Home/ Companies / Start-ups/  Zomato scales back operations in nine overseas markets

New Delhi: Zomato Media Pvt. Ltd has scaled back operations in nine of its 23 overseas markets, including the US, as the restaurant search and food ordering start-up looks to cut costs and conserve cash amid pressure to turn profitable.

In a conference call with analysts, Zomato co-founder and chief executive officer Deepinder Goyal said the company is no longer physically present in countries where it is not a market leader.

“We have taken a remote management approach in these markets. We do not have any physical presence, but we will continue to manage the operations out of our headquarters in India," Goyal said.

According to three people aware of the development, these markets include the US, UK, Italy, Sri Lanka, Ireland, Chile and Canada. Most Zomato employees in these markets have either left or been laid off. The three spoke on condition of anonymity.

Zomato later clarified that it no longer has local teams in seven markets: the US, Canada, UK, Ireland, Sri Lanka, Chile and Brazil. “While Italy and Slovakia are not effectively core focal markets for us, we do have on ground teams in both these markets," a company spokesperson said in an emailed response to Mint’s query.

The move to manage operations remotely is a departure from its original model of deploying its own staff to collect and publish content rather than crowd-source it. On multiple occasions, Zomato has attributed the quality of its content to this approach and claimed it to be the biggest differentiator against larger rival Yelp.

“We learnt this (remote management approach) from Urbanspoon. They did not have a fleet on street," said Goyal on the conference call.

The US has turned out to be an expensive bet for Zomato, which spent $60 million (of the total $225 million raised until now) to buy Urbanspoon and enter the market to take on Yelp in January 2015. Zomato had then said it would invest an additional $50 million in the US alone to overtake Yelp within 12 months.

Zomato was quick to realize that growth in US was coming at the expense of its business in the rest of the world, especially in India and the United Arab Emirates (UAE) where it was already a market leader. The realization made it step back in the US.

In October, Zomato cut 10% of its workforce globally to curb costs. Mint could not independently verify how many people were laid off in US.

Severance packages to employees who were laid off and other one-time charges such as amortization have cost Zomato an additional 104 crore in the year ended March, primarily on account of Urbanspoon, Zomato’s largest investor Info Edge (India) Ltd disclosed during an earnings call on Wednesday.

On Wednesday, Zomato reported a wider loss of 492.27 crore, excluding a one-time non-cash charge of 104 crore, for the year ended 31 March. Revenue in the same period nearly doubled to 184.96 crore.

According to the company, its cash burn had peaked to as high as $9 million a month during the first half of last year.

A series of steps including scaling back operations and reducing staff helped the company bring down the cash burn down to $1.6-$1.7 million in May.

The company this year decided to give minimal or zero increments to employees in India and the senior management has taken a pay cut, according to two of the three people cited above.

“We were prudent in how we did increments in the last quarter. Prudence does not translate to not giving increments. We spoke to our teams and were very transparent with them about this decision. Our people are here for the long term, and understand the reasoning behind the decision. To add to this, we have not seen any attrition on account of this decision. No one in the senior management has taken a pay cut," said a company spokesperson in an email response.

The company will continue to focus on 14 markets where it claims leadership. These are India, the UAE, Qatar, Lebanon, Turkey, South Africa, Indonesia, Malaysia, Philippines, Australia, New Zealand, Portugal, Poland and the Czech Republic.

Gurgaon-based Zomato had cash in hand of $35 million as of March 2016, said Sanjeev Bikhchandani, co-founder, Info Edge, in the conference call on Wednesday, adding it was in no hurry to raise further capital.

“This could last 15-18 months and the company is expecting to start generating cash soon," he added.

Zomato currently gets 45% of its overall revenue from India, about 20% from the UAE and the rest from other markets.

Most of Zomato’s revenue comes from advertising and food ordering, which are growing at 11% and 30% month-on-month, respectively. However, restaurants on the Zomato platform that pay for advertising account for a mere 5-8% of its total restaurant database. In India, about 6% of total 70,000 restaurants are paying clients for Zomato, Goyal said on the call.

A late entrant into the food-ordering business, Zomato in India competes with the likes of Rocket Internet-backed Foodpanda and Bengaluru-based Swiggy (Bundl Technologies Pvt. Ltd). The company currently handles 25,000 orders a day with an average basket size of 480.

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Updated: 27 May 2016, 03:41 PM IST
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