Home / Companies / Start-ups /  Zomato axes around 100 employees in cost-cutting drive

Bengaluru: Food delivery and restaurant discovery platform Zomato has laid-off around 70-100 employees in its customer support team at its office in Gurgaon, as the company looks to cut costs and reduce redundancies across its food delivery business, said three people aware of the development.

Zomato confirmed the development. It said that the lay-offs were carried out due to redundancies in its current customer support workforce.

“Over the last few months, our service quality has improved, and the percentage of orders requiring support have come down significantly creating a small number of redundancies for 1.2% of our workforce. Most of these redundancies are in the customer support department," said a company spokesperson in a response to Mint’s queries.

Mint wasn’t able to verify whether employees were paid severance in advance, however, according to a person aware of the company’s operations, Zomato currently spends anywhere 4- 5 per order on customer support and after-sales services on each food order.

“What’s happening at (Zomato’s) back end is that they are automating a lot of their customer service functions. Customer support is currently a major cost for both Zomato and Swiggy, and due to high volumes of orders spending 4 to 5 per order is a significantly high cost (in comparison to other costs)…So this (layoffs) is sort of intelligently scrapping away unnecessary spending on human resource," added the person requesting anonymity.

The online food ordering market could become a $17 billion market opportunity by 2023, growing at over 16% year-on-year, according to Market Research Future, a consulting firm. Industry analysts and sources peg that both Zomato and Swiggy are burning up to $50 million a month.

Zomato currently clocks some 40 million orders a month, while Swiggy clocks anywhere between 9,00,000 to 1 million (30 million orders a month) orders a day, according to industry estimates.

“We have witnessed the initial burst of aggression in the food tech sectors amongst the key existing players however wont be surprised if the focus starts to shift towards process optimisation, productivity enhancement and efficiency building," said Rituparna Chakraborty, co-founder of staffing service provider TeamLease Services in an interview.

She added that once companies like Zomato and Swiggy achieve mass adoption, they will have to focus on showing profits to investors. “No business can sustain growth in the long run with a linear increase in overhead costs, hence should be no different for the food tech sector," added Chakraborty. Zomato had earlier laid-off close to 300 employees in early 2015 or 10% of its staff due to cost-cutting. At that time the company was shifting focus to more revenue-generating areas like restaurant reservation, and other discovery features.

Since 2015, Zomato introduced a range of restaurant-focused products aimed at increasing customer loyalty and sales of its restaurant partners. Zomato Gold, a paid membership programme, which allows users to avail free drinks and food dishes at select food outlets and pubs, now has more than 800,000 users. Zomato also recently launched an “infinity dining" option for Gold subscribers that allows them to have unlimited a la carte at partner restaurants.

Zomato’s current lay-offs also come just months after its smaller rival FoodPanda, owned by Ola suspended its food delivery marketplace business and laid-off at least 40-50 mid-level employees and ended contracts with most of its 1,5000 delivery executives in May. At that time Ola said that it would instead focus on in-house private brands like Great Khichdi Experiment and FLRT to grow its food business.

Zomato had recently sold its United Arab Emirates (UAE) business to German-based DeliveryHero for $172 million, and also raised $50 million from Delivery Hero in its ongoing funding round. The Economic Times reported that Zomato is currently in talks to raise $500 million at a valuation of around $1 billion. Some of Zomato’s biggest investors include Ant Financial, Shunwei Capital, Info Edge, Sequoia Capital, among others.

The Gurgaon-based company currently claims to have over 130,000 restaurant partners across 500 cities in India. This is spread across smaller towns in Tier-2, Tier-3, and Tier-4 markets in states such as Kerala, Tamil Nadu, Daman, Meghalaya and Maharashtra among others. Zomato also employs around 230,000 delivery partners in the country.

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