Venture Capital: COVID Forces Indian Food Delivery Apps Swiggy and Zomato To Slash Workforce

May 19, 2020 | News, Venture Capital
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Plunging food delivery orders have forced Swiggy and Zomato to cut costs.

Swiggy, an Indian startup that delivers food, groceries and operates a courier-like service, has issued pink slips to 1,100 employees.

In a blog to employees, Swiggy cited a “severely impacted” core food delivery business. It also disclosed intentions to jettison non-core and volatile businesses in the ensuing 18 months. (CrunchBase)

Meanwhile, the food-delivery app Zomato laid-off 13% of its employees, or 520 positions, according to a media report. It cited the large number of restaurants that have shut down, with more to come.

Swiggy: “Inflection point”

Ironically, Swiggy cut its workforce even though it raised $43 million last month, and $113 million in February.

Co-founder and chief executive Sriharsha Majety said in a note to employees:

“The core food delivery business has been severely impacted and will stay impacted over the short term, but is expected to start growing again after that. We need to hence prepare to come out stronger on the other side by continuing to build on capabilities that will help us make the most of the opportunity when things are better again. While we are very fortunate to have raised capital just before COVID hit and have sufficient runway today, it is incredibly important to prepare for worse scenarios in the macro environment and make sure we are protected.”

Majety added: “While this crisis has impacted our core business negatively, there is no doubt that we are now at an inflection point for the penetration of digital commerce and home delivery in India. This offers us opportunities to continue investing our efforts in grocery and other service offerings that we think will continue to do well.”

Swiggy offered a “care package” for impacted employees. It includes 3 months of salary and an extra month of ex-gratia in addition to notice pay. Regarding stock options, it will grant an extension of ESOP vesting to the nearest quarter including notice period, and waiver of the 1-year cliff. It will also provide medical, accident, and term insurance until December 2020.

Zomato: Building for the ‘new normal’

Zomato shed 13% of its employees because of the COVID crisis. Founder and CEO Deepinder Goyal wrote to employees:

“Multiple aspects of our business have changed dramatically over the last couple of months and many of these changes are expected to be permanent. 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.”

He justified the action as follows:

“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% over the next 6-12 months. What actually happens, for better or worse, is anybody’s guess. All of this uncertainty inevitably needed us to re-define our business strategy. There’s no going back to the ‘normal’ – all we should focus on is building for the ‘new normal’.”

Like Swiggy, Zomato is also cash-rich, it appears:

“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).”

Related Story:      Venture Capital: The Indian VC Industry Deployed a Record $10B in 2019 (Report)                                             

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