Can Zomato Continue its Deep Discounting Strategy? |
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In fiscal 2016, Zomato’s losses increased by more than three times to Rs 4.41 billion. The company’s cash burn was also very high at an average of US$4.2 million a month, flagging concerns around its heavy investments in online food delivery services. In order to curb the losses and capture the dine-out market in India, Zomato launched a premium, subscription-based dining out program called Zomato Gold (ZG) in November 2017. The exclusive membership program offered customers complimentary food (1+1) and drinks (2+2) for every order they placed at select participating restaurants... |
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| The food service sector in India was valued at around Rs 4,238 billion as of March 2019, according to a report by NRAI (See Exhibit II). And much of this growth was attributed to the rise of food delivery platforms. According to consulting firm Redseer, the number of orders placed on such ordering apps increased from around 1.7 million a day in 2018 to about 2.2 million in 2019. Major aggregators offered deep discounts to attract customers and increase the number of orders placed on their platforms... |
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| As the Logout campaign showed no signs of ending, Goyal announced that Zomato was open to making modifications in the ZG program to rectify mistakes. He appealed to restaurant owners to stop the campaign in the interest of consumers. According to him, bargain hunters had joined ZG and were hurting some segments of the restaurant industry. .. |
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| While restaurants continued to stay logged out, analysts felt that the logout could destabilise Zomato’s business, especially since 12% of its revenues were generated from ZG. The program had reportedly been expected to bring in about US$25 million in revenue by the end of 2019, which highlighted the importance of the service to the company’s bottom line... |
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Exhibit I: Zomato Revenues and Expenses (FY18 and FY19)
Exhibit II: Growth Projection of Organised and Unorganised Segments in Food Service
Exhibit III: Some Major Food Aggregators in India
Exhibit IV: Funding and Investor details of Some Major Food Aggregators in India
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