How a big cheque is imperative for Zomato to stay in the game

Photo: Mint

Online food ordering and discovery platform, Zomato, could not have got its big cheque at a more opportune time. The company, reportedly set to raise as much as $600 million led by existing investor Ant Financial, may now see its value zoom by over a billion dollars to over $3 billion.

Formerly known as Alipay, Ant Financial Services Group is an affiliate company of the Chinese Alibaba Group.

Industry observers say while there are no questions about the market opportunity and increasing acceptance of food delivery services, it’s a high cash burn business. Hence, a large cheque is imperative to stay in the game.

“Zomato will be back in the game with a bang with such a cheque. It shows people are confident about the business model and the company’s plans. Just like e-commerce or ride-hailing apps, food delivery is a two-player game now (with Zomato and Swiggy),” said Harish H.V., managing partner at ECube, an environmental, social and governance fund.

Last month, Zomato suspended its Infinity Dining programme, which allowed subscribers of Zomato’s Zomato Gold paid membership scheme to order unlimited food and beverages for a fixed price the company’s partner restaurants for a limited period of time. Zomato also had to let go of around 541 employees (or 10% of Zomato’s strength) across its customer support team in Gurugram, stating improvement in technology in areas such as after-sales support and other customer support-related functions.

That said, Zomato is locked in an expensive market share battle with Swiggy, which is showing no signs of letting up and has caused significantly higher losses at the two companies, owing to higher marketing spends, discounts and higher salaries.

Revenue of the company shot up from $68 million in FY18 to $206 million in FY19, while its losses stood at losses of about $294 million. The loss for FY18 was not disclosed. Its expenses skyrocketed at a much faster pace as it spent $500 million during FY19, a sixfold jump from the $80 million it spent in the previous year.

As of April 2019, Zomato’s food delivery business was operational in 500 cities in India. In H1FY20, Zomato completed around 214 million orders, compared to just 55 million orders in the same period last year.

Swiggy, on its part, has expanded its offerings beyond food delivery with Swiggy Stores and Swiggy Go. Swiggy also has offerings such as Swiggy Access (for restaurant partners) and Swiggy Daily ( subscription meals).

“I think to some extent, Zomato will produce better numbers than Swiggy, just because of its legacy. Also, Zomato has multiple use cases. One should not discount eating out. Zomato Gold has very large numbers,” said Lunia.

To be sure, Zomato has raised a total of $755.6 million in funding over 13 rounds (not including the $600 million, which is yet to be closed), according to Crunchbase estimates, and posted revenue of $206 million in FY19. Swiggy, on the other hand, raised a total of $1.5 billion in funding over 10 rounds and generated revenue of Swiggy’s revenue stood at 470 crore on a loss of 397.3 crore for the 2018 fiscal year.

This article was first published on livemint.com