Zomato Gets in Shape for Coming Battle with Amazon

We found some interesting nibbles in this piece in TechCrunch about the food delivery business in India. In particular, the article focuses on Zomato and it’s recent journey to near breakeven.

Most of us became aware of Zomato in 2015 when it purchased UrbanSpoon, the restaurant centric site launched in 2006. Since then Zomato has devoted much of its energy toward building a sustainable business in India. 

The article suggests food delivery companies in India have torched as much as $50 million a month in an effort to gain market share. Zomato is no exception. Having raised nearly a billion dollars, according to Pitchbook, Zomato recently indicated it had cut its cash burn down to about $1 million a month in hopes of achieving profitability.

Earlier this year Zomato purchased Uber Eats India for an estimated $200 million. For context, India’s adult population is about 950 million. On a per-capita basis, Zomato paid about $0.21 per potential user for Uber Eats India. Last week, Uber agreed to pay $13 per potential user for Postmates. Certainly a tale of two different markets. 

Amazon Enters the Fray

Today, there are two major food delivery platforms in India, Zomato and Swiggy. Swiggy has also raised a lot of money. About $1.6 billion, according to Pitchbook. So that is at least $2.5 billion of investor money chasing the food delivery business in India.

The economic rationale for all this funding has us scratching our heads. Yet one of Zomato’s lead investors — Sequoia — is a top tier VC firm not prone to making silly investments. 

Adding to this recipe is Amazon’s announcement that it too will launch a food delivery business in India. Amazon has invested some $6.5 billion in the Indian market. According to a TechCrunch article in May of this year, Amazon is responding to customers wanting to order prepared meals from Amazon along with other food and home essentials. So now you have Zomato, Swiggy, and Amazon about to compete head to head in the food delivery space. 

Bundling is the Answer

But here’s what we can’t quite come to grasps with. In the piece we posted earlier this month, the estimated value per order for food delivery in the U.S. was $32.

According to Bangalore-based research firm RedSeer, the estimated value per order in India is $4. Not $40 or $14, but $4. It seems the only way to make any of this math work is to bundle meal delivery with additional food purchases. We are pretty certain that is where Amazon sees its advantage. Even Zomato acknowledges that it will need to expand its offerings to build a sustainable business. That’s a tall order when its primary competitor is valued at more half of the entire GDP of India.

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