this are already visible.
According to a report by Rumit Dagar and Saumya Shrivastava of Religare Institutional Research dated May 26, the company has already brought down its cash burn from a peak of $9 million a month to $1.6 million currently.
They wrote, “Management intends to bring down the cash burn in high-risk and high-burn geographies through reduced marketing spends and remote management of nine non-focus countries, including US, UK, Chile and Sri Lanka, from India.”
The rationale behind scaling down business in these nine countries was the fact that the company wasn’t a market leader in any of those. In an investor call, Deepinder Goyal, founder and CEO of Zomato said as quoted by Mint newspaper, “We have taken a remote management approach in these markets. We do not have any physical presence, but we will continue to manage the operations out of our headquarters in India,” Goyal said.”
With the India market securely in its tow with a mammoth 75% marketshare, Zomato is now looking to double its revenues in the country.
Dagar and Shrivastava wrote, “Zomato clocked revenues of Rs 1.85bn in FY16 and management expects these to double to Rs 300-350 crore in FY17. Pure earnings losses for FY16 stood at Rs 440 crore, which it expects to significantly cut down in the current year.”
The overseas opportunity
UAE is the second largest market for the company after India. The two together currently accounts for nearly 60% of the company’s revenues.
But even after cutting down sharply on its overseas business, the opportunity is immense.
Zomato believes, as quoted by the duo at Religare, the opportunity in the remaining 14 countries is estimated to be six times of the Indian market opportunity.
To put this in perspective, “In FY16, the company clocked 25,000-26,000 online orders per day with an average ticket size of Rs 480 – more than 1.5x the ticket size (Rs 280) of competitors.”
This, in November 2015, stood at 10,000 orders a day, clocking a growth of 30% on a month-on-month basis.
With many food delivery start-ups in India shutting down in the past year, Zomato is not keen on entering that business. Currently only one in five deliveries are managed by Zomato through its outsourced partners and the rest being taken care by the restaurants themselves.
The company typically operates on a ‘zero customer acquisition’ cost and discounts only 2% of the orders itself with nearly one-fourth of orders discounted by restaurants.
This will help attract more customers to the platform, Zomato told Religare.