Online food-delivery platform Zomato on Friday said it will reduce its workforce by 13%, while also implementing a temporary pay cut of up to 50% for remaining employees as nationwide lockdown to prevent spread of COVID-19 severely affected its business.
In an email to employees, Zomato Founder & CEO Deepinder Goyal said that the workers affected by the layoffs will continue to get half of their salaries, in addition to health insurance and outplacement support, for the next six months or till they find another job, whichever is earlier.
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The company is also looking at making “partial or full work from home” a permanent feature to reduce real estate costs.
“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,” Mr Goyal said, adding that he expects 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’,” he said.
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Mr Goyal said that while many people have volunteered for a 100% pay cut for at least 6 months, the company remains short of its salary reduction target.
“Starting June, I am proposing a temporary reduction in pay for the entire organisation. Lower cuts are being proposed for people with lower salaries, and higher cuts (up to 50%) for people with higher salaries,” he said. This temporary reduction in pay will also be eligible for 2x ESOP grants.
Mr Goyal said that these cuts are expected to be discontinued as soon as the economy starts getting back on track. “I foresee (and hope) this to be around 6 months from now.”
On letting go of employees, Mr Goyal said the Zomato does not foresee having enough work for all its 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.”
Mr Goyal added that all employees who no longer have any work at Zomato, will continue to be “with us at 50% salary for the next 6 months. During this time, outside of the handover period of 1-2 weeks, we expect these folks to spend 100% of their time and energy towards looking for jobs outside of Zomato.”
He added that some impacted employees who are not directly on Zomato’s payroll, will get two months of severance (vs. 15 days of contractual obligation).
“Each person leaving us will also be allowed to keep their Zomato issued laptops and phones (if any),” he said, adding, “Previously allocated ESOPs will continue to vest during this period of six months, as all these people will remain on our payroll with reduced pay.”
In an official blog post, Mr Goyal said that the company’s “financial runway looks solid... we are, however, going to prepare ourselves for things getting worse.”
He added that the company’s burn rate is significantly down from pre-COVID levels and “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).”
The company will continue to hire people in some areas, primarily in product and engineering.
“COVID-19 has been a black swan event for the world economy; and we do not yet know if we have hit the global minima in this journey with the virus. What we have seen so far might just be the local minima, and the worst might be around the corner. Therefore, we need to make sure that we preserve as much cash as possible to weather the storm if the business environment gets worse, or continues to be the same for the rest of the year or more.”
Noting that the company’s highest recurring expense today outside of payroll is real estate, Mr Goyal said Zomato has over 150 offices globally, most of which are spaces for their sales and logistics teams. “Given how well we have been working from home, we have decided to make partial or full work from home a permanent feature of our lives.”