Doing food delivery alone is not sustainable: Zomato CEO

DEEPINDER GOYAL, CEO and founder, Zomato   -  BL

Mumbai, July 27

Mumbai, July 27

Having survived in the foodtech delivery segment for the past nine years, Zomato CEO and founder Deepinder Goyal claims the firm is well-funded and on the path to profitability. Today, Goyal wants to stay away from the valuation game (last year, HSBC Securities and Capital Markets had slashed the company’s valuation to $550 million), and is on now on the verge of acquiring delivery platform Runnr. According to Zomato’s annual report, it achieved $49 million in revenues in FY17, a growth of 80 per cent over FY16. The home-grown global restaurant-discovery and food-ordering platform has been piloting new concepts such as Zomato Treats(subscription-based service for free desserts), and also tied up with Ola to offer a range of integrated services to customers. Having reduced its operating losses and cash burn, Goyal highlights some of the new initiatives taken by Zomato, and how he intends fighting competitors such as Swiggy and Food Panda in future. Excerpts:

Is Treats expected to give a fillip to your existing revenue base?

Zomato Treats, our second subscription-based offering, was launched at scale a little over 45 days ago. We have partnered with over 2,500 restaurants for this initiative, and have already sold over 10,000 memberships. Treats was launched with the intent of driving further delight to loyal users who order through our platform. As a Zomato Treats member, you get a complimentary dessert, every time you order a meal from one of our partner restaurants in India or the UAE. The membership costs ₹299 for a year in India and AED 39 for six months in the UAE. It is also already driving repeat usage — we have already seen around 25 per cent jump in order frequency from Treats subscribers; we see this trend holding over time. Our restaurant partners are also seeing an increase in repeat orders from the same users. As we scale-up, we see Treats contributing significantly to our overall online ordering business.

How is the UAE market different from India in its response to Treats. What have been the learnings?

The key learnings have been fairly similar across both the markets. The key to making the model work is ensuring our users have sufficient choice in terms of great dessert options. This translates to having strong partner restaurants on board, offering variety across cuisines, mealtimes, price points, etc. This is something we, along with our partner restaurants, are actively focussed on.

What has also been consistent across both markets is that the frequency of orders placed by Treats users has increased in the post-purchase period. This validates the efficacy of Treats as a programme that helps drive user stickiness. One difference however is the pricing and duration of membership. Taking learnings from our wider online ordering business, we have seen that users in the UAE tend to order more frequently than those in India, which has helped us keep shorter renewal cycles in the UAE.

How does Zomato expect to compete with UberEats?

UberEats has been competing with us for over a year in Dubai. Of over 3,000 restaurants in Dubai that deliver food, 1,400 are exclusive partners with us. We do 20,000 orders per day (in Dubai) and believe we are significantly larger than UberEats in Dubai. I think our single biggest advantage over them is a strong brand and the trust of the restaurants and the consumers.

How will the acquisition of Runnr help Zomato?

The acquisition will pave the way for a new service, Zomato Valet. A premium service, Valet will focus on high-value restaurants that don’t deliver food on their own. The idea is to provide more choices and cater to special occasions. Because the average order value will be very high, owning the last mile for these deliveries will amount to positive unit economics.

Since delivery is the main cost in foodtech, how will Zomato compete with other players?

Currently, around 93 per cent of our orders are fulfilled by restaurants and only about 7 per cent is facilitated by Zomato through third-party delivery companies. The high-value deliveries through Valet will be fully owned and fulfilled by Zomato. We don’t think that doing food delivery only for a logistics business is a sustainable or profitable option. Restaurants doing self delivery like they have been for the last few decades will work best, because they are able to utilise their delivery boys for other errands in non-peak delivery hours. Or then, third-party players who do food delivery as well as other logistics during non-peak hours, is sustainable.

Hence, we will continue our hybrid delivery model. We believe this approach solves for both a) providing large number of choices to consumers and b) having a sustainable and profitable business model.

How does Zomato differentiate itself from competitors such as Swiggy and Food Panda?

Over $220 million has been spent on the food-delivery sector in India, of which $160 million has been burned by just two companies. In contrast, we have built our delivery business in about $7 million. One of the main reasons for this difference is — our spends on customer acquisition and marketing are minimal. We have a strong search and discovery product wherein users generate a lot of content — reviews, ratings, photos — leading to strong network effects.

These users provide a large organic acquisition channel for our food-ordering business. We have had a long-standing relationship with our restaurant partners, and have, over a period of time, helped them improve their own delivery capabilities through sharing customer feedback and technology, like Zomato Trace. We believe working with restaurant partners and building the ecosystem is the right way to scale the ordering business.

We were one of the last players to enter the food-ordering market in India in June 2015, and are excited now that the gap with the largest competitor has narrowed down to a small difference in order volumes. Our average order value currently is ₹420 in India and AED 65 in the UAE. The average commission earned is 8 per cent, and our GMV exceeds that of our nearest competitor. We already have over 7,500 exclusive restaurants with us in India, and this number is growing by over almost 300 every day.

How is Zomato planning to reduce cash burn?

We are at a monthly burn of less than $250,000, and are on track to become profitable within FY18, by focussing on increasing revenue profitably and reducing inefficiencies. We have also rationalised our international operations to focus on a few key markets, while enhancing our teams’ productivity using tech. We have stayed away from business models that are not profitable at unit economics level, and have not spent money on buying unsustainable growth.

Published on July 27, 2017

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