Zomato working on two new initiatives in bid to increase revenue and profitability

Zomato’s new initiatives—Zomato Red and Zomato Infrastructure Services— will be rolled out between February and June 2017

Zomato co-founder Deepinder Goyal. Photo: Ramesh Pathania/Mint
Zomato co-founder Deepinder Goyal. Photo: Ramesh Pathania/Mint

New Delhi: Zomato Media Pvt. Ltd is working on two new initiatives—Zomato Red and Zomato Infrastructure Services—to boost revenue and profitability as part of its plan to turn around the company.

Zomato, which generated net revenue of $4 million in October, is expected to reach annual sales of $50-60 million by March 2017, largely on the back of strong online delivery business and table reservation segment, co-founder and chief executive Deepinder Goyal said in an interview.

The new initiatives will be rolled out between February and June 2017, and Goyal expects these businesses to start contributing towards revenue by next year. “We expect to double our revenues for the next three years,” he added.

Under Zomato Infrastructure Services, the company will create kitchen spaces in areas where there isn’t adequate supply of good restaurants and will allow restaurants and iconic brands to prepare and deliver food exclusively for Zomato through these kitchens.

Zomato will invest in the infrastructure right from kitchen to last mile delivery and will ask restaurants for commission (as high as 35%) on every order delivered through these kitchens. The initiative will initially be tested in Gurgaon, where the company has taken up about 8,200 sq. ft with the capacity to house as many as eight kitchens.

This will slowly be rolled out to Tier 2-3 markets, where consumers do not have access to big brands and restaurant chains. The company is looking to invest about $2-3 million towards the initiative and expects a recovery period of six months before the investment starts generating cash for the company.

“We are already talking to restaurants and they are showing immense interest. The whole idea is to take iconic brands to cities and areas where they are not available,” Goyal said, adding the biggest challenge restaurants face while scaling is the cost of investment per kitchen.

“Also, we have enough data to predict which areas have demand for what kind of food. We will use that data to bring different cuisines and brands under one kitchen.” Goyal did not disclose the name of restaurants as the discussions are under way.

Zomato will also roll out a membership feature called Zomato Red allowing consumers to buy a yearly/semi-annual subscription to get exclusive offers like happy hours for drinks at various pubs and restaurants. The feature will be first rolled out in Dubai and Lisbon (Portugal) starting January and will be introduced in India by March 2017.

Zomato Red will help the company strengthen its brand and build a loyalty programme that will increase repeat orders especially at a time when Zomato is facing stiff competition from Bengaluru-based Swiggy in the food ordering space. Zomato is currently looking to raise fresh capital in order to support growth in existing and new business with focus on food ordering. 

Founded in 2008 by Goyal and Pankaj Chaddah, Zomato is backed by Info Edge, Singapore’s Temasek Holdings Pte, Sequoia, and Vy Capital. The company was valued at a billion dollars in September when it raised $60 million in fresh capital, largely from Temasek.

The company had attracted a lot of attention during the last 10 months due to its high burn rate and as losses mounted to Rs492 crore (loss before tax) for the year ended March 2015.

However, Goyal claims that the company has now brought its cash burn down to below a million dollars.

The company is now focusing on key markets including India, the Middle East, Australia and New Zealand among others and will look to strengthen its presence in these markets rather than expand into newer markets.

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