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Zomato’s Changed Strategy Towards Becoming A Profitable Business In The Long Run

deepinder goyal / zomato
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Layoffs are a part and parcel of any business. However, when it comes to startups — and specially ones in the booming Indian ecosystem, most are blamed for over-hiring upon massive fund receiving, thus resulting in an equally higher number of layoffs at a later stage.

And no sector has experienced the brunt of layoffs in India’s startup ecosystem other than the so called “food tech”. And Zomato, despite being the more stable and the biggest of the lot, hasn’t been left untouched.

With hundreds of layoffs from TinyOwl; employees holding the founders of TinyOwl hostage in the offices; layoffs at Zomato and a recent leak of warning cum reminder mail by Zomato CEO to its sales team have led many people speculating about the impending doom in food-tech.

Zomato however, according to CEO Deepinder Goyal during an investor call (via Economic Times), has been making strategical changes towards making the business profitable and a lower investment business in long run. This and many more insights were provided by co-founder and CEO of Zomato, Deepender Goyal in an investor call yesterday.

Goyal said that the company was aiming to turn profitable in atleast 8 out of the 23 markets where it has its presence out of which six of markets are expected to break even in this month or in the first week of December, primarily driven by ad sales. It is also eying revenues of about 200 crores or $30 million in this fiscal which is double that of the 2014 fiscal where it earned revenues of 100 crores( about $16 million).

He also admitted that India and the UAE markets which had broken even earlier are no longer profitable since they started the food ordering services in these markets. However, he added that the ad-sales part of their business was still profitable in these regions.

Goyal also talked about its recent changes in the strategy of the company which split its operations into two parts. One part is focussed on its traditional revenue source, i.e monetization through ad-sells on its restaurant discovery platform before it expanded into table booking and online delivery services.

This business is particularly focussed in regions where the company is already experiencing high traffic.

There are 12 full stack markets where our traffic levels are very high and we will be starting to monetise them through advertising sales now,

said Goyal.

The other part will be focussed on its high-margin entreprise products such as table reservation software and point of sales systems in the markets where revenues through ad-sales are less. 

The biggest reason for the shift in strategy was because until last month we didn’t have any enterprise products (b2b) in our bouquet of offerings to restaurants. Our ad sales and online ordering primarily depended on a lot of business to customer traffic to work effectively. There are some markets where we don’t have adequate levels of traffic to monetize ads.

said Goyal.

He added that this shift to enterprise products will help the company to keep a check on its customer acquisition costs and help the company to become a lower investment business in the long term. 

We want to build traffic on our products without spending a lot on marketing and customer acquisition,

Deepinder Goyal told the analysts in the conference call.

This enterprise product based strategy will now be adopted by Zomato while entering into new markets also which will be treated as enterprise markets and the company will follow a B2B2C approach rather than B2C in such regions. Through this splitting of business operations, Goyal said that they were expecting 40% of revenues from ad revenues, 30% of revenues from orders and the rest 30% from Enterprise products.

Zomato currently has 80,000 restaurants listed in India as of now out of which Goyal claims that 6% are the paid customers. Goyal also claimed that 40% of restaurants listed on Zomato were exclusive to Zomato and they had three-year contracts with such restaurants.

We are growing at 50% month on month and are confident of becoming the biggest, if not the only player left in the market in a couple of months from now,

said Goyal.

According to him, Zomato hit “a peak of” delivering 10,000 orders a day last week, with an average meal ticket size of Rs 600 which is much higher versus the Rs 225 ticket size of their competitors.

All the volume comes at zero discounting as less than 5% of our orders are actually discounted as compared to 70% of orders being discounted by competitors,

Goyal added.

Zomato, beginning its operations in the year 2008, is the only Indian startup to have global operations which are primarily driven by its acquisitions. In more than one year, Zomato has acquired numerous companies, including the US-based larger rival Urbanspoon and Nextable, Turkey’s Mekanist, Cibando in Italy, Menu Mania in New Zealand, Lunchtime in the Czech Republic and Obedovat in Slovakia.

It has so far raised more than $220 million from high-profile investors like Sequoia Capital, Infoedge India Ltd and Vy Capital with the most recent round of $60 million  from Temasek and Vy Capital.


 

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