Entrepreneurship is a long and ardent journey. It requires unflinching faith, ambition, focus and sheer hard work amongst other traits to make a dent in status quo and keeping users hooked to a consumer product over years. Maintaining a compelling element for users is something that differentiates a great company from mediocre.
There are very few private consumer internet startups that have been able to carry their mojo after being in the business for over 10 years. One of the companies in such list is Zomato. In this second part of the #DecaUp series (read the first series here), we will walk through the journey of Zomato that started on 26 January 2008.
Initial six-star growth delivery
During his stint at Bain & Co, Deepinder Goyal realised the need of online directory for restaurant menus. Soon, he along with his wife started collecting menus and uploading them online. Back then, the platform was called foodlet.in however in a couple of weeks, it got renamed to foodiebay.com.
Five months later (in July 2008), Goyal had convinced his Bain & Co colleague and foosball partner Pankaj Chaddah to work on Foodiebay. The duo worked on the product on weekends while working with the consulting firm.
Around the beginning of 2010, they left Bain & Co and raised a small angel round from friends. By then, Foodiebay had operations in four cities – Mumbai, Delhi, Kolkata, and Pune. After six months of working full time on the product, the duo managed to raise $1 million seed round from Info Edge.
With first ever institutional round, Foodiebay again went through a rebranding. The interesting reason behind the same was a coincidence where Foodiebay had ‘ebay’ as a suffix and it could be a potential violation of copyright. Hence, the new name – Zomato.
In fact, the company did receive a legal notice from eBay over trademarks and domain names just after a couple of weeks of rebranding.
Charting out growth for Zomato, the duo kept entering new cities in India and evolved as discovery, rating and advertising platform for restaurants. It grew at a breakneck speed in 2012. From 1 million monthly unique visitors in 2011, the company had grown to 8 million unique visitors every month, by the end of 2012.
After hatching a global expansion plan, Zomato stepped out of home turf and set up initial international operations in Dubai. Since then, it went on expanding to 35 cities across 11 countries in 2013.
Global ambition and sheer monopoly of Zomato in the home market had prompted Sequoia Capital to inject $37 million Series D round in November 2013. At that time, Zomato claimed 15 million monthly visitors who were viewing scanned menu cards of about 1,60,000 restaurants.
For strengthening presence in offshore markets, Zomato acquired MenuMania (New Zealand) Lunchtime (Czech Republic), Obedovat (Slovakia), Gastronauci (Poland) and Cibando (Italy) in 2014. Post announcing the acquisition of UrbanSpoon at the beginning of 2015, Zomato began operations in the US.
Soon after US launch, Zomato had raised $50 million round from Info Edge and Vy Capital. This round also catapulted the company into the covetous club of Unicorn. Meanwhile, its acquisition spree continued in the US as it acquired Nextable to compete against the likes of Priceline’s OpenTable and SeatMe by Yelp.
Few faults in the order
Aggressive expansion and acquisition had started backfiring for the company by the last quarter of CY15. Zomato had laid off about 300 people (10 per cent of its total workforce). While the company had grown immensely in 2015, the revenue graph (see the below illustration) shows a different story.
We can see how Zomato’s financial performance improved exponentially, but mostly in FY16. For FY18, while the financials are yet to be filed, the turnover is reportedly Rs 481 crore and the cash burn is Rs 71.58 crore.
On the international front, by 2015, Zomato had expanded into 23 countries and boasted of market dominance in a dozen out of those. However, by 2016, Zomato had pulled back operations from 14 countries. It rolled back from the US market due to unsatisfactory results, while the pullout from countries like Chile, the UK, Ireland, and Sri Lanka was attributed to the small market size.
The insight behind this move comes to light when Deepinder Goyal mentioned how the rollback brought down Zomato burn rate from $9 million to $1.65 million. Moreover, the revenue pattern of Zomato also showed how 65 per cent of turnover was contributed only by India and Dubai, and rest of the 22 countries only generated 35 per cent of the revenue for the company in FY16.
Around the same time, funding in foodtech started drying up. Consequently, several startups including Spoonjoy, Eatlo, Dazo and Sequoia-backed TinyOwl had to shut down operations. The funding freeze also hit Zomato severely.
Zomato faced back to back markdowns by HSBC Securities and Capital Markets and equity research firm Jefferies. They almost halved Zomato’s valuation to $500 million it lost the Unicorn status.
Investors apathy towards the foodtech segment, company’s internal perils, and markdowns knocked off Zomato’s plan to raise fresh capital at $1 billion valuation.
Nevertheless, Zomato and its early backer Info Edge didn’t agree with the methodology followed while evaluating the company’s valuation.
Zomato debut into online ordering: Change in the recipe
By the beginning of 2015, online ordering had witnessed the entry of companies such as Swiggy and TinyOwl. Gradually, Zomato started feeling fear of missing out (FOMO) and ultimately began delivering food leveraging third-party logistics in August 2014.
Before its entry into online ordering, Zomato always maintained that it didn’t want to facilitate logistics solution to restaurant partners. However, Swiggy was growing fast and drawing the interest of several investors including SAIF Partners, Accel Partners, Bessemer and Norwest Venture Partners.
The formidable rise of Swiggy and back to back funding rounds in the Bengaluru-based company had triggered Zomato to ramp up its online ordering vertical. After a year of launch, Zomato hit 1 million monthly order mark in September 2016 and another 8 months to cross 2 million orders in April 2017.
The spike in online ordering business and realignment of focus made Sequoia pour in another $20 million in April last year. Eyeing its own fleet of delivery boys for better fulfillment, Zomato had acquired Sequoia and Nexus backed Runnr in an all-stock deal worth $20 million.
Differentiating its offering from rival Swiggy, Zomato launched a slew of loyalty programmes including Treat, Gold, and Piggybank. Of late, Gold and Piggybank have been garnering decent interest from users.
Hitting the right taste buds
Unlike most internet tech companies in the startup segment, instead of using the traditional ways of advertisement and business promotion, Zomato created its own blog, namely Zomato Blog, in 2011. The majority of the company’s communication with the media and its consumers took place via the blog, and most of the company articles were published by/on behalf of Goyal. Chaddah, the other co-founder, seldom interacted with media on behalf of the company.
Further, the promotional techniques used by the company heavily takes references from the pop culture to target the youth and the millennials and keep them engaged, as they comprise the major share of their consumer base.
The segment taking up the largest amount in expenses, unlike many other companies (for example Quikr), has never been promotional expenses.
Order on its way: Zomato and Indian food delivery space
Battle of foodtech is currently being played out between Zomato and Swiggy. While Swiggy has a pole position in online ordering segment, Zomato is also catching on quickly. Swiggy delivers about 17 million orders a month; Zomato claims 13 million monthly order run rate.
Both companies have been raking up huge investments from global heavyweights. Swiggy alone had raised about $310 million this year while Zomato clinched a $200 million round from the likes of AliPay.
Meanwhile, just after raising a mega-round, Chaddah announced the end of his inning at Zomato. Although his departure was planned, it came as a sort of surprise for media and analysts.
Eyeing a loyal customer base over rivals, Zomato has tacitly been using a slew of loyalty programmes including Gold, Treat and Piggybank. All these products counted successful experiments as they let users end up saving money, enjoy freebies, and exclusive offers and discounts.
Using various methods like loyalty programmes. Recently, it expressed interest in entering farm to folk segment, which is yet to be touched by any food tech firm in India.
Hunger isn’t over: Zomato eats on its T&C
Of course, Zomato is one of the most loved product companies in the country. Over the course of 10 years, it’s the only company to demonstrate true global ambition from India. However, the platform seems to have been focusing more on local online ordering space as the market is poised to grow to $29 billion by 2021 with the number of orders going up to 51 million on a monthly basis.
Zomato was not able to raise fund in 2016 on the $1 billion valuation it reached in 2015, about a year later it raised a $20 million round led by Sequoia and was still valued $1 billion. Earlier this year, when Alipay put in $200 million round in the company, it was valued $1.1 billion.
Refusal of Goyal for raising a down round is the testimony to his strong belief in the product and team. It’s very rare that large Indian startup raises a round on its own terms and conditions after experiencing a lukewarm response from investors.
Besides e-commerce and digital payments, foodtech segment would see a lot of competition in coming years. Zomato, Swiggy, and foodpanda would fight for supremacy for many years from now. Since online ordering wasn’t in DNA of Zomato, it would be interesting to see how Zomato lives up to the expectation set by itself and backers such as AliPay.