Ant Financial-led funding boost may put Zomato back in the saddle in race with Swiggy
- The funding—the largest so far—comes at a time when Zomato is faced with NRAI’s ‘logout’ campaign
- Formerly known as Alipay, Ant Financial Services Group is an affiliate company of the Chinese Alibaba Group
Online food ordering and discovery platform Zomato could not have earned its fat cheque at a more opportune time. The company is reportedly set to raise as much as $600 million in a funding round led by existing investor Ant Financial that will see its value zoom by more than a billion dollars to more than $3 billion. Ant Financial Services Group, formerly Alipay, is an affiliate of China’s Alibaba Group.
Industry observers said while there are no questions about the market opportunity and increasing acceptance of food delivery services, it is 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, ECube, an environmental, social and governance fund.
The largest-ever fundraise by Zomato comes at a time when the Gurugram-headquartered firm, along with other food aggregators, is facing a “Logout” campaign by the National Restaurant Association of India (NRAI), which alleged “deep discounting, lack of transparency, data masking and abuse of dominant position by online delivery aggregators”.
Zomato suspended last month its Infinity Dining programme, which allowed Zomato Gold subscribers to order unlimited food and beverages for a fixed price from partner restaurants for a limited period of time.
Zomato also had to let go of around 541 employees (or 10% of its workforce) across its customer support team in Gurugram, stating improvement in technology in areas such as after-sales support and other customer support-related functions.
Global accounting group Deloitte has estimated the Indian food delivery market for online aggregators and cloud kitchens to be a $5 billion opportunity by the end of 2023. The Indian food delivery market is expected to be worth $17 billion by 2023, growing at 16% year-on-year, according to Pune-based Market Research Future.
That said, Zomato is locked in an expensive battle for market share with Swiggy, which is showing no signs of relenting and has caused substantial losses at the two companies because of higher marketing spends, discounts and higher salaries.
Zomato’s revenue surged from $68 million in FY18 to $206 million in FY19, while it incurred a loss of about $294 million in FY19. The loss for FY18 was not disclosed. Expenses jumped to $500 million in FY19 from $80 million in the previous year.
“It’s a two-horse race. It was just a matter of time before Zomato raised funding. Within these two apps, Swiggy and Zomato have sort of taken a reasonably opposing market spectrum. Swiggy is largely catering to the young consumer, who wants to buy a single meal. Most people who have families, who want to order from a specific restaurant, or have a celebration, go to Zomato. It is reflected in the average revenue per order, which is higher for Zomato,” said Anand Lunia, partner, India Quotient, an early-stage investor.
As of April 2019, Zomato’s food delivery business was operational across 500 cities.
In H1FY20, Zomato completed around 214 million orders, up from 55 million orders in the same period last year. Besides food delivery, Zomato’s business-to-business (B2B) product, food@work, which offers digitized cafeteria outlets to around 70 organizations, is already clocking around 3 million monthly orders. Its “dining out” business, which includes restaurant listings, reviews and table reservations, made up around 13% of its overall revenues of $205 million in H1FY20.
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Business NewsCompaniesStart-upsAnt Financial-led funding boost may put Zomato back in the saddle in race with Swiggy
First Published:8 Oct 2019, 11:06 PM IST
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