Food delivery startups in India have been struggling to make financial sense for years. They have each lost as much as $50 million a month to win and sustain customers by offering heavy discounts. And unlike some other markets, food delivery startups in India have been severely hit by the coronavirus pandemic.

But Zomato, one of the two market leading startups operating in the space, today offered a rare sign of hope for the market after it said it had severely cut its cash-burn as it looks to become profitable.

The Gurgaon-headquartered firm said it estimates it would lose less than $1 million in July, the lowest in years for the 12-year-old firm that acquired Uber Eats’ India business earlier this year.

Zomato also shared its performance for the financial year that ended on March 31, 2020, and the quarter that ended on June 30.

In FY 20, the startup said its revenue surged 105% to $394 million compared to the year before while its losses at EBIDTA-level — a popular metric used by businesses that does not account for interest, taxes, depreciation, and amortization — ballooned to $293 million, up from $277 million the year before.

But the startup said the coronavirus pandemic, which has significantly reduced the number of orders customers place on the platform, has also helped it improve its unit economics.

In the quarter that ended last month, Zomato clocked $41 million in revenue at an EBIDTA-level loss of $12 million. In the month of June alone, the startup’s revenue stood at $17 million at an EBIDTA-level loss of $1.5 million.

As India eases its nationwide lockdown, which it enforced in late March, more workers are moving back to larger cities. Zomato said this has helped the firm increase the number of orders on its platform. The startup said it expects its revenue generation this month to be at 60% of the levels before coronavirus wrought havoc to the industry.

In the quarter that ended in June this year, each order on Zomato earned it — made a contribution margin of — 27 Indian rupees (36 cents), compared to a loss of 47 Indian rupees (62 cents) a order during the same period last year, claimed Deepinder Goyal, co-founder and chief executive of Zomato.

Goyal cautioned, however, that the current contribution margin is not sustainable and he expects it to go down to 15 Indian rupees to 20 Indian rupees per order over time.

Zomato, which eliminated its workforce by 13% in May and slashed salary across the board, said it had reinstated the pay of existing employees back to the earlier level and its projection for this month takes that into account.

The firm competes with Prosus Ventures-backed Swiggy, which has eliminated even more jobs in recent months and made other efforts to improve its financials. The two firms, both of which together have raised nearly $2.5 billion, are struggling to find new investors as many VC and PE firms lose appetite for food delivery in India. New Delhi’s recent efforts to make it tougher for Chinese investors to back Indian startups hasn’t made that easier.

Goyal said in January that Zomato had secured $150 million from Ant Financial and was on track to raise an additional $350 million to $450 million by the end of the month. More than five months later, Zomato has yet to court any other investor, and Ant Financial has delivered only a third of the capital it originally committed.

Several VCs have told TechCrunch in recent weeks that they are struggling to understand how food delivery firms would ever turn a profit in India. Unlike Western markets such as the U.S., where the value of each delivery item is about $33; in India, a similar item carries the price tag of $4, according to estimates by Bangalore-based research firm RedSeer.

“The problem is that there are very few people in India who can afford to place an order from a food delivery firm each day,” said Anand Lunia, a venture capitalist at India Quotient, in an interview with TechCrunch.

To drive the demand, food delivery firms need to bring down the price to a level that matches with what most working class Indians spend on their lunch, which is less than $2, he said. Swiggy has attempted to make its platform more affordable to consumers by setting up cloud kitchens across the country. But it scaled down its cloud kitchen business in May citing uncertainty over the demand this year.

Zomato has expanded to dining out and business-to-business supplies, as part of which it procures raw food material from farmers and sells it to restaurants, verticals in recent years. The firm’s dining out business, called Zomato Pro, has amassed 1.7 million subscribers — despite pushback from restaurants last year, Goyal said. The firm is also looking to “rapidly expand” its B2B supplies business across the country, he said.

The two firms are expected to face even more challenges in the future as Amazon, which forayed into India’s food delivery market two months ago, scales it operations across the country. Amazon’s food delivery service is currently only available in select suburbs of Bangalore.

Originally published at techcrunch.com

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