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Saturday, April 9, 2016
An Indian unicorn - Global appetites
INDIA has surprisingly few brands that are recognised abroad. Some have been acquired, such as Jaguar, Land Rover orTetley tea, which are all part of the Tata conglomerate. One or two business-facing ones exist, such as Infosys, a firm of technology consultants. But consumer marques from India ring few bells internationally. Newcomers in its ebullient startup scene are mostly focused on the 1.3 billion-strong home market. So Zomato, a restaurant listing service now striving to diversity, counts as an exception. It is trying to take its local business model global. It operates in nearly two dozen countries, though not without some difficulty.
Zomato, which is based near Delhi, started in 2008 as a listing service for local eateries. Restaurateurs who barely know how to upload pictures or scan menus let the firm do it for them. Its staff, known modishly as “Zomans”, update this information by visiting each joint at least every three months. Although that information is painstaking to gather, it attracts foodies and in turn restaurants that are eager to advertise. The result is a business with mouth-watering margins.
Similar specialist listings and review sites exist worldwide. TripAdvisor, which serves tourists, does something similar but relies on customers reviews. Many others are locally minded, just like the restaurants they cater to. Zomato has decided that going global is a better bet. Since 2012 it has expanded to the United Arab Emirates (UAE), New Zealand, Poland, Turkey, the Philippines, America and beyond.
Few other Indian ventures go down this route. One reason for Zomato’s overseas push was, somewhat ironically, its limited domestic market, says Deepinder Goyal, one of the firm’s founders. India has relatively few restaurants and most of those are cheap: residents of Lisbon spend twice as much as those in Delhi on eating out, even though the Indian capital is 20 times more populous.
Investors, including Temasek, a Singaporean fund, smacked their lips at the strategy and have funnelled $225m to Zomato, valuing it at roughly $1 billion. After acquisitions abroad, India accounts for barely a third (and falling) of Zomato’s revenue, which is reported to have reached $30m in 2015. Among foodies, at least, the upstart has potential to become a global brand.
Some air has escaped the Zomato soufflé, however. In October it sacked around 10% of its global workforce, which now numbers around 2,200. Much of the slicing happened in America, where the firm had spent over $50m to acquire and rebrand Urbanspoon, a rival based in Seattle. A pricier workforce and savvier restaurant marketing staff made the “feet on the street” approach unviable in America. Other foreign acquisitions also seem to have flopped and no others are planned.
Mr Goyal claims the retrenchment is merely a pause for breath. It also reflects a more sober funding environment for Indian startups, which can no longer raise investments without showing at least a path to profits. The business is looking for ways to diversify, providing more services to its existing crop of restaurants. In India, the UAE and the Philippines it now offers a food-ordering app, which allows punters to order straight from restaurants.
But this is a fiddly business to get right. Rivals abound, such as FoodPanda, a delivery-only service backed by Rocket Internet, a startup foundry. Venture capitalists who have financed some 800 food-related outfits in India are happy to subsidise losses as long as their companies gain market share. Discounts are offered willy-nilly to diners, sapping profits for all. And in India at least, Zomato’s execution is far from flawless: order through its app and you can expect several calls from the restaurant before dinner arrives—almost as tiresome as cooking.
Startups focused on logistics offer a smoother experience, albeit one with slimmer margins. Zomato’s bosses have grander goals: to create a back office for restaurants worldwide and to design, among other things, table-booking gizmos and terminals to compute bills. That shows gumption, but a switch from dealing with consumers to focusing on technology would not be easy. Perfecting the recipe in its main business should be the priority instead.