Zomato founder and CEO Deepinder Goyal, in an earnings conference call hosted last week by its investor Info Edge, said that, though there are three players in restaurant food delivery in India, he doesn’t think they have more than 6 to 9 months left; this is in response to a question about the few food delivery players which had faced issues last year, to which he said: “Those who shutdown never really had marketshare to begin with. With the other guys, the way the others are working. I don’t think they have more than 6-9 months left,” he said. It’s worth noting that Swiggy raised $35 million in January, and possibly another $7 million since. Goyal highlighted issues with food delivery (detailed below), saying that it’s loss-making to run an operation where the restaurant isn’t delivering. He said that Zomato is “Working very closely with partners to build tech and efficiency to get into the green. Making last mile logistics in the food space work is very very hard.”
Zomato reported Rs 492 crores of losses on revenues of Rs 185 crore for the financial year ended March 2016. On the Info Edge conference call, its co-founder Sanjeev Bikhchandani said that they expect Zomato to double revenues this year. Goyal said that they’ve seen a doubling of revenue over the last six months, while bringing costs down.
Speaking of competition, Goyal added that, “There are a couple of players bigger than us when it comes to order volume but their average order values are much lower. Their average is Rs 275, while ours is Rs 480. They would have 25-30% more volumes than us. We are the largest in terms of GMV. You also have to understand that the classifieds business is a winner takes all market, and the online food delivery is not a winner takes all market.”
Some notes from the concall, based on what Goyal said:
- Zomato has $35 million cash in bank. Might break even in 9 months or less.
- Burn is down to $1.6-1.7 million per month: “Our burn rate peaked at $9 million sometime last year. Right now, in May, our operating burn will be $1.6 to $1.7 million dollars.”
- Zomato doesn’t spend on marketing, but…“Our marketing budget across the world was $25,000 last month.” Zomato ran an outdoor marketing campaign recently for 20 days, because “We have 8.5 million monthly unique from India and they weren’t aware that they could order from Zomato”.
- Headcount: around 1,900 people across the word, of which India has 1,250.
- India Monthly Active Users are 8.5 million. 2.5% of them have started placing orders online.
- 400,000 app downloads last month
- Revenue split: “In the last financial ear, India was 45%, UAE was 20%. The rest of it from all other countries. As of May, India and UAE are around 58%, and its dropping in share by 2 percentage points every month, because the other markets are going much faster because they have a smaller base. That doesn’t mean that India and UAE are slowing down: they’re also growing, but on a large base.”
Quotable quote: “Comscore is very 1990.”
- “food delivery is 30% month on month.”
- Revenue contribution: In India, 20% of revenue in the last month is from delivery. Overall is around 7%.
- Take Rate in terms of restaurant delivery is 8.2%. The larger chains and QSR are in the lower end, maybe a 6 or 7%. The bigger restaurants have bigger margins and they’re able to give us more. The Indian user is gravitating more towards choice and they don’t want to go to the same place over and over.
- Average orders per day: monthly growth rate in order business is 30%. Daily average is 25,000-26,000 orders.
- Average order value is Rs 480, down from Rs 575 because: “We have restaurants who are discounting on a realtime basis. We do not offer any discounts to our users. The percentage discounted by us is less than 2%. We have 27% of orders placed through Zomato with some kind of discount.”
- “India delivery business is around 20% of our India revenue.”
- Contribution margin of Rs 20 in India: The best part of it is that the unit economics are positive. We make around Rs 20 contribution margin on all orders in India, and Rs 50 contribution margin in all our orders in the UAE. Our average order value in this business is more than 1.5 times the size of competition, which makes our business a lot more viable. This makes us the largest player by GMV in both these countries.”
- Average delivery time: “For these 80% orders delivered by restaurants, our average delivery time for the restaurant delivery orders is 38 minutes, and within + or 1 or two minutes of the aggregators who do deliveries on their own.
- Contribution margin: “We make Rs 20 odd rupees as a contribution margin net after everything on our online order business in India. For the 20% of orders, where we have delivery partners, we do negative Rs 2 (as contribution margin). We lose money, in spite of the fact that we’ve outsourced delivery to someone else. The delivery boys of that company only do food during lunch and dinner, and do ecommerce delivery during the rest of the day. Even those guys, our delivery partners, are not able to make this work very well at a unit economics level. There will be scale advantages when it comes to logistics. But will it get to the Rs 20 margin? I don’t see any path to that if we do delivery on our own or outsource delivery. The restaurants know their local area very well, and they are best equipped to do delivery on their own.”
- Marketshare: “Anecdotally, when we check with restaurant owners about how much traffic we are driving for them vis-a-vis other players in the market, we are easily above 75% for restaurants. For some large chains, for whom we drive 60% of their delivery business. The marketshare, not just in terms of delivery but also footfalls, is very very high. It’s hard for me to put a number to it, but we’re not facing any marketshare problems. “
- Nature of the delivery business: “Of all the orders we do right now, 80% are delivered by restaurants, and 20% are delivered by us through our logistics partners. The reason why any new delivery aggregator would want to do delivery on their own is that they don’t get restaurants to play ball with them. I had a food delivery business in 2005. The biggest problem that we used to face was that restaurants used to de-prioritize the orders. First of all we used pay a take rate, a commission on those orders. Secondly, it’s not your customer calling up, it’s an aggregators customer. You would have a very low quality of service. If Zomato had gotten into food delivery business in 2009-10, we would have the same problem and we would have to have our own last mile to solve this issue.”
- Restaurants won’t mess with Zomato orders: “Right now in 2016, we drive a large chunk of the restaurant business, and our reviews platform is a very powerful platform. It gives us a lot of leverage over the mindset of a small business owner. If a restaurant is getting three phone orders and one from Zomato, in most cases, our order is on higher priority, because the restaurant knows that if the service is going to be bad, he’ll get a bad review on Zomato from the customer, and this will hurt them in the longer term.”
- How orders work: “80% of our orders are completely automated. The user places an order, the phone we have placed at restaurant rings. 20% of the orders are still supported by the call center. Sometimes the device is not working: the phone might be out of charge, or the telecom networks aren’t reliable. The restaurant order volume is low and it is not cost effective for us to put a device and incur a data cost. Typically, whenever a user places an order, the order gets accepted by the restaurant in 30 seconds. We don’t have any manual intervention.”
- Customer support issues: “We have customer support issues with 4% of the orders: if it’s late, canceled or they want to change the order. That issue is going down. We’ve given the restaurant an app so they can tell us an item is out of stock.”
- Delivery in other markets?
- Launched delivery in Philippines
- Australia and New Zealand: “While we are the market leaders in Australia and NZ, there is 6 or 12 months to go till get the traffic to do these things efficiently.” “Australia, nobody orders food. The largest player in Australia has been there for 7-8 years, and their volumes are the same as our India volumes.”
- Partnerships in Turkey: “We are also the market leader in Turkey in the classifieds space, but we have a very large competitor in the delivery space. It would be foolish for us to fight that competitor. The kind of approach we’re taking in Turkey is that we want to partner with them, and build an ecosystem, rather than say that everything is my turf and I’m going to do everything on my own.”
India listings & advertising business
- “Our advertising business is growing at 11% month on month”
- “We have 70,000 listings in India, and paid listings are close to 6%”
- Market penetration: Delhi has about 10% penetration when it comes to restaurants. All kinds of averages lie. You have to split every city into neighbourhoods and see how long has the sales team has been here and what kind of business we get. Places like Hauz Khas in Delhi, we’ve been selling for a long time. More than 50% of listings here are advertising with us. 65% of restaurants in Pitampura advertise with us. It’s not a night-life kind of a neighbourhood. We have just scraped the tip of the iceberg when it comes to ad monetization and there’s a lot more room to grow, even in India. We have been smarter and smarter on ad monetization. Chains like Dominos etc, they spend 40% of the restaurant advertising spend in the country, and they are 2% of our revenue. We’ve very recently aligned the team and advertising products to be able to go after these market segments aggressively.”
- Profitability? “The advertising business is very very profitable. In terms of margins: lets say the fully loaded cost of an ad sales person is X, including the salary, the incentives, the phone bill etc. It’s typically 5x that in the Indian market. The same number applies to the UAE, even if the cost of sales person is higher, because the revenues per advertiser are also higher. Gross margin is 75-80% on fully loaded cost of sales is what we aim to get to when we are highly penetrated in a market. When we are dominant, but we don’t have that much traffic, we would still do around a 50-60% gross margin, and getting to 70-80% should be a year or a couple of years.
Table Reservations and Point of Sales
- To expand table reservations rapidly in India, UAE: We are going to expand a little more rapidly in that area this summer, in key markets in India and UAE.
- Don’t want to do an enterprise model with Base: “Base, the point of sales system is more or less R&D for us. We acquired MapleGraph last year. We are working with some very important restaurants in Delhi, and we learn from the way they use it. We don’t want to run an enterprise software business like an enterprise software business: we want to see if we can get consumer type scale with an enterprise software. If we go down the path of a SaaS business, it will help for small businesses, but I don’t think thats’s something we know how to do.
Something we noticed: Goyal mentioned four times that Zomato acquired Urbanspoon for the Australia market, not for the US. This happens every call.
– Zomato pulled out of 9 countries: Zomato has “withdrawn from 9 countries, where we weren’t market leaders. There were going to be lots of losses, and the incubation period was going to be long 1-2 years.” They’ve pulled out of the US, Chile, UK, Ireland, Sri Lanka (the market size was too small).
Will they go back? “Lets say in 12-18 months, we don’t know how long this model will skip over the model gets over the monetization threshold: then getting the team back on the street in those markets is not off the table, because that would be a low investment mode to get into that market.”
– On managing remotely: “We learned the way of doing this from Urbanspoon, which did not have a feet on street model. Urbanspoon was #1 in Australia by a huge margin without ever setting foot there.”
“(By working remotely) we cut down on high burn and high risk areas, in terms of cash and management time. We optimized on management time and cash. We have a team in India, but don’t have any employees in the country (where they work remotely). It’s around 60-70% as effective as having feet on street, but we are doing a better job as compared to our competition, except in the US. The US is a completely different ball game.”
Yelp vs Zomato and JustEat vs Zomato: “Yelp’s restaurant listing traffic in the US is clearly more than double of us. They are the clear market leader in the US. JustEat, in the transactions space is not a direct competition for us in the listing space. US and UK are not the true focus markets for us.”
(Updates: A couple of typos fixed)