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Zomato to invest $40 mn in food-ordering business

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Zomato to invest $40 mn in food-ordering business.

Will spend money on marketing, logistics as it aims to capture a dominant chunk of the market in India and the UAE.

New Delhi | by Shrutika Verma | Livemint | Dec 19,2015 03:45 PM IST.

Restaurant search and review website Zomato Media Pvt. Ltd will invest $40 million in its nascent food-ordering business in the next six months to capture a dominant chunk of the market in India and the United Arab Emirates (UAE).

deepindergoyal
Zomato co-founder Deepinder Goyal says the company will continue to focus on keeping customer acquisition costs low and stay away from the discounting war. Photo: Ramesh Pathania/Mint

The company, which started a food-ordering service only in May, will spend the money on marketing and logistics.

“We do not require much cash for the existing business and can dedicate maximum money towards building this new business,” Zomato co-founder Deepinder Goyal said.

The Gurgaon-based firm, which has spent Rs.1.2 crore on its latest television campaign, expects the food-ordering business to operationally break even by March.

The company has already invested in early-stage food-delivery firm Grab, run by Grub Services Pvt. Ltd. In August,Mint reported that Zomato was planning to buy small stakes of 5-10% in early-stage food delivery firms.

According to Goyal, the company will continue to focus on keeping customer acquisition costs low and stay away from the discounting war that has largely been responsible for early consolidation in the food tech sector in the country.

The food space in the country has eroded as fast as it proliferated. While companies such as Dazo and SpoonJoy downed shutters within a year of starting operations, others such as TinyOwl restructured their company by laying off hundreds of employees.

Zomato cut 10% of its workforce across the globe to curb costs.

In November, an internal e-mail by Goyal surfaced in several media publications that spoke about the company’s alarming rise in costs and drop in sales revenue. The e-mail highlighted heightened pressure on the sales team by Zomato’s management.

“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%,” said Goyal.

According to him, not only have the costs reduced but the sales revenue has been doubling every month since October.

“In August and September, when the markets corrected, 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,” said Sanjeev Bikhchandani, co-founder and executive vice-chairman of Infoedge and an early investor in Zomato.

“For Zomato, 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,” he added.

Zomato’s primary revenue source is advertising. The company has since expanded into online food ordering, table reservation and a white-label platform that allows restaurants to create their individual apps.

The firm, which is close to touching a revenue of $3.2 million in December, is targeting a revenue of about $5 million in March.

“We are aiming for a monthly increase in revenue of $400,000 every month and the growth will be largely driven by online ordering business in India and the UAE,” said Goyal.

In November, the company had said it will clock about $30 million in revenue this fiscal year, compared with about $16 million a year ago.

Zomato has since May rolled out its food-ordering business in global markets such as the UAE, the Philippines, Australia and South Africa. In November, India saw close to 185,000 orders being placed via Zomato with an average ticket price of Rs.500.

The company plans to focus on growing the food-ordering business in these markets and said it is not looking to venture into any new markets or businesses for some time.

Founded in 2008, Zomato is backed by Infoedge, Singapore’s Temasek Holdings Pte, Sequoia and Vy Capital. The company was valued at a billion dollars in September when it raised $60 million in fresh capital, largely from Temasek.

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