 "Zomato co-founders Pankaj Chaddah (right) and Deepinder Goyal's efforts to streamline operations over the past few months are yielding results")
Pankaj Chaddah, the 29-year-old co-founder of food tech company Zomato, had recently signed off an interview with Business Standard with the promise to stay in the news through 2016. This was in the context of all the bad press that the company had drawn in 2015. Chaddah's "yes'' may not have given away much at that point, but just days later Zomato announced it was breaking even in six key markets, including India-a rare feat in the world of e-commerce.
The Gurgaon-based company, with operations in 23 countries, is eyeing full profitability between June and September. If that happens, it will be the first in the food tech sector to turn profitable in the midst of a bloodbath. That will be quite a way for Zomato to stay in news, especially after a bumpy 2015.
Profitability has almost been a bad word in the start-up world with all big players opting for growth over profits till recently. Things seem to have changed following signals from many marquee investors that only money begets money. Zomato's case may not be too different. More than seven years after its 2008 launch, it shut down some regional centres, cut staff strength, drove sales team to work harder towards revenue targets, worked on a clutch of new investors, and did some serious math on profits. Those measures have started showing results.
On Sunday evening, 32-year-old Deepinder Goyal, co-founder and CEO of Zomato, confirmed that India was among the six markets to have broken even and that the entire operations would be profitable later this year.
That's not all. It is learnt that Chinese web services major Baidu is in dialogue with Zomato for funding. Baidu could, along with some other investors, put in around $200 million by April-May into the food tech company. If that happens, it will be the first Indian company where the Chinese firm will invest. So far, the company has raised $225 million from investors including Info Edge, Sequoia India, Vy Capital and Temasek. Sources indicate that the company, a new unicorn (valued at $1 billion or above), may be valued at around $1.5 billion. The company chose not to speak on either valuation or funding, usually seen as benchmarks for success in the internet world.
| THE JOURNEY SO FAR |
Source: Zomato, market estimates |
Leaner and smarter
When asked how Zomato, an online restaurant search and food delivery platform, has been able to turn around, Goyal said in an interview to this newspaper on Sunday, "What helped us was that our revenue doubled in the last four months. As it happens, the oldest markets in your portfolio turn green first, in our case it is India, West Asia and Southeast Asia. Though our timelines here also got delayed due to us launching our food ordering business, we recovered money from advertisements.''
On at least 300 persons losing their jobs last year, the CEO said, "Laying off people had nothing to do with Zomato's performance - it was a way to make our operations better. Many were given a choice to join other teams, some took it while others did not."
The other co-founder, Chaddah, who's managing the online ordering business, had earlier spoken of a major reason for the lay-offs. The company realised that the investment made in collecting restaurant-related information through walking the high streets in many cities around the world was not adding value as most of the content was available online. "That resulted in lay-offs primarily in content operation." Also, the company had restructured its operations and shut down verticals in the last seven years, he said, but it had never happened at such a huge scale. "This is what caught everyone's attention.''
A silent year
Meanwhile, the food tech industry is bleeding as analysts point out that "too many me-too food apps have crowded this space….a consolidation has to happen.'' In fact, there are signs that 2016 won't see many new food tech companies coming in-this will be a year when investors would look for true innovation among start-ups.
Foodpanda, among the top competition for Zomato, recently dismissed the rumours that it was on the block though. Saurabh Kochhar, CEO of Foodpanda India, said in a recent interview to Business Standard that the company was the leader in the food order and delivery category and had no plans to exit from India. "It is a $300 billion market, we are planning to play a much bigger role and stay the market leader. We are not selling out,'' Kochhar said. This Rocket Internet- and Goldman Sachs-backed food tech startup too is looking at profitability by 2018-19, which is still a long way off.
So, at this point, if Zomato's claims of operational profitability around June to September translate into reality, it could well be a first case study for financial turnaround in an industry filled with bad news.
Chaddah had prophetically said in January that "the pain has been long over for Zomato''. But it is not yet over for the industry. One of Zomato's rivals could be wiped out completely and two others were likely to be acquired, he said. "In terms of consumption, a lot of players who grew quickly in the beginning did a good job of educating the users with discounts… Sadly, it did not work as they were creating unsustainable businesses. As a consequence of that, I see a couple of businesses folding up soon.''
Acquisition could be on the cards too for Zomato as it goes on to raise another round of fresh funds. But not just now. Goyal said, "not for the next six months… we want to focus on widening our profits in a few more countries. We want to reinforce our business in the places we already are in.''
Even as Goyal does not want to go wrong in the road to profitability, with doubling of revenues and traffic as the prime goal, he must be mindful of what he had written to his sales team recently: this business was more like a marathon, rather than a sprint.
Karan Choudhury contributed to this report
