Zomato sprints to go public: buying at a loss and playing a subsidy card, it’s hard to stop Amazon’s sneak attack from behind

In addition to the price war, Zomato still needs to think about a question compared with Amazon and Swiggy’s takeaway business, what services does it own that consumers can’t do without?

These days, the Indian capital market is excited by the news of the listing of two super unicorns-one is the digital payment startup Paytm, also known as “India’s Alipay.” The company plans to go public in India around November this year, and is expected to raise 218 billion rupees (about 3 billion US dollars), making it the largest IPO in India’s history.

Another company is not as big as Paytm, but it is also warmly welcomed by the market. Its name is Zomato, which is one of the largest food delivery platforms in India. According to the news, Zomato’s IPO scale will reach 1.1 billion U.S. dollars.

Facts have proved that the Indian capital market is extremely enthusiastic about domestic Internet unicorns. As early as when it was subscribed by institutional investors, Zomato was snapped up by dozens of anchor investors such as Blackrock and Fidelity International, and finally created 35 times oversubscription, 15,000 The financing myth of billion rupees (about 20 billion US dollars). After opening retail subscriptions on July 14, Zomato was also fully subscribed on the first day.

However, the enthusiasm of the secondary market can never be linked to the fundamentals of startups, and the high amount of financing is more betting on its future. In the Indian takeaway market, where rivals have emerged, can Zomato, who is under attack, hold up the expectations of investors?

Takeovers in the Indian takeaway market

Although unknown domestic investors often benchmark Meituan and Zomato, for its early years, the name “Popular Dianping in India” is more suitable. After all, when Zomato was founded in Delhi in 2008, it was based on food reviews and recommendations. After the review service was rolled out in India and even successfully exported to Southeast Asia and other regions, Zomato launched the food delivery service in 2015 and fully entered the field in the following years.

For the Indian food delivery market, Zomato has shown full ambition, which can be seen from its corporate strategy-Zomato founder and CEO Deepinder Goyal (Deepinder Goyal) has set a strategy for the company “AAA+Q”, these four letters respectively represent the completeness of the category, affordability, deliverability and food quality.

“These elements are related to every link in the catering industry value chain. In other words, our goal is to become a fully-participated catering company.” In an interview with the media, Goyal explained his decision. strategy.

In the market, Zomato uses a series of acquisitions as a springboard to expand into new areas. In 2017 and 2018, Zomato launched the takeaway membership program and user loyalty program Piggybank, trying to attract customers with high discounts and free dishes; in July 2018, it won the start-up TongueStun for US$18 million and started Set foot in the company canteen track; in October of that year, Zomato also acquired the supply chain platform WOTO, which was subsequently renamed HyperPure.

Zomato’s most recent and largest wave of mergers and acquisitions occurred in 2020. At that time, Uber packaged and sold its Indian food delivery business to Zomato for $350 million in exchange for a 9.99% stake in the former. In a public statement, Goyal said that this acquisition will greatly strengthen the company’s position in the industry.

Zomato fell into a loss-making quagmire under the situation of the two strong rivals

Zomato can successfully complete so many acquisitions, and support from major shareholders is indispensable. So far, Zomato’s financing rounds have exceeded seven rounds. The latest round of financing occurred in February this year. Five investment institutions including Tiger Global Management jointly injected US$250 million into it. In addition, the list of shareholders of Zomato can be called luxurious, including Ant Group, Temasek, Baillie Gifford and other well-known institutions and enterprises.

Even though Zomato has spent a lot of money on the acquisition, it still has not been able to occupy an unshakable position in the Indian food delivery market. Swiggy, a food delivery platform from Bangalore, is one of its biggest enemies.

From the time of establishment, Swiggy, which was founded in 2014, obviously needs to call Zomato a big brother. Of course, regardless of seniority, Swiggy is not inferior to Zomato in strength. As of 2020, Swiggy has launched operations in more than 520 cities in India, with 160,000 cooperative restaurants. In addition, its total amount of financing has exceeded 1.6 billion U.S. dollars, and the list of shareholders includes strong players such as Tencent, Samsung Ventures, and South Africa Naspers (Tencent’s largest shareholder).

In terms of business expansion, Swiggy is more complicated than Zomato. In addition to takeaway-related businesses, Swiggy has also acquired artificial intelligence company Kint.io, and subsequently launched its own digital wallet Swiggy Money. In 2018, Swiggy won the grocery delivery platform SuprDaily and began to explore the delivery business of fresh food such as bread, milk, and eggs.

Research reports from research companies RedSeer and GlobalData show that the total value of the Indian food delivery market is currently US$4.2 billion, with a compound annual growth rate of approximately 12.4%. In this not-so-large battlefield, Zomato and Swiggy together account for nearly 80% of the market, and the industry concentration is quite high. After acquiring Uber Eats, Zomato may be able to surpass Swiggy in a short period of time, but if its expansion is not robust enough, there is still a big risk.

In the financial report, Zomato also affirmed this-it believes that it faces “stiff competition” in the food delivery market and may not be profitable for a long time. According to financial data released by it, as of March 2020, its revenue has increased by 98%, but the loss loophole has further expanded to 24.5 billion rupees (about 336 million US dollars).

Amazon’s high-profile entry, “fisherman’s profit” is the final outcome?

At the same time, Zomato has to face offensives from outsiders. In 2019, when the Indian food delivery market was fiercely fighting, Amazon also took advantage of the wind to enter the track, and once it played, it was subsidized to open the way. A typical example is in 2020 when Amazon was piloting food delivery services in Bangalore, and the service fee charged by cooperative restaurants was only about 10%. At the same time, Amazon also introduced a preferential policy of free shipping for Prime members, even if it is a non-member, it only charges 19 rupees for shipping.

Although the current situation of the epidemic in India has eased from May, the fundamentals are still not optimistic, which will undoubtedly further increase the demand for takeaway. Zomato and Swiggy certainly dominate the market, but in the face of the wealthy Amazon, how long can they hold on to their enemies? You know, Amazon itself has a complete logistics network in India. If it wants to grab the local market, it can easily do it by launching a large number of subsidies for merchants.

This is not unreasonable. In India, many businesses are already looking forward to another disruptor in the takeaway market. The reason is simple-the service fees of Zomato and Swiggy are too high, almost reaching 20%-30% of each order. The two major platforms use the money to subsidize customers, but ignore the merchants’ feelings.

“Our profit margin for each dine-in meal is 70%, but in online orders, we only make 30%.” Kumar, the founder of the chain restaurant Shake It Off, complained in an interview with the media. “Today, online orders have become a burden.”

There is no doubt that Zomato and Swiggy are facing similar dilemmas with Meituan and Ele.me. Perhaps the next thing that falls on them is the iron fist of Indian regulators-this is already a sign. In 2019, the National Restaurant Association of India (NRAI) expressed dissatisfaction with Zomato and Swiggy’s high commissions to merchants. If that day does come, their prestige in the market will be greatly reduced, and they will also provide more opportunities for outsiders like Amazon.

In general, Zomato may be able to enjoy a period of time before listing, but when the fundamentals of its business are exposed to investors, can they maintain their previous enthusiasm? For the current Zomato, it is important to use subsidies to seize the market, but it is even more important to find its own unique advantages. Compared with Amazon’s food delivery business, what services does Zomato have that consumers cannot do without? Grasping these tiny advantages may be a way to avoid the “fisherman’s profit” ending.