Covid-19 Accelerated Profitability But Business Set Back By A Year: Zomato

While food delivery sales have risen since the coronavirus outbreak, the pandemic has impacted the size of the business, India’s second largest foodtech startup said.

Zomato, which is locked in a fierce battle with Swiggy for market dominance in India, said the pandemic has set them back by about a year. Yet, the company shrugged off the setback.

“A year is only a small blip when you’re building a company for the next 100 years,” the company’s co-founder Deepinder Goyal said in a blogpost on Friday evening.

Zomato said unit economics of its food delivery business has improved over the past 18 months. While it lost Rs 47 per order in the first quarter of FY20, it made Rs 27 per order in the first quarter of the ongoing financial year.

“We don’t believe that the current contribution margin in our business is sustainable in the long term,” Goyal said. “Over time, we expect contribution margin per order to normalise between a (profit of) Rs 15-20 per order.”

Zomato estimated its burn rate in July to be at under $1 million—among its lowest. The company has rolled back the salary cuts it had announced in May, when it had also laid off around13% of its workforce.

Recovery To Take Time

From a four-player fight, the food delivery market in India has reduced to a battle between Swiggy and Zomato, with the latter acquiring Uber Eats’ domestic arm. Amazon.com Inc., too, entered the segment last month. “In terms of volume, overall the food delivery business saw total order values nearly double to $1.4 billion in FY20,” the blogpost said.

Zomato’s annual revenue more than doubled to $394 million in FY20 over a year ago, with expenses rising by 47% and losses widening to 5.7% year-on-year to $293 million.

Food delivery firms, however, saw orders fall by 60% percent in April and May, industry executives told BloombergQuint on the condition of anonymity, as customers were hesitant to place online orders and deliveries to many places faced difficulties following pandemic-related restrictions.

Zomato’s revenue in the quarter ended June stood at $41 million—nearly half of the average quarterly revenue during the same time a year ago. With 60% of its business resuming, sales stood at $17 million in June. It expects revenue to touch $23 million in July as offices start functioning.

“As offices start opening up, these professionals are now starting to move back to the larger cities,” Goyal said. “We expect sharp recovery in our order volumes as lockdowns continue to ease and the operating environment continues to improve.” He, however, said the food delivery business is expected to make full recovery in over 3-6 months.