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Chasing profit, Zomato says discounts not easy on food orders

business Updated: Dec 23, 2015 00:48 IST
Sunny Sen
Sunny Sen
Hindustan Times

Zomato founders Deepinder Goyal and Pankaj Chaddah at their office in Gurgaon.(HT File Photo)

On October 7, Deepinder Goyal, founder and CEO of online food search and order platform Zomato, met with the founders of Pickingo, an online food delivery outfit in which he wanted to invest. The meeting revealed that Pickingo had no money to pay its vendors, nor employees.

“We will pay when you give us the money,” Pickingo founders told Goyal.

Goyal pulled out of the deal.

Some of the best-known start-ups make losses. Zomato’s rivals in delivery, Foodpanda and TinyOwl, are both in precarious financial health. And Pickingo did find another buyer, Shadowfax, which too is into local deliveries.

However, Goyal would have none of it. “We will be profitable at the operating level across geographies, across businesses by June 2016,” he told HT. The part about geographies is important: Zomato is in 22 countries.

In Goyal’s favour is Zomato’s large average size of order: Rs 600. It ranged between Rs 220 and Rs 250 for those that are struggling. But, instead of basking in it, Goyal is tightening his belt.

To begin with, he is going against the grain of e-commerce in India by looking down on discounts. “The food business cannot run on a discounting model like apparel, which has high margins,” he says.

Food ordering and delivery has fixed cost — Rs 35 for each order — and margins, which is a slim 8% to 10%, which get further emaciated by discounts, promotions and operational expenses. On an order size of Rs 600, Zomato makes Rs 60. That keeps it in good stead even though its volumes, at 10,000 deliveries a day, are much smaller than what some others delivered.

A tighter belt also means Zomato is not running in every direction. Although its restaurant listing business is running in 22 countries, it takes food orders only in 14 cities — all of them in India.

Then why did Zomato have to fire 300 employees? “There was no downsizing of the sales team, it was the content team that did not need so many people. We placed 100 of them in other departments but had to let go of the rest,” Goyal says.

There wouldn’t be much ground to fire the sales team. Revenue has doubled in the last three months, and Goyal hopes to double them again in the next three.