7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

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How Zomato managed to survive the carnage in the

foodtech sector
BY RAJIV SINGH, ET BUREAU | JUL 23, 2017, 06.27 AM IST Post a Comment

Last May, HSBC Securities and Capital Markets (India) slashed Zomatos valuation by half
to $500 million. A billion-dollar valuation didnt make much sense to the analysts as the
restaurant search, discovery and food delivery services overseas operations were deep in
the red: for fiscal year 2015-16, Zomato had a net loss of Rs 590 crore. To address
investments in last-mile delivery and losses in international operations, the report said,
fundraising will need to be a continuous phenomenon. In one stroke, the unicorn tag was
snatched away from Zomato which, by then, had spread across 23 countries.

For Deepinder Goyal, the markdown didnt make much sense. For one, the Zomato
founder told ET Magazine in his first interaction with the press since the re-rating
that the nine-year-old foodtech venture was never a unicorn. We never hit a $1 billion We have enough money in the bank we are not
valuation. Zomato last raised money at a valuation of $960 million. We fell short by $40 dying, said Deepinder Goyal.

million, winks Goyal.

Related
Yet, the apparent erosion in value, by $460 million, was a worry, which prodded Goyal and
Foodtech a hard space to execute and
his team to hunker down, maintain a low profile and set things right. Not that he agrees build a business: Zomato founder
with HSBCs valuation. Deepinder Goyal

Big Change:
The end of Five-Year Plans: All you need to know

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

They dont even know our business, and they are not our investors. That Goyal thought the report to be fallacious mattered little on
social media (and other media, too). The underlying message of the report wasnt subtle: Zomato was on a rapid slide from unicorn to
unicorpse.

Well, even my driver, like HSBC, thinks there is no value, grins Goyal, ensconced in his chair at his corporate office in Gurgaon on a
muggy July afternoon. But that does not matter, he says, his voice trailing off as he plays back the memories of the markdown.
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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

The damage was considerable. For six months, recruitment was a struggle, and employees began to doubt. It made life tough for us,
recalls Goyal.

The Vanishing Unicorn

Much has changed since last May, says Goyal. Glued to his smartphone, his fingers incessantly pounding the keypad to answer a flurry
of WhatsApp messages, he questions the need to continuously raise funds. Zomato, he says, last raised money in September 2015.
We have enough money in the bank we are not dying, he thunders. The next question is predictable. But you are still not a unicorn,
are you? The answer isnt as obvious. The unicorn tag doesnt matter. Zomato must be a billion dollars in revenue, not in valuation.

For somebody who once proudly remarked that there are enough analysts, VCs and founders who called Zomato the only defensible
Indian unicorn, the term conjures nothing but disdain now. Its a faulty parameter, shrugs Goyal, to gauge success. For the entrepreneur
who a year back passionately argued against the HSBC markdown by penning a blog titled Unicorn or not, the tag has lost its sheen.

There was a silver lining, though. The valuation bashing made Goyal muse on an ancient saying: There are multiple ways to come
down from Mount Fuji, but there is only one way up. He remained silent, worked diligently and executed relentlessly. We survived, he
says, letting the numbers do the talking.

An operating revenue of Rs 97 crore in fiscal 2015 has more than trebled to Rs 334 crore in two years.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

Operating losses are down from Rs 425 in fiscal 2016 to Rs 101 crore in fiscal 2017. Cash burn has been slashed. From an annual
operating burn of Rs 411 crore in fiscal 2016 and a peak of Rs 57 crore per month in the first quarter of that year, it plunged to Rs 77
crore in fiscal 2017.

Goyal claims Zomato is on its way to breaking even, though it may be some time away. The net loss has come down by Rs 200 crore,
but its still at Rs 389 crore.

Yet, Goyal seems to have settled a score with HSBC. The report sounded a word of caution that unless Zomato leads in last-mile
delivery, it will find it tough to retain market share, especially against rising competition from rival Swiggy, which has been raising funds
at regular intervals.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

Two years down the line, Goyal says Zomato is closing in on Swiggy. From 20,000 daily orders in April last year, as against Swiggys
reported 36,000, Zomato claims to have done 80,000 this April as against Swiggys 89,000. ET Magazine could not independently verify
the numbers; a Swiggy spokesperson was not available for comment.

Info Edge, the largest investor in Zomato with over 46% stake, backs Goyals claims. In an investor conference call in May, Sanjeev
Bikhchandani, founder of Info Edge, declared the company is close to breaking even.

High growth continues, burn is low, they have enough cash to last out and they could break even, according to them (Zomato),
whenever they want, Bikhchandani had said. In the last financial year, he continued, the online ordering business grew faster than the
advertising sales business. On online ordering, Zomato is leader by value in India, he added.

Runnr in the Kitty, Valets Ready

Meanwhile, Goyal is preparing a blueprint to build a differentiated kind of delivery model. Zomato, which was in the fray with rival
UberEats to buy Bengaluru-based food delivery startup Runnr, has clinched the deal and will soon make an announcement, claims
Goyal. The acquisition, adds Goyal, will pave the way for rolling out a new service, Zomato Valet, from Delhi. A premium food delivery
service, Valet will focus on highvalue restaurants that dont deliver food on their own.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

K Ganesh, partner in GrowthStory and promoter of FreshMenu and HungerBox, says Zomatos huge customer traffic and brand tie-ups
with most restaurants ensure that it is in great shape in the foodtech segment. He estimates the number of deliveries per day of all
players at 150,000-200,000, with the potential to hit the 1 million mark per day. This would translate into revenues of Rs 2-3 crore daily,
even if the minimum average order is just Rs 20-30. Despite the foodtech segment attracting huge funding, resorting to heavy
discounting and seeing big shutdowns over the last two years, it remains a large and potentially lucrative segment, says Ganesh. If they
(Zomato) get their delivery experience to the same level as product experience, they can really nail it.

Till 2014, food delivery wasnt on Zomatos radar, content as Goyal was to be a restaurant search and discovery portal. That changed on
January 26, 2015, when Goyal decided to celebrate his birthday by taking his wife and kid out for breakfast. The celebratory mood soon
turned sombre when Goyal got to know that rival Foodpanda had acquired a slew of delivery startups such as TastyKhana and Just Eat
India. Goyal had till then looked at food delivery as a chicken-and cover egg problem as its tough to figure out who to rope in first:
restaurants or consumers.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

That dilemma went out of the window when he realised that Foodpanda had both scale and numbers in this segment. Zomato was left
with no choice but to step on the gas. A small team writing codes for food delivery was asked to speed up and, within a few days, the
startup started delivering.

Yet, Zomato was relatively late off the blocks in this business; the delay is attributed to the time taken to integrate American rival
Urbanspoon, which Zomato bought in January 2015.

In the three months following the launch of Zomatos food delivery arm, a score of foodtech companies got funded in India. It was like
waking up and getting to know that three startups got angel funding every day, recalls Goyal. Though he knew that the majority of them
would shutter, the buzz in the market was too loud to handle. But we stayed focused and executed.

Headcount has been trimmed: from 3,200 two years ago to 2,100 now. Advertising revenue has been rebooted, table reservation
launched and a cloud kitchen started in Dwarka in southwest Delhi. It has rolled out Zomato Gold, a membership programme for a
premium nightlife experience in Dubai and Abu Dhabi. Some of these moves seem to have paid off. Last February, the company
claimed it had achieved operational breakeven in several big markets, including India, UAE, Indonesia and three others in Asia.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

We have six restaurants operating in Dwarka, says Arvind Dixit, head of Zomato Infrastructure Services, adding that the cloud kitchen
has helped company scale the food delivery business. Dixit is now working on a proposal to rejig the business model so that restaurants
on board could have more skin in the game. One of the options being explored is letting the restaurants invest 25% of the capital
expenditure needed to set up the infrastructure.

Goyal attributes the low cost of customer acquisition as one of the main reasons for improved performance. Over $220 million, he
claims, has been spent on the food delivery sector, with the two largest rivals having pumped in $160 million. In contrast, Zomato spent
just $7 million on food delivery, he says. We have over 7,500 exclusive restaurants with us in India, and this number is growing by over
300 every day.

Though the going might have become a tad smooth for Indias largest restaurant search and food delivery venture, industry experts
sound a word of caution. The foodtech segment, they point out, has been a graveyard of some well-funded startups.

Take, for instance, TinyOwl, which raised over $27 million but was acquired by Bengaluru-based Roadrunnr last year yes, the same
company that Zomato is set to clinch.

Though the sector saw a dip in funding from a high of $220 million in 2015 to $131.2 million last year, investors are flocking back.

Till mid-July this year, the sector saw an investment of $117.8 million. But, clearly, most of those funds are being channelled into existing
ventures. From 675 new startups in 2015, the number dipped to 228 last year, and just 21 till mid-July this year. And at least 86 startups
shuttered last year.

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7/23/2017 How Zomato managed to survive the carnage in the foodtech sector - The Economic Times

Competitor in the Mirror is Closer ...

Zomato, says a top foodtech venture capitalist, requesting anonymity, must not underestimate its rivals, especially UberEats. Though
Uber might be having its own share of internal problems globally and a tough rival in Ola to contend with in India, it has the scale, reach,
wherewithal and deep pockets to emerge as a serious foodtech player. Writing off Uber can be shortsighted, he says, adding that
Zomato has another serious challenge to grapple with in securing its network.

In May this year, Zomato suffered a security breach, with over 17 million user records email addresses and hashed passwords
hacked from its database. Though Zomato moved swiftly to contain the damage by getting hold of the hacker and securing all
information, it did expose its chinks.

Goyal, for his part, is candid in accepting that he has had his share of mistakes, all stemming from his hustler mindset. We were
obsessed with expanding everywhere, he recalls, sharing an example. The company forayed into Sri Lanka, whose addressable market
is smaller than Indores.

Another mistake was rolling out food delivery operations in 14 cities in India to begin with. Within two months, operations in four were
shut down. The learning was quick: look before you leap.

The second learning? Hustle, on its own, is a bad word. Hustle has to be accompanied with intense thinking. A highbrow hustle, if you
will.

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