Zomato layoffs could be tip of iceberg for food delivery market

Grave challenges face the industry, as restaurants close and delivery boys go home

Zomato-delivery-bicycle-Salil Representative image | Salil Bera

The announcement by Zomato that it would be laying off hundreds of its employees is nothing of a surprise to the already-stressed food delivery market in India.

The prolonged lockdown and disruptions in delivery had been widely reported in the media. Delivery boys faced challenges while delivering food during the lockdown due to restrictions by the local authorities and police. Then, there were concerns among people that many may even be potential carriers of COVID-19 as the same had happened in Delhi and Bengaluru. Other food delivery companies such as Swiggy had also faced grave challenges. 

As per market estimates, the food services industry in India employed 7.3 million in 2018-19. Of this, the unorganized sector employed 3.6 million. Some of them worked in small restaurants and, with the closure of eateries, they had no income during lockdown. Due to the extended lockdown, business for this industry has fallen about 70-80 percent, causing a severe impact on the food delivery sector.

In addition to social distancing norms that will likely form a crucial part of the post-COVID-19 environment, it is unlikely that this industry will be able to operate with full strength in the immediate future. 

“The number of restaurants is expected to shrink by 40-50 percent over the next 6-12 months. The lay offs by Zomato are just the tip of the iceberg as the worst is yet to be experienced for the food delivery companies. With the continued impact on revenues and bottom line, the food delivery companies have already started looking at the alternate business model of grocery and liquor distribution,” remarked Rajiv Ranjan, founder, Paisa Dukan.

Even in the grocery delivery segment, the food delivery companies face stiff competition from the likes of Amazon and Flipkart and it may be very challenging for them to make much headway in these segments. Of late, due to the lockdown, many food delivery boys who were on contract returned to their villages, leaving a void in the industry.

People too have not been very confident about ordering food due to the COVID-19 pandemic as there were concerns about the quality of food being delivered. The restaurants and kitchens were working with minimal staff. However, the sacking of employees by Zomato is just the beginning and more may be in the pipeline.

“Currently, companies such as Swiggy and Zomato will suffer as things will take a lot of time to normalise especially on the restaurant and the kitchen front. When many of the contract workforce of Zomato and Swiggy had left for their villages these companies were hiring people temporarily through agencies. Immediately all food delivery companies will undergo severe financial stress and may even do away with their cloud kitchens and other form of kitchen,” said Kris Lakshmikanth, CEO of the executive search firm Head Hunters India Limited. 

A few experts feel that the move by Zomato is not in the right spirit for the food delivery market. “Zomato's move can potentially open up a can of worms. Because if every employer explores this laying off strategy, it could lead to a precarious situation down the road. Owing to government's travel restriction as well as demand shrinkage, Zomato had to make choices on the cost cuts. That they saved jobs for two months was commendable. But, to let their employees go was not the only choice. For instance, they could have cut salaries for them and waited for the situation to improve,” says Alok Shende of Ascentius Consulting.