What’s The Story Of Zomato?


Zomato started off in 2010 after rebranding from food directory website Foodiebay

The company was India’s first foodtech unicorn and has continued to add new features besides delivery and discovery

Zomato extended its subscription-based Zomato Gold programme to deliveries despite controversy and criticism

Like most other startups, India’s pioneering foodtech unicorn Zomato has seen many peaks and troughs in its journey. While there were some illustrious moments and accomplishments, there were troubled times too, some that even brought the very existence of the company into question.

During the massive layoffs and losses of 2015, chances of Zomato’s survival seemed slim. In a belt tightening move, the company laid off about 300 employees — nearly 10% of its total headcount — to cut costs in its weaker business aspects and shift the focus to more revenue-generating areas like reservations.

However, in Zomato’s decade of existence, this was the biggest rough spot the company actually ever hit. The rest of the time, founder and CEO Deepinder Goyal and cofounder Pankaj Chaddah (who left Zomato in 2018) steadfastly held on to the reins of the company and kept it on the path of growth and expansion, making it India’s first foodtech unicorn.

While Zomato competes with Swiggy, UberEats and Ola-Foodpanda among others, the company still continues to innovate offerings and expand in the manner it has been doing since the day it all started.

FoodieBay.com Makes Way For Zomato

Zomato kicked off essentially as a rebranded version of the food directory services Foodiebay. Goyal and Chaddah, both IIT graduates and both working as analysts at Bain and Company back then, had started Foodiebay in 2008.

In a matter of just nine months, FoodieBay became the largest restaurant directory in Delhi NCR. After two successful years, the company was rebranded Zomato and since then there was no looking back.

With support from its investors and multiple rounds of consecutive funding, Zomato built not only its valuation but also an interesting portfolio of investors which includes Info Edge India, Sequoia, Vy Capital, Singapore-based investment firm Temasek, and Alibaba’s Ant Financial. Ant Financial’s $200 Mn investment earlier this year led Zomato to cross the $1 Bn valuation.

Zomato Eats Around The World

Zomato’s quick growth can also be attributed to its rapid expansion to countries other than India. Soon after its success in Delhi-NCR, the company started branching out to cities like Pune, Ahmedabad, Bengaluru, Chennai, and Hyderabad.

By 2012, Zomato had started expanding overseas by extending its services to Sri Lanka, UAE, Qatar, South Africa, UK, and the Philippines. The year 2013 saw New Zealand, Turkey, and Brazil get added to its list.

During this time, Zomato also kept working on its tech backbone to match the boom in the smartphone trend and launched its app. The company also started aggressively acquiring foreign competition to increase its foothold in other countries. In 2014, Zomato acquired Gastronauci, Poland’s restaurant search service, and Cibando, an Italian restaurant finder. The next year, Zomato made its biggest acquisition — US-based online table reservation platform NexTable. Soon after, it acquired another US-based restaurant directory, Urbanspoon, but had to shut the app within just five months.

It was also in 2015 that Zomato, struggling with falling revenues, carried out its massive layoff. The company, however, managed to get something good out of the year by acquiring MapleOS, which would allow it to expand its directory, database, and operations, and add online reservations and mobile bill payment to its service portfolio.

After a slow 2016, in which Zomato saw further loss in revenues, the company decided to roll back operations in nine of the countries it had expanded to, handling them remotely to ensure it did not lose out on the markets.

A Decade of Experience

Ups and downs are something all startups see in their journey to becoming industry mammoths, how they handle their trying times and the decisions they take make or break them.

Goyal and Chaddah have done a phenomenal job of keeping Zomato’s mast up and sailing, irrespective of the trying winds. Chaddah, while he was with the company, gave wings to many of Zomato’s new initiatives including Zomato Gold and its cloud kitchen concept.

In a surprise turn of events early in 2018, Chaddah announced his decision to quit Zomato and take some time off before he became “professionally active” again. He continues to own his stake of 3.11% in Zomato.

The company is now looking to raise more funding with a view to expand its service portfolio and reach new markets. On homeground, Zomato is battling it out with its biggest competitor — Swiggy — which too has reached unicorn status and within a shorter time period, and with more funding raised as per DataLabs By Inc42 analysis.

Both have recorded monthly cash burns in the range of $10 Mn – $12 Mn and this is largely driven by marketing and acquisition costs for users such as discounts, promos and ads. Additionally, adding new delivery agents and tech capability is also a major cost centre for these foodtech companies. At the same time they are also expanding to newer services such as Zomato with its dining-out features, and Swiggy with Swiggy Go hyperlocal delivery.

With Zomato Gold, a programme by Zomato which provides free food and drinks on certain orders in select restaurants. This has come under a lot of criticism by the restaurant body NRAI and as a result restaurants protested with a #logout campaign in mid-2019, which damaged some of Zomato’s goodwill. But the company has not scrapped Zomato Gold — only changing its terms to favour restaurants a little more — but in fact double down with Gold for deliveries too. Zomato is constantly changing things to get the revenue boost.

2019 And Beyond For Zomato

In terms of numbers, Zomato recorded a 225% rise in revenue in the first half of FY2020. According to the company’s biannual report, it has registered $205 Mn in revenue, compared to $63 Mn in the first half of last year.

The report also mentioned that there has been a 40% decline in Zomato’s EBITDA (earnings before interest, tax, depreciation and amortization) loss from March to September 2019. The company has also pointed out that its monthly burn rate, which measures the rate at which a company is losing money, is down by 60%.

In August 2019, during the #logout campaign, the restaurants listed on the food aggregator had called out Zomato for eating into their margins through Gold and Infinity Dining feature, which provided heavy discounts. The restaurant association highlighted issues such as “unreasonably high commissions, payment terms and arbitrarily applied additional charges” that restaurants have been charged to be a part of Zomato Gold.

After #logout campaign, Zomato discontinued Infinity dining service, altered Gold rules amid multiple rounds of layoffs — the company also witnessed protests from delivery partners.

Despite facing these issues, Zomato claimed to have registered an increase of 177% of restaurant partners after getting an additional 73K restaurants on board. In the H1FY20, the food aggregator and delivery startup has around 119K restaurants, compared to 43K last year.

The controversial Zomato Gold service has registered a 180% increase with 1.4 Mn users. With an eventful FY20, Zomato’s rival Swiggy has also been out on the block seeking fresh funds. The Bengaluru-based food delivery unicorn is also in talks to raise $500 Mn fresh funds led by Naspers at a valuation of $3.3 Bn.

Even as the two foodtech giants battle it out, there’s a bigger player on the horizon with Amazon about to launch its food delivery and cloud kitchen services in India.

With inputs from Nikhil Subramaniam

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