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Zomato To Aggresively Expand Its Food Ordering Business, Looking To Invest Over $40 Million On Marketing And Logistics

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Zomato’s ongoing drive to continue its focus on food ordering is getting more aggressive now. Talking to LiveMint about his company’s plans, Founder and CEO Deepinder Goyal has hinted towards spending a much as $40 Million in further expanding the reach of Zomato’s ordering businesses.

The food ordering business of Zomato, which was launched in May this year, has not yet been able to replicate the success it achieved with its core business offerings. Thus, the company will now spend more money on marketing and logistics.

The company has already spent about Rs. 1.2 crore on its new television advertisement campaign, and is expecting the food-ordering business to operationally break even by March 2016.

As a part of it’s food delivery business strategy, the company has invested in Grab, an early stage online food delivery startup which provides hyperlocal logistics service connecting neighborhood stores, restaurants & online platforms to deliver their products to the end consumers in minutes.

Deepinder Goyal, founder and CEO of Zomato, said,

Most of the reduction in our burn rate is not related to people cuts. We have grown very fast as an organization in the last year, and as a result a lot of cost inefficiencies had crept in largely in real estate planning, travel expenses and other HR policies. In general, payroll costs for our business are supposed to be 80% of the total cost. In the recent past, it was hovering at 55% of the total cost. Now, it is back to normal at 80%.

India’s food delivery segment — as is virtually a common knowledge — is crowded and there is a fierce competition in this space. Startups in this segment have found it difficult to go beyond early-stage, as none has been able to identify the best possible business model to make this service less capital intensive and ultimately profitable.

While a few companies decided to shut down its operations, companies such as TinyOwl managed to stay in the business — powered by investor money, but in the process, fired hundreds of employees. Zomato has also fired roughly 10 percent of its staff from core reviewing business to cut down costs.

Zomato is close to hitting a revenue of $3.2 million in December, and the company is now targeting a revenue of about $5 million in March. It is also aiming for a monthly increase in revenue of $400,000 every month, largely driven by business in India and the UAE. It had targeted about $30 million in revenue this fiscal year, compared with about $16 million a year ago.

Currently, Zomato’s primary source of revenue is extensive advertising on both — its mobile as well as desktop platforms. However since revenue has been hard to come by, a leaked e-mail in various reports had highlighted intense pressure on Zomato’s sales department to bring in more revenue. To that, Goyal tells livemint,

Most of the reduction in our burn rate is not related to people cuts. We have grown very fast as an organization in the last year, and as a result a lot of cost inefficiencies had crept in largely in real estate planning, travel expenses and other HR policies. In general, payroll costs for our business are supposed to be 80% of the total cost. In the recent past, it was hovering at 55% of the total cost. Now, it is back to normal at 80%,

Sanjeev Bikhchandani, an early investor in Zomato, told,

Zomato’s team promptly focused on bringing the burn down and started to focus on growing sales and revenue. The cost-cutting seems to be working. The cost of customer acquisition is very low and commissions that they get even in the food-ordering business are handsome and they will be cash-positive very soon.

Zomato was founded in 2008 by Pankaj Chaddah and Deepinder Goyal. Till now, it has raised more than $223.8 million from four investor rounds, and in that process, has also made 8 acquisitions so far.


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