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Scaling a business with a significant fund pool is relatively easy. It is the management of it which is a tricky business.
The wise will recognize and acknowledge failures and take appropriate measures, and Zomato has decided to pay heed to the wise. The company has scaled back operations in nine of its 23 overseas markets, including the United States, as the restaurant search and food ordering startup looks to cut costs and conserve cash amid pressure to turn profitable.
Zomato co-founder and chief executive officer Deepinder Goyal said the company is no longer physically present in countries like the US, the UK, Italy, Sri Lanka, Ireland, Chile and Canada. But instead of abandoning abandoning these markets, it will run its operations there remotely via technology.
The startup now has ground teams in 14 markets, including India, the UAE, Malaysia, New Zealand, and the Czech Republic, and a small tech team in the US, which works on the development of its Table Management platform, Zomato Book.
For the other 9 markets – the US, Canada, the UK, Ireland, Sri Lanka, Chile, Brazil, Italy, and Slovakia, Zomato is utilizing its content team in Delhi, while some of the markets are managed from Europe. The move will allow the company to save costs significantly, which is important for Zomato, especially after it posted losses of US$73.09 million at the end of financial year 2016.
“We used to … put feet on the street everywhere and say that let’s do 100 percent job in every market we are in. And now we are saying let’s make sure that the money and the management and their bandwidth goes down to the markets where we are the leaders already. We do not know how long this model will take for us to flip over the threshold of monetization whenever it happens,” CEO Deepinder Goyal said.
Zomato expanded into the US market with its acquisition of Urbanspoon, post which the US became its biggest market. But the expansion was wrought with problems due to competition from Yelp, the biggest player in the US market in the space.
The US turned out to be expensive for Zomato, which spent US$60 million to buy Urbanspoon and enter the market to take on its bigger rival Yelp in January 2015. Subsequently, the company committed to invest an additional US$50 million in the market to overtake Yelp within 12 months. It made the company realize that growth in US was coming at the expense of its business in the growth markets, especially India and the United Arab Emirates (UAE).
Learning the hard way
Analysts appreciate Zomato’s new-found wisdom.
“It is high-time they did that. Re-aligning funds in profitable markets is a good move, because scaling up will be easier and the quality wouldn’t suffer,” says Vidhya Shankar, who is executive director at Grant Thornton India, and an expert in startup investments. Zomato gets about 15 to 18 percent of its total page-views per restaurant on Zomato from all these 9 markets combined.
The process started with the US market last year, when Zomato laid off over 300 employees
“They are moving towards improving its business fundamentals with a business strategy that is more capital efficient,” he added.
Currently, Zomato claims to be profitable in 6 of the 23 markets it is in, but sees over 80 percent of global traffic coming from India.
Gurgaon-based Zomato had cash in hand of US$35 million as of March 2016, which can last 15-18 months and the company is expecting to start generating cash soon. Zomato currently gets 45 percent of its overall revenue from India, and about 20 percent from the UAE and the rest from other markets. Now that local teams in 9 markets have been withdrawn, the company has enough capital to lead in the markets that they are currently operational in.
After implementing the off-the-street model in these 9 markets, Zomato has managed to cut down on operational costs from US$9.1 million in 2015, to a scanty US$1.7 million at present.
“Of course it is not as comprehensive as having teams on the ground, but today, in the age of social media and everyone being online, we have been able to leverage this connectivity to keep our content fresh remotely….We’re already working on tech advanced ways to keep our content fresh more efficiently,” Surobhi Das, COO of Zomato, said.
“We are largely focused on empowering and enabling restaurant managers to add/ change any of the information related data for their restaurants through their own dashboards,” he said.
Grant Thornton’s Shankar warns that in markets like the US where social media is active, using tech for information update may work very well, “but in markets like Mexico on-ground research is important.”
Why remote management
Deepinder Goyal, co-founder and CEO of Zomato, an online restaurant discovery application. Photo credit: Zomato.
In the markets where it is a leader, such as India, the Middle East, South East Asia (the Philippines and Indonesia), Australia and New Zealand, Zomato can operate its entire range of services – content, ad sales, bookings and ordering. In other markets, Zomato will not look at ad sales, but will focus on its table reservation engine, with less focus on its on-the-ground community.
We do not know how long this model will take for us to flip over the threshold of monetization
The company will try to make use of a lot of cutting-edge technology and social media to update content on real-time basis. Bloggers and restaurant owners will be encouraged to log in on their business app and update information on their own.
The process started with the US market in October 2015, when Zomato laid off over 300 of its staff from the content team, which is the company’s core team that gathers restaurant information.
Zomato stepped back in the US, which cost the company an additional US$155,189.22 in the year ended March 2016, in severance packages to laid off employees and other one-time charges such as amortization on account of Urbanspoon.
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The twists and turns of remote management
As far as the US is concerned, Zomato’s off-the-street model may work in favour of the company because just 40 percent of the restaurants listed on the site account for 92 percent of traffic. This means that a lot of the data collected isn’t even relevant to the success of the site, and by focusing its on-ground presence on the 40 percent the company can reduce its expenditure without losing out in other ways.
Zomato will push its business in the US and other 8 markets through technology and its business app for restaurant owners, who can input and update their information without a local content team. In fact, traffic in the US for Zomato increased by 25 percent in the last six months, the company informed.
The US turned out to be an expensive bet for Zomato, which spent US$60 million to buy Urbanspoon
Zomato said it will focus on the 14 focus markets to build more traction, introduce more products for users and merchants. But, it will also continue to improve its off-the-street model for the said 9 markets, and for a possible tech-launch in newer markets.
“With enough traffic and SEO building up, the window to go back and set up teams in these markets is always open, because that would be a very low investment move,” COO Das said.
Analyst Ashish Chopra at Motilal Oswal said that Zomato already has technology in place, “so it is a good strategic decision to go behind markets where they can monetize sooner. Without technology it would be practically impossible to keep up Zomato’s core business.” But if the company reaches a certain threshold to monetize foreign operations, re-entry of local teams in those markets is an option the company will look at, Das said.
Zomato is unlikely to adopt advertising to push the product in its off-the-street markets. It is rather depending on word-of-the-mouth publicity to pull up traffic. “As the reputation grows, restaurants will claim their business on our platform,” Das explained.
By claiming their listing on Zomato restaurant owners can edit the information on their restaurant page, add photos and menus, respond to user reviews, and so on. This, of course, does not allow them access to altering any of the subjective content such as the cost for two calculations or access to modifying their ratings or reviews.
The merchant dashboard used to update this information real time also allows restaurant managers access advanced analytical and engagement tools.
Photo credit: femme run
How does Zomato choose
When we talk about the rationale behind choosing certain markets to realign, we need to understand how Zomato measures market share. Here’s how it is done: number of listings in the city x average size of a restaurant x utilization rates x average ticket size of a meal. Assuming the average size of a restaurant in a city and utilization rates are the same across the world, the relative market size can be defined simply as number of listings in a city x average ticket size of a meal.
Zomato measures Relative Market Size using Delhi NCR as the benchmark, because it believes it has the richest and most complete restaurant information there. But the startup also has a few other parameters to determine its strength in a particular market, such as user base, client penetration, revenue, brand recall, and competition.
“So despite being physically smaller and having fewer restaurant listings, Auckland is actually stronger than Delhi NCR in terms of market size,” Goyal wrote in a blog post.
“We primarily learnt the way of doing this from Urbanspoon because Urbanspoon did not have feet on street model. While feet on street has its fair advantages and disadvantages as well, it is certainly better when it comes to content quality,” Das said.
Most of Zomato’s revenue comes from advertising and food ordering, which are growing at 11 percent and 30 percent month-on-month, respectively. However, restaurants on the Zomato platform who pay for advertising, account for a mere 5-8 percent of its total restaurant database. In India, about 6 percent of total 70,000 restaurants are paying clients for Zomato.
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 US$7.16.
If the off-the-street model works well for Zomato, it will opt for tech-launch in newer markets also.
(Currency converted from Indian Rupees. US$1 = INR 67.03)
This post Look ma, no feet! Inside Zomato’s plans to run global ops from India appeared first on Tech in Asia.
from Tech in Asia https://www.techinasia.com/inside-zomato-plans-to-run-global-ops-from-india
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