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The future of food

Food is older than civilisation. Agrarian cultivation dates back 5,000 years. The first hunter-gatherers were foraging for food 2 million years ago. It is now the most important part of the global economy and is estimated to be about 20% of global GDP.

Legend has it that a soup salesman named Boulanger opened the first modern restaurant 250 years ago in Paris. Since then, the ‘restaurant’ has been changing our food consumption behaviour. Last year, for the first time in history, people in the United States spent almost as much money on restaurants as they did on groceries.

Across the world, restaurants are competing with, and gaining share from home-cooking. Their ability to do so depends on four parameters. These are the very parameters that shape your, and my family’s decision on whether to cook at home, or go out, or request for delivery from a restaurant. We call these four parameters the QAAA – Quality, Accessibility, Affordability and Assortment. Anywhere in the world, when the restaurant industry improves its score on these four parameters, there is a shift in user behaviour, away from the kitchen in their homes, towards restaurants.  

Zomato is one of the largest food aggregators in the world. And we play a uniquely important role in improving the QAAA scores for the restaurant industry.

Here’s how –

We impact the quality of food that restaurants serve, by keeping them accountable to their users. We are the de-facto restaurant review and food discovery platform in 19 countries. In each of these, users check restaurant ratings and reviews on Zomato before they choose a place to eat out or get delivery from. A high rating on Zomato not only reflects the great experience a restaurant offers, it also drives further growth through footfalls and higher spends. In several markets, we now work with restaurants to organise third-party quality audits, leveraging our brand to endorse and showcase establishments that adhere to higher quality standards.

We improve accessibility by providing instant information. Our food delivery service is also constantly looking to deliver better food to more people from more restaurants, faster than ever before.

We improve affordability by making it a level playing ground for everyone. By democratising information we make sure users can make informed choices; and in that way we democratise competition. Given restaurants now operate and grow their business from an easily accessible and transparent platform, they must innovate and cut costs in order to win. Zomato Gold also significantly improves affordability for users, while helping restaurants fill their tables and increase their net profit.

Lastly, humans crave choice. Zomato drives assortment by helping users discover new tastes and experiences across the world. We showcase ‘what’s new and fresh’ to our users, and tell them what other users liked. Thus, we encourage restaurants to innovate, and give them a chance to act on live, objective feedback.

However, in the midst of all this, lies a unique challenge. Nobody is really looking at the quality of ingredients going into all that’s being served at restaurants (or even at home). The food industry is so unregulated that we are ingesting pesticides and adulterants, leading to increased incidents of cancer and other lifestyle diseases. This is not to mention our consumption of antibiotic-laced meats, which might slowly be setting up our race for a pandemic with the rise of an imminent superbug.

Hyperpure is the big step we are taking towards creating the future of food. It is a clean food supply chain for restaurants to buy fresh and high-quality ingredients. Responsible local farmers and suppliers are signing up on Hyperpure to find responsible restaurateurs who will buy their produce — without the usual middlemen.

We showcase all such restaurants to our users, thus driving more business to these restaurants. This creates a virtuous cycle of demand and supply of clean ingredients in a city.

With a majority of the food consumption shifting to restaurants, we believe that there is a unique, once-in-a-lifetime opportunity to fundamentally change the future of food — a future where everybody in the world is eating clean food, no matter where they are, and what they can afford.

Everything that we do at Zomato today, equips us uniquely for this future. As the industry standard for restaurant reviews, and as one of the largest players in delivery and dining out, we have unparalleled access to user insights, and relationships with restaurateurs. This is helping us design and scale business models that make this future viable.

Why do we publish the annual report?

You must be thinking, we are a private company, why would we so diligently publish our annual reports right after the end of the financial year? This doesn’t usually happen.

To answer that question, we have to go back a couple of years. The last two times we published the annual report, there was a lot of negative noise around us. We wanted to address the perception–reality gap by sharing more information, because we were doing well, and the external narrative did not reflect that reality.

The external narrative used to hurt our team’s morale. But this year, we have been attracting extremely talented people, who are being given the independence and mentorship to become successful at Zomato. Our people are the happiest ever, and have been working their hardest ever as well — all a testimony to the incredible progress we have made over the last year to sow the seeds for building the new world food order that we obsess about.

This time, we are publishing our financial report for three reasons –

• As a recruitment pitch for readers who might identify with our mission — better food for more people. We believe we can never have enough great people working with us — we are looking for diversity of thought, and the zeal to contribute towards a meaningful mission for the long term.
• Set a precedent for when we go public and get everybody who matters used to getting our numbers on our blog, along with a from–the–heart critique on our business. Annual reports also keep our finance team disciplined. We have one of the best finance teams, they juggle several balls simultaneously, and drop none.
• We want to demystify the food–tech ecosystem. While a lot gets written, we are uniquely positioned to tell you the truth as it happens, from the front row.

Learnings from the last year

Here are some of the things which stood out for me and the team at Zomato – 

• Peace is a myth. There is only passion.
  There are two kinds of people; some who keep seeking peace in their lives, and others who are so passionate about what they are doing, that doing what they love gives them peace — the kind which you cannot take away from them. We have an incredible bunch of passionate people at Zomato, and they are leading our mission from the front. Over the last year or so, we have put a lot of such people in important roles at Zomato — irrespective of their age, tenure, or experience. And it is transforming the speed and quality of our work as a team.

• Challenge your beliefs.
  We used to think that food delivery will only be a niche for Tier 1 cities in India. But then, we decided to test a small town with a mere 150k people. It was mind boggling to see the latent potential of that town; and that taught us that small towns in India hold humungous potential, and now, we have set our eyes on launching in 1,000 cities in India. But this has led to another unfounded belief at Zomato — that food delivery in India will be bigger than e-commerce. We will prove it right, or prove ourselves wrong.

• Set audacious goals and beat them.
  Always think backwards from the problem. Last year, we clocked $68m in revenue; and in March’18, when we were planning for FY19, we set an audacious goal of $180m — most of us thought that this was near impossible, but the team worked backwards from there and comfortably beat the goal.

• Always think first principles up – precedents/analogies only matter so much.
  So many times, when something works for other companies in different sectors, we say we should try implementing that idea as well. We say that without understanding what made that idea tick for that company, what the underlying context was, why it succeeded, what’s different about the other sector that cannot be assumed to be true about ours

• Simplicity trumps complexity.
  Simple products work. When we launched Gold, our only premise was that the product should be simple for users as well as restaurants; we also said that we will create a T&C free product. And that’s the single most important reason that Gold has done well.

The year of the ecosystem

Today, Zomato is present in over 10,000 cities across the globe with over 1.4m active restaurants on our platform. We are the market leaders in restaurant search/discovery in 19 of the 24 countries we are in, and have 70m monthly active users on our platform. We have 5m new user registrations and 11m app installations (Android + iOS), every month.
User engagement has grown very well — we received 16m user reviews and photos in March’19, compared to 4.5m in March’18.

FY19 Financials
Before you go any further, please note that all financials in this short form annual report are basis management information systems and unaudited. Also, the financials underneath follow the Indian Accounting Standard applicable last year (FY18) — which means discount driven promotional cost borne by the company has not been deducted from revenue. That will happen when we file our audited financials with the RoC.

This year, we hit all of the goals we had set for ourselves out of the park. Our core lines of business continue to be key contributors, and the new initiatives we’ve launched have started playing a big role in consolidating and cleaning the food value chain.

Most of the losses ($294m) are on account of the food delivery business in India. We have had tremendous growth aided by promotional marketing spends to acquire new users and be the first-to-market in many cities in India. In our experience, being first-to-market gives us a distinct competitive advantage in the food delivery sector.

Food delivery in India is creating an entirely new market; 70% of our regular users in Kolhapur had never tried food delivery in their life (even over a phone call), and Zomato was the first food delivery experience of their lives. All the marketing investment we made in FY19 will bear fruit in FY20 and beyond — when we realise the LTV (Lifetime Value) of the users that we have acquired.

Will we continue to invest in growing the market at the same pace? Yes — as long as there is long term value to create, we will continue to invest and expand this category.

Realigning our business segments
Three years ago, advertising represented 100% of our revenue and focus. Today, we are largely a transactions company — 85% of our revenue in March’19 was driven by transactions.

Growth in transactions challenged our mental models of advertising being a separate line of business. With increase in commissions, our ads revenue would take a hit, and vice versa. In that spirit, we realigned our business to the core tenets of the food industry. We stopped considering advertising revenue as a standalone P&L last year, and we now think of our business as a combination of three key large pillars — Delivery, Dining Out, and Sustainability.

We have restated our FY18 financials in this report based on this categorisation for an apples to apples comparison.

Here’s how we fared in each of our three lines of business in FY19 –

Delivery
Delivery revenue for FY19 is $155m compared to $38m in FY18 (4x annual growth). It now contributes ~75% to our total revenue, up from ~55% in FY18. We now operate the service in over 200 cities in India, up from 15 cities in FY18; and we made nearly 33m deliveries in March’19 (~7x y-o-y growth).

Over 100k restaurants are listed in India, generating an annual run-rate GMV of over $1.5bn. ~94% of these deliveries are fulfilled by our ~180k strong active delivery fleet.

Unit economics of the food delivery business have come a long way. We now lose Rs 25 per delivery, compared to Rs 44 per delivery in March’18. Our last mile cost per delivery is now Rs 65, compared to Rs 86 in March’18. The key driver metric of unit economics — number of deliveries per rider per hour has gone up to 1.4 from 0.9 last year.

Important note – some high density neighbourhoods in larger cities are already unit economics positive. So are, some Tier-3/4 cities.

With Piggybank, our loyalty program for food delivery, users save upto 10% of their total amount. 2m+ users across 17 cities in India have collectively saved a staggering Rs 260m+

People often tell us that we should open our own branded chain of dark kitchens; so that we can ‘exploit’ our demand pipeline and improve the margins of our food delivery business. We react to such statements with — “is that a question, or an answer?” We would rather ask ourselves the question — “how can we improve the margins of our food delivery business”?

After thinking of various possibilities and scenarios, we concluded that there are far better ways to improve the margin profile of our food delivery business than taking the irreversible step of competing with our own partners (restaurant owners). Some of these initiatives are already underway and are showing great results. In the long term, we stay committed to not competing with restaurants — and we will help the best food operators build larger businesses in every way we can. But at no point will we compromise our neutrality as a platform.

Here are some interesting nibbles about our India food delivery business –

Dining out
Zomato Gold has partnered with over 10,000 restaurants globally to offer either 1+1 on food, or 2+2 on beverages, allowing users to get more bang for their buck each time they dine out. Zomato Gold will continue to be a program that constantly provides benefits that are uniquely designed for users who see great value in frequently dining out.  

As on 31 March 2019, we have over 1m active subscribers of Zomato Gold globally compared to 170k active users as on 31 March 2018.

We have recently launched Zomato Gold in 4 new cities outside of India — Jakarta, Manila, Auckland, and Beirut. The number of subscribers who signed up for Gold in the first 15 days of launch in all these cities exceeded the number of subscribers we added in Bengaluru in the first 15 days. This is a testimony to the focus of the Gold team; we keep sharpening the playbook, and every month, Gold turns out to be more successful than before.

Last year, we also extended the vision of better food for more people to the workplace. Through a digitised platform, currently active in seven cities, food@work by Zomato serves 125,000 meals a day, partners with 300 caterers and serves 70 companies. We have also partnered with Tier–1 caterers like Elior and Voila to the cash-and-carry segment providing better compliance and food safety. Food@work has revolutionised cafeteria management by introducing more choice as well as an app to simplify the purchase process for employees.

People are increasingly going online to book tables. Our reservations service is now offered in eight countries across 16,000+ restaurants. Over 1m diners in India are reserving tables on Zomato every month.

We organised Zomaland — a food carnival, a first-of-its-kind across the world, in Delhi, Bengaluru and Pune. The vision is to champion the restaurant industry — and create a showcase of the best culinary talent available in a city to our users. Zomaland hosted larger-than-life attractions, street performances, a stellar line-up of music artists and DJs, along with a dedicated zone for the little ones. Attended by 120k people collectively, featuring over 200 of the best restaurants, it was the perfect opportunity for more people to discover new culinary delights, as well as enjoy some of their old favourites.

Sustainability
Hyperpure was launched in August 2018 to supply fresh, clean ingredients to restaurants. This first-of-its-kind initiative uses an end-to-end technology-driven platform custom-built to provide online access to fresh and clean food ingredients to restaurants. In February 2019, a 30,000 sq. ft warehouse, built to serve 4,000 metric ton capacity per month, was launched in Bengaluru to cater to 2500 restaurants every day. An even larger 40,000 sq. ft warehouse in Delhi was launched in March’19.

Restaurants buying ingredients through Hyperpure are recognised through a ‘Hyperpure Inside’ tag on Zomato, allowing users to trust that the food they are eating is made using fully-traceable, high quality ingredients.

We are also helping farmers develop better crops that are pesticide and chemical-free, providing them assured demand cycles and better pricing throughout the year. Hyperpure is solving a number of supply-chain problems and simultaneously building a more ecological model with plans to integrate rainwater harvesting, and composting for waste.

Feeding India
Better food for more people was a key driver in consolidating Feeding India with Zomato. Hunger and food-wastage are important problems to solve, and what better way to take the challenge head-on than with motivated Hunger Heroes that work on innovative and sustainable programs to ensure all excess food from various restaurants and venues, that would otherwise go to landfills is donated to people in need. Feeding India has served 20 million meals with its 5 key programs including 8,500+ volunteers working in 71 cities, 50+ community fridges, and 21 food recovery vans.

Progress behind the scenes

I am very proud of the entire team at Zomato, and here are some of the key people who lead our mission of better food for more people – 

We also challenged some norms when we started calling Gaurav Gupta (GG), a founder at Zomato. He’s been incredible, and deserves to make decisions on behalf of Zomato.

The number of women leaders at Zomato has dropped from 45% to 15% over the last two years. Yes, that bad. We are committed to taking that number up in the near future.

We have also doubled the strength of our engineering team, and we are heavily investing in technology which will drive the growth of Zomato.

New investors and partnerships
We welcomed Glade Brook Capital, Shunwei Capital and CDH Investments as our investors in the past year. Our older investors — Ant Financial, Info Edge, Sequoia, Vy Capital and Temasek continue to be tremendous partners for us, and we look forward to working with them closely over the next few years.

We also kickstarted a global partnership with Delivery Hero, where we will build our respective businesses in collaboration with each other in countries of overlap. The partnership began with Delivery Hero acquiring our UAE food delivery business to remove areas of conflict. On top of that, Delivery Hero also invested primary money in Zomato.

Our new Gurgaon HQ
A couple of months ago, we moved to an economical, and nicer workspace in Gurgaon.

–
There are so many popular sayings which highlight the importance of food in our lives. ‘You are what you eat’, ‘Food is thy medicine’, ‘If more of us valued food and cheer and song above hoarded gold, it would be a merrier world’, or even ‘One cannot think well, love well, sleep well, if one has not dined well’. Food connects people like nothing else. So much so, that Jahnvi Kapoor once mentioned on Koffee with Karan that she would rather use Zomato than Tinder to find a date for herself.

We are committed to bringing the best food to everyone; no matter who they are and what they can afford. Over the next year, we are going to work towards making each of our users a brand ambassador for our mission, and will make every effort to provide a delightful experience to our users every time they think of food.

This is a long journey, and every day, the energy at Zomato makes me feel like we are just getting started.

Deepinder Goyal,
Founder & CEO, Zomato