If the last two years were about acquisitions, this year is about customer experience and partnerships for the restaurant discovery and food-ordering platform Zomato. The most recent talked about collaboration was the one with e-commerce marketplace Snapdeal. Its founder Deepinder Goyal termed it as a win-win for both Snapdeal and Zomato.
“It will enable us to reach out and tap a larger user base of largest Indian online marketplace and will allow even more customers to order food online quickly and easily,” he was quoted in a press release.
This was followed by a tie-up with personal assistant chat app –Helpchat, where the latter gets directly integrated into the Zomato app and makes the food ordering experience simpler and faster. Helpchat personalises the experience for its users by understanding the user's intent and helps them in completing the transaction right from the app.
“When it comes to partnerships, our focus has always been on helping partners enable their users to easily access restaurant information and transaction services through the Zomato APIs or our SDK. Through partnerships such as the ones with Snapdeal and Helpchat, we are able to tap into a larger user base and allow even more customers to order food online quickly and easily,” says the company spokesperson.
Last month Zomato was also amongst the launch partners for Apple’s new maps platform, which is part of Apple’s new iOS mobile operating system. This makes booking a reservation with Zomato simple and more convenient by letting customers book a table right within Maps.
Of acquisition and making revenue
According to media reports, for the fiscal year 2016 Zomato’s Indian operations have nearly doubled in revenues amounting to Rs 87.5 crore compared to Rs 46 crore in 2015. India accounted for 47.3% of Zomato's overall revenues that stood at Rs 184.97 crore for the same fiscal. Earlier this year, the company had reached operational profitability in six markets, including India, the UAE, Lebanon, Qatar, Philippines and Indonesia.
Currently, it’s eyeing additional source of revenue from its table reservation business called Zomato Book and focusing on the high-margin segments. For the uninitiated, Zomato Book was initially the US-based online table reservation platform NexTable acquired by Zomato for an undisclosed amount last year. This B2B product, which was soft-launched last November, has already 200 people working on it across the world.
“We have currently partnered with over 300 restaurants in India, primarily in Delhi, Mumbai and Bangalore. Globally we have over 800 restaurant partners onboard on Zomato Book. Notable restaurant partners include Pebble Beach Golf Resort & Universal Studios (in the US), Radisson Hotels, Club Boudoir & Jamie's Italian (in the UAE), Wasabi by Morimoto (at Taj Mahal Palace) and JW Marriott (in India),” shares the spokesperson.
The platform is currently operating across 12 countries with the US, the UAE, Turkey, Portugal and India being the biggest markets. He adds, “While we offer our users the ease of booking a table through Zomato in markets like Australia, and the UK, we offer them these services through our partnerships with Dimmi and Bookatable respectively.”
It expects to sign up about 10,000 restaurants in India and about 30,000 across the globe by March 2017. Currently, according to reports, the Gurgaon-based startup makes money by charging a monthly subscription fee from restaurants.
If one looks at its acquisitions, it has made over eight outside India. Its acquisition strategy in fiscal 2015 has begun to contribute significantly to the topline, with 45% of the revenues in the last fiscal year coming from India, while the rest came from overseas markets including UAE, according to reports. “At the beginning of the last financial year, when the market was good and we were able to raise a large amount of capital, we launched Zomato in a few new countries and made a few acquisitions in early 2015,” added the spokesperson. Zomato expects to double topline in fiscal 2017 again to over Rs 300-350 crore according to reports.
Downsizing to achieve profitability
According to the spokesperson, Zomato is in ‘a great space’ now. It has been aggressively trying to cut spending and improve business dynamics in the last 6-10 months to achieve profitability. According to some reports, the company spent less than $2 million (Rs 13.5 crore) for expenses, in contrast to the $9 million spent monthly at peak last year. It will no longer have a physical presence in nine of 23 global markets (it expanded to in the last three years). That includes the US and Canada which it entered through the acquisition of UrbanSpoon in early 2015 for $52 million (Rs 325 crore) of which Rs 104 crore was later written off.
“Over the last year, we have taken right steps to align the business and ensure we were building a sustainable profitable business over the longer term. We have been prudent in terms of deployment of the capital and utilisation of management bandwidth. So, of all the 23 countries that we had expanded to, we narrowed down our focus to 14 core countries. The other 9 are being remotely managed out of our HQ, in India,” adds the spokesperson.
He goes on to explain the growth of the company, “We have got our cost down drastically. Our burn rate, which had peaked to $9 million early 2015, is close to $1.6 million to $1.7 million, as of May 2016. Over the last six months, we have been able to double our revenue, while bringing down all the cost, high risk and high burn areas of the business. Our advertising business is growing at a healthy 11% month on month, and our online food delivery business at a healthy 30% month on month. That is the overall shape of the business.”
Valuation under scanner
Couple of months back its valuation came under scanner. The company was valued at a billion dollars in last September when it raised $60 million in fresh capital, largely from Temasek. According to reports, HSBC's brokerage arm HSBC Securities and Capital Markets slashed it to half, to about $500 million, raising concerns about what it termed “its reliance on advertisements as a source of revenue, its international operations and growing competition in the online food ordering segment.” But Goyal hit back at them in the company’s blog saying Zomato earns a contribution margin of Rs 21 on orders where restaurants make their own delivery, while it loses Rs 2 on every order where it uses a third party delivery service. He further said that Zomato’s existing investors were bullish about the company and were willing to back them further, if needed.
Survival of the fittest
The online food ordering business in India is in its nascent stage, but witnessing exponential growth. It’s worth $ 48 billion, of which food delivery is valued at $15 billion.
Zomato entered this space in mid-2015 and had to shut down business in four cities Coimbatore, Indore, Kochi and Lucknow due to the small size of these markets. It runs a food ordering business in 10 cities now. “The food delivery business is currently at about 20% of our India revenues, and the unit economics for the food delivery business are positive,” he offers.
Lately the food technology business, especially the food ordering space, has witnessed an onslaught with layoffs and shut downs by startups. Zomato, Rocket Internet-backed Foodpanda.com and Bengaluru-based Swiggy have made it through the turmoil. Since the start of 2016, Swiggy has received funding of Rs 277 crore, primarily from the three existing investors. It surged its prices recently to stay in business. Last heard, it was in talks with US-based venture capital firm Bessemer Venture Partners who was looking to invest around Rs 80 crore ($12 million) in it. If it concludes, the deal will value the Bengaluru-based company at around $200 million. On the other hand Foodpanda, which is active in 200 cities, is eyeing profit in the next three years.
When asked about Zomato’s take on competition in food ordering business the spokesperson said, “We make about Rs 20 contribution margin on all orders we receive in India and Rs 50 on orders we receive through our online ordering business in the UAE. Our average order value in this business is more than 1.5 times the size of our competitor, which makes our business more viable than any other competitor. The average order values multiplied by our order volumes also makes us largest player by GMV in India and the UAE.”