Food delivery startups in India have struggled to find financial meaning for years. They each lost up to $ 50 million a month to gain and retain customers by offering discounts. And unlike some other markets, food delivery startups have been severely affected by the coronavirus pandemic.
But Zomato, one of the first two market startups operating in space, today offered a rare sign of hope for the market after declaring that it had considerably reduced its cash consumption because it seems to be becoming profitable.
The Gurgaon-based company said it estimated it would lose less than $ 1 million in July, the lowest in years for the 12-year-old company that acquired Uber Eats operations in India more early this year.
Zomato also shared its performances for the year ended March 31, 2020 and the quarter ended June 30.
In fiscal year 20, the startup said its revenues jumped 105% to $ 394 million from the previous year, while losses at EBIDTA – a popular measure used by businesses that ignore interest, taxes, depreciation and amortization – soared to $ 293 million, up from $ 277 million the year before.
But the startup said the coronavirus pandemic, which has dramatically reduced the number of orders placed by customers on the platform, has also helped it improve the economy of its unit.
During the quarter ended last month, Zomato achieved sales of $ 41 million with a loss of $ 12 million in EBITDA. In June alone, the startup’s revenues amounted to $ 17 million, with an EBIDTA loss of $ 1.5 million.
As India eases its national lockdown, which it imposed in late March, more and more workers are returning to big cities. Zomato said this has helped the company increase the number of orders on its platform. The startup said it expects its revenue generation this month to be 60% of levels before the coronavirus takes its toll on the industry.
During the quarter which ended in June of this year, each order on Zomato earned him – made a contribution margin of – Rs 27 (36 cents), against a loss of Rs 47 (62 cents) an order in over the same period last year, according to Deepinder Goyal, co-founder and CEO of Zomato.
Goyal has however warned that the current contribution margin is unsustainable and expects it to drop to Rs 15 to 20 per order over time.
Zomato, which cut its workforce by 13% in May and cut wages at all levels, said it has restored existing employees to their previous pay levels and its projection takes this into account.
The company competes with Swiggy supported by Prosus Ventures, which has also cut more jobs in recent months and is making other efforts to improve its finances. The two companies, which together hold close to $ 2.5 billion, are struggling to find new investors as many VC and PE companies lose their appetite for food delivery to India.
Several venture capitalists have told TipsClear in recent weeks that they have trouble understanding how food delivery companies could make a profit in India. Unlike western markets like the United States, where the value of each delivery item is around $ 33; in India, a similar item costs $ 4, according to estimates by the Bangalore-based research firm RedSeer.
The problem is, there are very few people in India who can afford to place an order from a food delivery company every day, said Anand Lunia, a venture capitalist at India Quotient, in an interview with TipsClear.
To boost demand, food delivery companies must match what most working-class Indians spend on lunch, which is less than $ 2, he said. Swiggy has attempted to make its platform more affordable for consumers by installing cloud kitchens across the country.
Swiggy said in May that it is cutting back on cloud cooking due to uncertainty over demand this year.