Deepinder Goyal, founder and CEO of restaurant search and food delivery startup, Zomato (Image:... [+]
India’s largest restaurant search and food delivery startup, Zomato, announced early this week that it has broken even in several big markets - including India - and will hit profitability by mid-2016.
When it does so, Zomato will be the first Indian e-commerce unicorn to become profitable, a significant milestone in a market where Indian startups are finding it quite challenging to lure investors for subsequent rounds because none of them are close to profitability. The Gurgaon, New Delhi-based Zomato is valued at just over $1 billion and its backers include Sequoia Capital, Singapore government’s Temasek Holdings and Indian ecommerce player, Info Edge.
“We don’t need funding to keep our lights on,” said Deepinder Goyal, 33, founder and CEO of Zomato whose tagline is “Never have a bad meal”. The startup is preparing to raise another round of funding, about $200 million, in April to expand its food delivery service. Investors like China's Baidu are reportedly looking at Zomato.
“Our unwavering focus is on making money. The bulk of our revenues comes from advertising and we have doubled our ad revenues in the last four months while keeping costs stable,” said Goyal, a former Bain & Co executive who set up Zomato as a restaurant search service in 2008 by scanning and putting restaurant menus online. Last year, it entered the food delivery business and table bookings.
Zomato said on Monday that it hit operational break-even in its biggest market India, as well as the UAE, Indonesia and three other Asian markets. Goyal said Zomato’s break-even has come from running a very tight ship. “We are not hiring for the moment, and we are keeping tabs on every little bit of spending we do.” He said Zomato is looking to double its monthly revenues in the next six months.
Zomato’s financial announcement is significant as global investors have poured billions of dollars in venture capital into Indian startups in the last couple of years. Most of the money has come on the basis of market potential. India with its 1.2 billion people became the world’s second-largest base of smartphone users last month after China, overtaking the United States. Investors are, however, beginning to ask tough questions about valuation and spending.
Zomato's healthy financials can mostly be attributed to the fact that the startup does not spend on either marketing or customer acquisitions, unlike other Indian unicorns Flipkart, Snapdeal and Paytm. Goyal described the business as content-driven, with very low customer acquisition costs. “Our competitors are burning $2-3 million a month on their food delivery businesses,” said Goyal. Zomato’s competitors include Rocket Internet’s Foodpanda and Accel Partners-backed Swiggy.
Many food delivery startups spend as much as $15 per customer as acquisition costs whereas Life Time Value (LTV), ecommerce jargon for net profit predicted on the entire future relationship with a customer, is about $4. Zomato said its customer acquisition cost is as low as $0.07 and it starts breaking even when the customer places the very first food delivery order.
Ecommerce startups in the food delivery segment have had a particularly harrowing 2015. Many have been forced to lay-off massively and shut down operations in smaller cities. Some food startups have shut down entirely and others have been accquired. Zomato too scaled back in four Indian cities and has laid off a few hundred employees last year. Its chief product officer Tanmay Saksena, a former Disney executive, quit recently.
The startup is India’s most global, listing 1.4 million restaurants in 23 countries. It has grown through acquisitions including American rival Urbanspoon last year.
