Zomato Media Pvt. Ltd will lay off 13% of its workforce and slash the salaries of all its employees, as the coronavirus outbreak’s impact on the restaurant industry has hurt the startup’s core food delivery business.
The company will temporarily cut salaries by up to 50% starting June, founder and CEO Deepinder Goyal said in a note to employees. He added the company will pay half salaries to those being laid off for up to six months.
“Our business has been severely affected by the COVID lockdowns,” Goyal said, referring to the two-month-long nationwide shutdown the government has imposed to contain the spread of the COVID-19 pandemic.
India imposed the lockdown starting March 25, and has extended it twice until May 17 for now. But the lockdown is likely to continue in big cities most affected by the virus that has infected nearly 82,000 people in India.
The lockdown led to the shutdown of most factories, offices, restaurants and other shops. And even though the government is now gradually reopening the economy, restaurants are likely to be among the last to be opened up.
“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% over the next 6-12 months,” Goyal said.
Goyal said this uncertainty has promoted Zomato to redefine its business strategy. “There’s no going back to the ‘normal’ – all we should focus on is building for the ‘new normal’,” he said.
Already, Zomato has forayed into grocery delivery as people staying home order food and other items online. The company now delivers grocery in 185 cities in India and is launching in the UAE and Lebanon, Goyal said.
Zomato didn’t say how many people are being laid off. However, Reuters reported a company spokesperson as saying that Zomato currently has about 4,000 employees. This means about 520 people will lose their jobs.
Zomato’s main rival Swiggy is also said to be laying off many people, as are several other startups. Fitness startup Curefit has laid off as many as 800 employees across the country and permanently closed a number of gyms to cut costs.
Goyal also said that Zomato has decided to make partial or full work from home a permanent feature. This will help the company bring down its real estate costs, which is the highest recurring expense for Zomato after payroll. Zomato has more than 150 offices globally, he added.
On the plus side, Zomato’s cash burn has reduced significantly from pre-COVID levels. “We have enough capital to continue growing our business,” Goyal said, adding that the company is financially stable.
Zomato also has “a very generous amount of runway” in the bank, he said, and the runway is improving as the company brings its burn rate down.
Zomato, like Swiggy, has raised millions of dollars from venture capital and private equity investors over the past couple of years to fuel expansion. In January, Zomato had raised $150 million from existing investor Ant Financial, the payments affiliate of Chinese e-commerce conglomerate Alibaba Group Holding Ltd.
Also in January, Zomato had agreed to acquire ride-hailing company Uber Technologies Inc.'s food delivery business Uber Eats in India.