Big Idea

Serving it hot

Flush with funds, homegrown restaurant delivery portal Zomato is on a buyout binge to whet diners' appetite abroad

Vishal Koul

"I prefer home-cooked food,” says Deepinder Goyal, as he digs into his chole chawal in Zomato’s cafeteria. This comes as a surprise, considering that the 31-year-old self-confessed foodie has been running one of India’s most popular restaurant listing and review site for the past six years. It is safe to say that Goyal’s creation, was an outcome of necessity: the idea struck Goyal while he was working at Gurgaon-based Bain Capital. “There were many bachelors working with me and we didn’t have a canteen at our office. So we ended up ordering food all the time. We had a stack of menu cards in the cafeteria,” recalls the founder and MD of Zomato. To ease the daily who-orders-what-from-where tussle, Goyal, along with his colleague and IIT-Delhi classmate Pankaj Chaddah, scanned all the stacked menus and mailed them to all their colleagues. It worked — it helped them resolve the lunchtime chaos at Bain. Then we thought, “But, what if we did it for the outside world?” The thought excited the duo and in 2008, Goyal and Chaddah (now COO and co-founder) launched Foodiebay — a restaurant discovery portal.

ElementBut they were in pursuit of a powerful brand name and decided to change the website name to something better. “We wanted to keep the idea of food in focus and pick a name that is short, easy to remember and makes people think of food. Zomato’s got a zing to it and is originally a play on the word tomato. We also wanted to avoid any confusion with ebay and not take chances when creating a brand that we would want to take international,” shares Goyal. And so, in 2010, Foodiebay came to be called Zomato, with two tomatoes in place of the Os. In spite of a great business idea in hand, Goyal and Chaddah didn’t quit their job until late 2009. In the early days, with work and time constraints, the duo’s reach was restricted only to a few restaurants in Gurgaon and south Delhi. Chaddah recalls, “I was the only sales person on the ground who would visit restaurants.” 

Starting with just three to four south Delhi-based restaurants, Zomato has taken quite a quantum leap since then. Today, it lists 255,700 restaurants in 51 cities across 13 countries, including 23 cities in India. Some of the countries Zomato added to its menu in the last two years are the UK, the UAE, New Zealand, Chile, Prague, Indonesia, Portugal, Qatar, Turkey and Brazil. What was a two-member startup is now a 200-member strong enterprise.

Real action

Zomato’s business model, like its website, is clutter-free. Goyal believes that Zomato’s ‘freemium’ business model directly and positively impacts the restaurant industry. The site relies purely on advertisements for revenue and nothing else. It lists all the restaurant information — menus, reviews curated for credibility and contact info — on the website at no cost to the establishment. “Restaurant owners have the option of advertising on our highly targeted platform. Given that our advertising model is hyper-local, businesses can display ads to hungry consumers looking for dining options in a specific area,” explains Goyal. 

 A typical restaurant pays around ₹12,000 per month for an advertisement. Prices vary from ₹5,000 to ₹75,000, depending on the product and placement. The reason restaurants are ready to pay is because their ads can then be displayed when someone is searching for eateries in a particular area. For instance, a customer who types in ‘take-out’ restaurants in Colaba will be shown options for only that area. Zomato does not have a sales team for small towns. All the revenue from its Indian operations comes from the seven big cities — Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Hyderabad and Pune — it is present in, with Delhi as the largest contributor, followed by Mumbai. However, Goyal is also taking Zomato to non-metros such as Bhopal, Surat, Aurangabad, Allahabad, Amritsar, Bhubaneshwar, Ranchi and Vishakhapatnam. “We are not thinking about revenue from small cities for now. We might consider it in five years, by which time the restaurant industry will rapidly expand in these cities. Three years ago, Chandigarh had 300 restaurants; today it has 1,200. That’s how fast these cities are growing. So, you can’t ignore them at any cost.”

But market creation beyond metros and dealing with small restaurants is a painstaking task. Chaddah says, “While tying up with restaurants, we have to educate them about how their online presence will result in an increase in sales. Restaurants in India don’t take a third party seriously.” However, Goyal believes that things have changed in the past three to four years. He says, “Today, many people know about Zomato. In restaurants, customers themselves tell the owners about us. And, restaurant owners themselves use Zomato to conduct research on prices.”

Rohit Chadda, MD, Foodpanda, believes that there is tremendous untapped potential in the online food order, discovery and review space in India. “It’s happening in fashion, travel, electronics and more. When it comes to food, the base is small but we have had 100% growth each quarter-on-quarter. If Domino’s can successfully launch an online pizza ordering facility in 130 cities, it proves that people are willing to take online seriously,” says Chadda. Unlike Foodpanda — a global online food-ordering portal present in 40 countries — Zomato has not gone as far as allowing people to order food from its website or app. It only provides information in the form of addresses, phone numbers, menus, timings, pictures and consumer reviews.

That Zomato’s business has got a good appetite is evident in its numbers, as revenues have grown from ₹2 crore in FY12 to ₹31 crore in FY14. The past two years, according to Goyal, have been the most important phase in the growth of the company, when the “real action” took place. “One of the bigger concerns for us was the shift of focus from domestic to international two years ago. Right now, less than one-third of our traffic and less than half of our revenue is from India. This changed what we were doing completely,” he says. What prompted this shift? A failed vertical, says Goyal. When Zomato tried launching an event-ticketing business similar to that of Bookmyshow — but only for food events — it didn’t work out. “We realised that there wasn’t a lot of money in events. So we had to shut down the events vertical and were left with a lot of good people in our team.” And all this while, going international was at the back of their minds. Goyal saw this as a good way to utilise the team at hand and decided, “Dubai chalte hain aur launch karte hain (Let’s go to Dubai and launch it there).”

Little did the duo know its international network would become bigger than India. But the founders had done their homework before entering the Dubai market. Following that, Zomato entered markets such as the UK, New Zealand and Philippines. Supporting their overseas endeavours were Zomato’s equally hungry investors.

Goyal and Chaddah had started Zomato with an initial investment of ₹40 lakh, pooled in from friends and relatives. In two years, the website succeeded in gaining some traction. In August 2010, it caught the attention of online recruitment portal Info Edge India, which owns portals such as Naukri, Jeevansathi, 99acres, among others. Info Edge initially invested $1 million but today is the majority stakeholder with an over 50% stake after infusing ₹143 crore spread over four rounds of funding. Last November, Zomato raised a total of ₹228 crore ($37 million) from Sequoia Capital (₹171 crore) and Info Edge (₹57 crore). 

 When in Rome,

With enough capital to fund its expansion, Zomato has been aggressively seeking out new markets overseas. However, venturing into foreign shores hasn’t been a cakewalk. According to Chaddah, there are two major challenges — people and localisation. And only locals can best address localisation of the content and service in terms of culture, language and eating habits. “We only launch a business in a country when we are sure we have a team that will own the business,” says Chaddah. When Zomato steps into a new country, two senior representatives of the company travel to the place to organise a team that will handle local operations. Customisation comes not just in terms of local restaurants but with language as well. In Chile, Zomato’s website can be accessed in Spanish. “I don’t speak a word of Spanish and cannot even judge if the menus displayed are correct or not,” jokes Goyal. The challenges don’t end here. A number of overseas restaurants are more evolved and function very differently compared with India. “In Prague, half the places have daily menus. So we have to update the menus on the website on a daily basis, as against India, where we update them only once in three months,” says Chaddah. How does the site manage that? Merchants push for it more than them, he says. 

As for competition in new markets, Zomato chose to bite the bullet. “Different countries have different landscapes. In India, we don’t see much competition. In New Zealand, when we faced competition from Menumania, we acquired the company.” It also acquired online restaurant search service providers such as Czech Republic-based Lunchtime and Slovakia-based Obedovat for a total of $3.25 million in August 2014. It now faces competition only in the UK and Philippines markets. A pre-emptive acquisition seems like a good strategy given the adage: if you can’t beat them, gobble them.


Hunger pangs

While revenue has grown 10 times in three years, losses, too, have piled up

For now, Zomato is entering markets where there are no clear market leaders. So, it has stayed away from big markets such as the US or Germany, where Yelp holds sway. But it chose to partner with Toptable, a restaurant booking site, in the UK. As part of the deal, Toptable will be Zomato’s exclusive booking partner in the country. Users on Zomato’s platform can check availability and make reservations at restaurants in London, Manchester and Birmingham. With overseas operations contributing 50% to revenue, Zomato is now looking at a higher share by entering new markets such as Canada, Ireland, Poland and countries in the Southeast and west Asia. 

Hot dish

For the just-concluded fiscal, Zomato clocked a 169% jump in revenues to ₹31 crore but its operating losses more than quadrupled to ₹41 crore for the year, thanks to aggressive expansion and acquisitions in new markets. The Sequoia deal values Info Edge’s 50.1% stake in Zomato at ₹494 crore against its original investment of ₹143 crore. In other words, Zomato’s overall valuation is now around ₹1,000 crore ($158 million). Based on FY14 numbers, that is 32 times to sales, which is cheap by no means. But Goyal is unfazed by all this and believes investors know where their money is going. “People who are putting in money are not stupid… they know their business.” Goyal’s confidence also stems from the unflinching faith that investors have put in him and in the business. Mohit Bhatnagar, managing director, Sequoia Capital India, at the time of investing in Zomato, had commented, “Zomato is the first Indian consumer internet company to build a significant international footprint, and we have made this investment because of our strong conviction in the founders, the world-class product they’ve built, and their ambitious global vision.” 

For now, Zomato is confident about its freemium model and does not intend to experiment with alternative sources of income. “Globally, over 3,500 restaurants advertise on Zomato. Online advertising accounts for 100% of our revenue and we intend on continuing in the same vein,” Goyal says, adding that he expects revenue from India to double from ₹15 crore last year. What gives Goyal confidence is the fact that his site gets over 24 million visitors every month and has a bounce rate of around 24%. In internet parlance, bounce rate is the percentage of visitors who enter a site and ‘bounce’ (leave the site) rather than viewing more pages within the site. A low bounce rate means visitors are spending more time on the site for information. For Goyal and team, that’s a good enough reason to continue with their gastronomical pursuits.