Look ma, no feet! Inside Zomato’s plans to run global ops from India

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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 in an analyst call in May that 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, Surobhi Das, COO of Zomato, said.

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, along with other markets like Australia, with its acquisition of Urbanspoon. 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.

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.

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