COVID-19 and the lockdown have hit the business severely and there is a need to redefine business strategy, CEO Deepinder Goyal has said.
Online food delivery and restaurant-booking startup Zomato will let go of 13 percent of the staff and cut by up to 50 percent the salaries of the remaining employees for six months, CEO and founder Deepinder Goyal said in an email on May 15.
Around 500 people will be laid off in the second round of retrenchments by the company in a year, in the latest fallout of the coronavirus pandemic that has hit businesses across sectors.
“While we continue to build a more focused Zomato, we do not foresee having enough work for all our employees. We owe all our colleagues a challenging work environment, but we won’t be able to offer that to ~13% of our workforce going forward,” Goyal said in an email to employees.
He also said the entire organisation will from June take a pay cut for six months, the time period in which he expects the economy to get some semblance of normalcy.
"Lower cuts are being proposed for people with lower salaries, and higher cuts (up to 50%) for people with higher salaries," Goyal said.
Over the last couple of months, the business had changed dramatically and some of the changes would be permanent, he said.
“All our employees who no longer have any work at Zomato will continue to be with us at 50 percent salary for the next six months. During this time, outside of the handover period of one-two weeks, we expect these folks to spend 100 percent of their time and energy towards looking for jobs outside of Zomato,” the email said.
He assured them placement support and continued vesting period for employee shares (ESOPs).
"Our business has been severely affected by the COVID lockdowns. A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg. I expect the number of restaurants to shrink by 25-40 percent over the next 6-12 months,” Goyal said.
The layoffs come even though the Gurugram-based company says it is well-capitalised. Lack of capital or extending the runway is the main reason why dozens of internet startups have been sacking staff.
In January, Zomato raised $150 million at a valuation of $3 billion from Ant Financial, its existing backer and an affiliate of Chinese technology giant Alibaba Group.
“Our burn rate is significantly down from pre-COVID levels. We have enough capital to continue growing our business–are financially stable and have a very generous amount of runway in the bank (which is continuing to improve as we bring our burn rate down),” Goyal said.
The company would continue to hire people for product and engineering space, he added.
Zomato’s rival Swiggy laid off 1,000 employees in April and has scaled down its cloud kitchen operations, as companies refocus businesses to primary revenue drivers and cut out verticals that come in the way of profitability in the current scenario, where survival is the biggest concern.
Zomato has raised $840 million till date from marquee investors like Ant Financial, Info Edge, Sequoia Capital and Temasek.
The company which used to deliver close to 30 million orders per month has suffered massively after the outbreak.
Industry estimates suggest that deliveries have fallen by more than 40 percent across locations.
As per the latest details shared by the company, it is preparing a two-pronged strategy for deliveries that will stress on safety and hygiene of its restaurant partners.
For the dine-in part of the business, it wants to promote Zomato Gold and “contactless dining”. The company recently said 26,300 consumers had renewed their Zomato membership in April.
Food delivery has seen a massive cash burn as a business. In its competition with Bengaluru-based Swiggy, Zomato has pushed the pedal on discounts and aggressive offers.
Towards the end of 2019, Goyal said the company managed to reduce cash burn by 70 percent to approximately $15 million per month.It was aiming profitability by the end of 2020. But the coronavirus outbreak has upended these plans.