Zomato on Friday announced layoffs of around 520 people, or 13 percent of its total global workforce of nearly 4,000 employees to reduce the economic impact it faced due to the COVID-19 outbreak. The Gurugram-based food aggregator, which has operations in over 24 countries worldwide, also instituted a temporary pay cut of up to 50 percent for its remaining employees that will come into force from June. The new developments by Zomato comes just days after arch-rival Swiggy decided to lay off approximately 900 employees from its cloud kitchen business to overcome the impact of the coronavirus pandemic.
People affected by the layoffs will continue to receive a 50 percent salary for the next six months, or until they get a new job, whichever comes first, along with their current health insurance.
Founder and CEO Deepinder Goyal in an email to Zomato employees explained the latest changes. “Our business has been severely affected by the COVID lockdowns,” he said in the email, a copy of which has been posted in a blog post from Zomato. “A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg.”
Goyal predicted that due to the pandemic, the number of restaurants would shrink by 25-40 percent over the next six to 12 months. This has already pushed Zomato to redefine its business strategy and make a “complete shift” towards becoming a transactions-first company, he noted.
Although Goyal claimed in the email that Zomato is “financially stable” and is set to continue its hiring primarily in product and engineering divisions, it is looking for ways to reduce its costs. The company has decided to make partial or full work from home a permanent feature for its employees to cut real estate expenses. Similarly, it is reducing salaries for all its entire organisation.
“Lower cuts are being proposed for people with lower salaries, and higher cuts (up to 50 percent) for people with higher salaries,” Goyal wrote, adding that the temporary salary cut will be eligible for 2X employee stock grants.
Groceries as a temporary saviour
Due to the coronavirus spread that has brought social distancing as a universal practice, Zomato — along with its competitor Swiggy — started enabling grocery deliveries in India. Goyal's email highlighted that the company is already delivering groceries in 185 cities across the country and is planning to bring a similar model in the United Arab Emirates (UAE) and Lebanon. Notably, the company started its grocery with over 80 cities last year.
“We see long term potential in this [grocery] segment,” Goyal said in the email. “Grocery also fits perfectly into our vision of better food for more people.”
Nevertheless, Zomato and other new entrants are facing tough competition from existing contenders including BigBasket and Grofers. The ease in the national lockdown would also impact the grocery delivery operations as people are likely to start resuming offline shopping in the coming days.
Zomato and Swiggy are also demanding the government to allow alcohol deliveries through their platforms in India. This would help generate some sales at the time when people are restraining from ordering prepared food online. The government, however, is yet to give a go-ahead to both companies. But in the meantime, the National Restaurant Association of India (NRAI) is in plans to make things even tougher for the food aggregators by launching its own food delivery platform that will go live anytime soon.
Second layoff in one year
The fresh layoff is the second in one year as Zomato in September last year laid off 541 people to favour automation and artificial intelligence (AI) in its operations. It also comes following the dismissal considered by Swiggy last month. A Zomato spokesperson at that time told Gadgets 360 that the company didn't have plans to lay off any of its employees.
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