Food delivery startups in India have been struggling to make financial sense for years. They have each lost as much as $50 million a month to win and sustain customers by offering discounts. And unlike some other markets, food delivery startups have been severely hit by the coronavirus pandemic.
But Zomato, one of the two market leading startups operating in the space, today offered a rare sign of hope for the market after it said it had severely cut its cash-burn as it looks to become profitable.
The Gurgaon-headquartered firm said it estimates it would lose less than $1 million in July, the lowest in years for the 12-year-old firm that acquired Uber Eats’ India business earlier this year.
Zomato also shared its performance for the financial year that ended on March 31, 2020, and the quarter that ended on June 30.
In FY 20, the startup said its revenue surged 105% to $394 million compared to the year before while its losses at EBIDTA-level — a popular metric used by businesses that does not account for interest, taxes, depreciation, and amortization — ballooned to $293 million, up from $277 million the year before.
But the startup said the coronavirus pandemic, which has significantly reduced the number of orders customers place on the platform, has also helped it to improve its unit economics.
In the quarter that ended last month, Zomato clocked $41 million in revenue at an EBIDTA-level loss of $12 million. In the month of June alone, the startup’s revenue stood at $17 million at an EBIDTA-loss of $1.5 million.
As India eases its nationwide lockdown, which it enforced in late March, more workers are moving back to the larger cities. Zomato said this has helped the firm increase the number of orders on its platform. The startup said it expects its revenue generation this month to be at 60% of the levels before coronavirus wrought havoc to the industry.
In the quarter that ended in June this year, each order on Zomato earned it — made a contribution margin of — Rs 27 (36 cents), compared to loss of Rs 47 (62 cents) a order during the same period last year, claimed Deepinder Goyal, co-founder and chief executive of Zomato.
Goyal cautioned, however, that the current contribution margin is not sustainable and he expects it to go down to Rs 15 to 20 per order over time.
Zomato, which eliminated its workforce by 13% in May and slashed salary across the board, said it had reinstated existing employees back to their earlier pay level and its projection takes that into account.
The firm competes with Prosus Ventures-backed Swiggy, which has also eliminated even more jobs in recent months and made other efforts to improve its financials. The two firms, both of which together have nearly $2.5 billion, are struggling to find new investors as many VC and PE firms lose appetite for food delivery in India.
Several VCs have told TechCrunch in recent weeks that they are struggling to understand how food delivery firms would ever turn a profit in India. Unlike Western markets such as the U.S., where the value of each delivery item is about $33; in India, a similar item carries the price tag of $4, according to estimates by Bangalore-based research firm RedSeer.