pankaj chaddah

By Pankaj Chaddah, co-founder of Zomato

We were primarily a content/media product company until we launched our online ordering (delivery) service. We weren’t a newcomer in the space, back in 2005, Deepinder (Zomato’s founder & CEO) launched what was probably India’s first online food delivery site, named Foodlet.

Our new online food ordering business has been one of our steepest learning curves. While we had learned our fair share of what to do and what not to do by observing other players in the space, most of our learning has come by doing.

Two million orders and thousands of customers on, this post is to put forth some of our key learnings (new ones and reinforcements) from our online food ordering business.

Focus on customer delight and cohorts

We’ve worked hard to minimise our order failure rate (orders which don’t get delivered for one reason or another) to well below 0.5% now. We’ve also made our support team easy to access via a chat feature, built right into our app. It saves customers the hassle of making phone calls for any kind of order query or request.

The frequency of orders has grown exponentially for returning customers. In India, the order frequency for retained customers has increased 2x from 1.5 in June 2015 to 3.2 in January 2016, while in the UAE, frequency has increased 4x from 1.6 in September 2015 to 5.1 in January 2016.

tumblr_inline_o4y6w9xlLw1u5t4gx_500

A low-spending customer will always be a low-spending customer

We ran the numbers on the first-order value for a group of customers to see if we could predict the basket size for their future orders, and found that the value of the first order does define how much those customers will spend in the future. A staggering ~70% of the customers whose first order was lower than Rs 200 have not spent more than Rs 300 on future orders.

This trend becomes especially relevant if you are luring customers to your platform by running offers that drive the cost of a meal below the Rs 300 mark, and then taking on the cost of delivering the meal yourself. Customers might love it, but it’s a double whammy – they end up spending less on future orders, and it hits the unit economics hard. Even if you aren’t doing the last-mile delivery yourself, it’s very hard to make a single penny out of an order up to Rs 300 value.

Focus on valuable volume

The only way to counter the trend of low-value first orders is to have a large enough number of high order value restaurants that can balance out the economics. Our Average Order Value (AOV) is very high (Rs 500 ($7.5)) in India and UAE (AED 60 ($17)), because we’ve focused on partnering with a mix of restaurants across the price spectrum. This way, the economics balance out if we have a small number of customers ordering a meal for one with a relatively lower AOV.

Burning money in an unreasonable way to grow the business doesn’t make sense. Competition is tough, but positive unit economics are necessary for any business to scale. Building companies on negative unit economics is an unproven concept, and has far too many disasters associated to it.

Don’t set expectations you can’t sustain

You can’t promise 30-minute delivery with no-questions-asked refunds for orders below Rs 500 – that’s like trying to provide Taj-quality services at corner-sweet-shop prices. It is important and sensible to set real and sustainable expectations with customers. And while some of these pain points can be solved with tech, using brute force and money to try and provide a differentiated level of service can only last as long as the money in the bank.

We recently deployed a self-learning algorithm that predicts how long it might take for a restaurant to deliver to a specific location at a certain hour. When customers in that location are browsing restaurants they can order from, we show restaurants that will deliver food to them the fastest first. This (and some other cool tech) brought our average delivery time down to 38 minutes over three months.

Ask yourself a question – what’s your unfair advantage?

Our unfair advantage is our traffic from our search and discovery business, which we’ve spent years building. It’s given us a large number of users we can gradually start moving from using Zomato to just search for restaurants, to ordering from them online. This directly affects our Customer Acquisition Cost (CAC), which works out to near-zero ($0.07 at the time of writing this).

Zomato users call restaurants through Zomato to place a food order 200,000 times every day – our aim is to convert a significant number of those to online orders relatively quickly. Of the 10 million monthly active uniques in India and the UAE – the two markets where we have launched online ordering – less than 2% are currently ordering online on Zomato. So there is room to grow 50x within Zomato before we need to go acquire new customers.

Money is never an unfair advantage unless you have orders of magnitude of it greater than your competitors. Even then, the service you provide needs to be of the highest quality, or you will get killed by the marketplace.

The restaurant is as important as the customer

We approach restaurant partners with the understanding that our relationship with them will go beyond the transaction. It’s straightforward – if restaurants succeed, so do we. Our classifieds business gave us very clear indicators of where the customer interest was, and how we could expect a restaurant to perform. We have dedicated account managers working closely with our restaurant partners to ensure their growth – this has helped increase our order acceptance rates from 87% to ~95%.

Bringing high-potential restaurants on board has been a key growth driver for us, and they are seeing the results too – as of today, over 3,000 of our partner restaurants are receiving at least 30 online orders a month via Zomato.

Most restaurants in India already use the Zomato for Business app to reply to reviews, and update information in real time. We’ve added a feature to let them post deals that help them boost their order volume. Most of the offers on Zomato Order are posted by the merchants; and ~25% of all online orders on Zomato have an offer applied to them. In fact, Zomato might already have the largest number of restaurant deals and offers without creating a separate deals platform.

Every day should be better than yesterday

Of all our teams at Zomato, our order team possibly iterates the most on a daily basis. The only way to stay ahead of the game is to continuously improve various things we do every day. There are various vectors in this business, and often, improving one ends up compromising another. The trick is to find the right balance which is sustainable for the business.

***

Read the original post on Zomato’s blog herePankaj Chaddah is Zomato’s co-founder along with Deepinder Goyal.

Middle graph credit: Zomato