Is there a problem with the Zomato business model as it struggles with cash burn, strategy and Restaurant engagement?

A recent article examining the Zomato business model in the Financial Times questions whether Zomato has gone rotten.  It quotes an internal email that describes how they have grown to be in 22 countries across the world, having launched organically in 15 of them and in the other 7 how they have acquired businesses to achieve market share.  In India and Australia they have released their online ordering service.  The email highlights the strength of Zomato with the many people who use their app to find restaurants.  It highlights the obvious natural progression of moving to transaction based services, including charging restaurants for online orders and online bookings.

The email goes on to highlight the importance for every dollar and every ‘Zoman’ – Content 2.0 and splitting countries into two types, full stack and Enterprise.  Full stacks refer to markets where it is a leader and where it will continue to offer live data collection and ad sales. This is expected to include India, the Middle East, Philippines and Indonesia and Australia and New Zealand.  The Enterprise markets are calssed as either small markets, slow growth economies or where Zomato is not the dominant player.  In these markets the focus will be on Zomato Book reservations, with less on the ground community building.

The layoffs were targetted at Zomato’s content team, which means that they will be relying on the public and restaruant owners to ensure that information like menus is kept up to date.  We suspected that a lot of this information will fall off in terms of quality as competitors will attempt to edit details and Restaurant owners will not have the time to update the information themselves.

Techcrunch reports that 92% of traffic for Zomato comes from just 40% of restaurants, which creates difficulties in servicing the long tail of customers that represents the other 60% of restaurants.  We suspect that once again we will see a divergence in terms of Restaurants.  Many great restaurants with strong local support will simply opt out of paid for services, focusing on running lean marketing campaigns where they don’t need to compete with all of the other restaurants listed in a referral sites database.

They are hoping that Restaurant owners will update their own listings.  It talks of leaner content teams across the world.

The experience of Marketing4Restaurants’ customers may highlight some of the significant issues that Zomato is having.  Zomato appears to be struggling to differentiate itself from competitors like Just Eat and there is still significant confusion in the market place

Did Urbanspoons have the right business model after all, with a small team, email based support and no in person sales team?  Whilst the engagement and revenue was probably a lot lower, their cash burn rate would have also been a lot lower.  Restaurant owners aren’t silly and they are pitched to every day of the week, so if someone comes into their Restaurant and wants to spend time with them, they need to understand the Restaurant industry and they certainly need to have a product that Restaurants want.

Linking bookings and online orders is a great idea, but combining it with online reviews?  Maybe that is just something that Restaurant owners aren’t too keen on at all.  Restaurants struggle with bad feedback being made public in general, but specifically with mischievous, vindictive and fake reviews.

Zomato appears to be well out of the honeymoon phase after it’s last capital raising, closing it’s Seattle office and laying off 300 staff, about 10% of it’s workforce, according to ftalphaville and CEO Deepinder Goyal issuing a stinging email to it’s sales team.  The email, which stated that Zomato was well behind on it’s numbers for March 2016.  These numbers were issued when it raised capital from investors Sequoia India, Vy Captial, Temasek and Info Edge.  Goyal warned the sales team to “shape up or ship out,” and “the fact of the matter is that our sales tam is not firing on all cylinders.  The average number of meetings per day for our sales teams vary from a pathetic one to 3.5 in the best team – it should be anywhere from five to six meetings a day…  I could go on,” Goyal said in the email.

“A lot of friends tell you that they were never given any feedback before they were asked to go. That is never true. The fact is that a lot of people don’t take feedback seriously, and they keep under-performing consistently. A lot of people are let go (sic) on ethical grounds – we never make the reality about such people public, because if we did, it would ruin their careers,” his e-mail said.

The Johannesburg Zoffice.

The Johannesburg Zoffice.

Another issue that remains unclear with the Zomato business model is who actually owns the customer data when a person makes a booking or orders food online.  Do the restaurants receive the email address and does Zomato email out offers from other restaurants?  This is probably the largest reason for decreasing customer loyalty that Restaurants are seeing with services like Dimmi, Just Eat/Menulog.

For us, we believe that there is a lot of value in cross selling to Restaurant customers between those making bookings and those ordering online.  Restaurants are also keen to have less service providers, not more.  We don’t think there is any value in linking it to websites that offer reviews for multiple websites.  Restaurant owners are sick and tired of having fake reviews about their restaurant published for everyone to see, and even when it isn’t a fake review, they often don’t get the opportunity to provide their side of the story.

It remains to be seen how many more job cuts will come at Zomato and whether they will be able to turn around the cash burn rate.  To date they have raised over $223 million and recently passed a $1 billion valuation.

Looking for a Free Restaurant OnLine Ordering system with no fees and keeps builds your email marketing database, not your competitors? Try FROLO.

Looking for a Free Online Restaurant Booking system with no fees and builds your email marketing database, not your competors? Try FORBS.  Australia and New Zealands largest Free Restaurant Booking services with over 250,000 seats booked.


Is Poor SEO Killing Your Restaurant?

Too many times we see customers with websites that are costing restaurants thousands of dollars every month through poor design, poor messaging and poor SEO. If your website could be improved to bring in 200 extra visits per month and just 10% of those made a booking, and each booking was for 2.5 seats on average at $50 a seat, you would have an extra $2,500 in revenue a month. A 30% food cost, that is $1,750 in profit extra a month. This ignores those customers coming back as regulars – which is more profit.

Remember, if these customers aren’t finding your Restaurant, they are finding your competitors.

Get one of our obligation free 7 point website SEO audits to see what you can get your web developer to fix to increase your revenue today.