So how often do you see a startup, first spending close to $50 Million to buy a larger company in a land far away from its origin, and then years later, shutting the business down because it did not work out. It of course is rare, but this rare is exactly what Zomato CEO Deepinder Goyal has disclosed in an earnings call.
After reporting a sharp 262 per cent increase in losses yesterday, the online restaurant and (still more of a) food delivery platform, Zomato has shocked us by revealing that it is cutting down operational costs from $9.1 million to a scanty $1.7 million. But that comes with a $50 Million price tag, since it is shutting itself down in the US (where it ventured via an acquisition) and the UK.
The company however, isn’t completely abandoning these markets and will continue to provide their service to them remotely. The product is still operational and growing in these countries, but the nine countries will now be serviced from India. Zomato adds that the pull out is more about having no physical presence in those countries. The company now has ‘feet-on-the-street’ in only 14 countries as compared to the previous 23.
The online restaurant aggregator had ventured into the U.S market with the acquisition of InterActiveCorp owned UrbanSpoon almost an year ago. Zomato wasn’t able to make a mark and become a market leader in these countires, so it decided to cut the weaklings loose. The company would have reported losses in the incubation period of these markets and hence, Zomato now operates in countries where they are the market leaders.
Zomato Founder and CEO addressed the investors (via ET) saying that,
We are technically present in the US through an acquisition, but things did not work out as we planned. The other markets that we have pulled out from include Chile, the UK, Ireland and Sri Lanka.
Early last year when the market was good we were to raise substantially capital and go after opportunities to expand to a few countries. However, late last year the market shifted and there was a lot of competition in India and UAE. We had to take a lot or steps to align with the market to ensure we are a sustainable and profitable business.
Goyal further addressed that the company is now completely focused on scaling back in the 14 operational countries by cutting down on the high growth, high risk geographies. As a result of the same, the food delivery platform has brought down the burn rate from $9 million this year to nearly about $1.7 million right now. The company will try to make use of a lot of cutting-edge technology and social media to uphold their brand and vision in the markets they have pulled away from.
Goyal added that to sustain the business after the rapid expansion to foreign markets, the company had to cut down on both money management(which may also account for the 850 job cuts earlier this year) to achieve a threshold needed to monetize each operation respectively. If the company reaches a certain threshold to monetize foreign operations, then re-entry to those markets is still not off the table.
The earning call focused on the food delivery business expansion in India and UAE. In regard to the same, Zomato added that,
About 80 % of the delivery business is serviced by the restaurants and only 20 % is done through our delivery partners. We have had a very successful launch of food delivery business in India and UAE.
Our unit economics is positive even after outsourcing the delivery Zomato makes Rs. 20 contribution margin on all deliveries in India and Rs. 50 contribution on all orders in the UAE.
Zomato adds that its the largest player by GMV by market share in the remaining countries that the company operates in. Also the reviewing platform(a part of the company’s original business) has been a huge driver for its delivery business, which normally suffers from indifference from the restaurants owners, who deliver food through a third-party aggregator(ahem, TinyOwl). The company added that it is seeing a 30 per cent monthly growth rate in the food delivery business, with an average ticket size of Rs. 480.
After pulling out from the aforementioned nine countries the company now has enough capital to lead in the markets that they are currently operational in. In terms of total revenue, India amounts to roughly 45 per cent of the company’s revenue, while UAE contributes 20 per cent.
The CEO ended the earning call at a glum note saying that,
It is not optimal, but it is much better than what our competitors are doing.
If compared to other foodtech startups(like TinyOwl or Swiggy) in the current scenario, Zomato is doing pretty fine based on their scale and reach in international markets. TinyOwl is now almost done and dusted, after closing its operations everywhere except Mumbai. The company is trying to restructure and launch as – Runnr – in partnership with the logistic startup, Roadrunnr.
This report also corroborates Zomato’s huge loss in revenue that was reported yesterday.
