Indians have changed a lot this past decade. Particularly, the way we eat has changed. Nowadays, we don’t run over to the fridge or our kitchen everytime we feel hungry – we just look at our phones for the most delicious snack available on Zomato or Swiggy. The food delivery industry has become almost ,synonymous with these two names. We did talk a lot about Swiggy in another article, so in this article by Growth Insights, we’re going to discuss everything we know about Zomato – covering everything from how it went from nothing but a small vision to a household name, how it makes money, and if it’s actually profitable to follow such a business model. Let’s get started.
Zomato essentially started out as a platform for people to rate and review different restaurants and give feedback as well as listings in around 24 countries. Called FoodieBay in 2010, it was started by friends, business partners, and fellow foodies Deepinder Goyal and Pankaj Chaddah.
The platform was created to help out both food lovers as well as the owners of restaurants. Then the owners realized they could help restaurants even get their food delivered to their customers as well. Thus began the journey. Many ups and downs later, they developed a website where users can view the menus of different restaurants that do not have a website of their own. A person who owns a restaurant can easily list their menu regardless of the fact If they have an online presence or not. It also helps the owners to increase the business through listing advertisements and promotions of the menus in their app. Zomato was ready to lift off.
The food-delivery startup was craftily designed, with a lot of smart search engine filters, and also used advanced code to display relevant restaurants as per the search results. It uses key phrases and dishes that can be found in certain restaurants, to provide users with only what they want to see, maybe even better stuff – giving its customers a great user experience overall.
But all of this is just the tip of the iceberg. What makes Zomato really great is how it markets itself, and how it operates. We’ll get to all of that in a bit, but first, let’s take a look at who exactly consumes from the unicorn.
There are three customer segments which Zomato heavily relies on, or rather customers that use Zomato often:
Stay at Home Users
Basically the people Zomato was built for. The platform is designed for these users to find and locate restaurants within a range of different cuisines. It was perfectly geared up for the customers who preferred home delivery rather than anything else.
Zomato picks out significant restaurants that want to promote their business and reach their target audience. It helps these restaurants connect with customers who are likely to purchase from them, and essentially puts them on the map.
There are a lot of active reviewers who take their food seriously and post reviews and photos of different restaurants and their dishes from time to time. Zomato focuses a lot on keeping these people happy, because they come up with free content for their app.
Much earlier, Uber taxi and Zomato formed a sort of alliance to provide their user base with the option of booking a ride to the restaurant that they plan to dine at. This kind of marketing is what sells. If someone plans on eating somewhere, they can simply use one app and book a cab to that place, while having their food delivered once they get there.
London & Partners
Zomato has also built an alliance with London & Partners – a promotional company – to expand the presence of their platform throughout European regions as well. London & Partners is responsible for handling Zomato’s business operations in the UK, but before that it needs to find out the operating costs, salary expectations of potential hires, the employability rate, locations for workspaces and much more. They also have to provide work placements and help Zomato with the marketing research and advising its accountants on legal procedures, policy and compliance.
A few other business partners for Zomato include companies like VISA and PayPal, for processing card and cashless payments, delivery partners, and much more.
Those were some of Zomato’s key business partners, and it earns through these companies. We have to understand its business model to learn how it makes money from them, but we’ll get to that in a bit. Understanding Zomato’s business model would be a bit difficult without a proper analysis of the main activities of the 2 billion USD valued unicorn. The primary purpose of Zomato is to connect restaurants with hungry consumers, but it also has several other projects that it takes care of every single day. So let’s take a closer look at these activities before we jump into the numbers.
Managing its Network
As mentioned before, the company operates in 24 different countries, and managing the requests of all of the millions of orders each day takes a lot of effort. To run this process effectively, it needs a great customer management and support system. And Zomato has that.
Utilisation and Management of Advertising
Zomato knows that to compete with companies like Swiggy, it needs to widen its customer base. And hence, everywhere you can see, you’ll be bombarded with advertisements from Zomato – they pop up in every other Youtube video, on TV, even in your Spotify ads. The more people know your name, the more likely it is that they’ll buy from you.
Drive Customer Experience
Zomato also pays a lot to develop its user interface and website experience regularly. People will pay for faster, smoother and more enjoyable experiences. Zomato wants to capitalise on that by building a really appealing mobile app and website.
Like we mentioned earlier, in the beginning, Zomato wasn’t a delivery service app but a review website. When it started food delivery, Swiggy was its only competitor. Now the two tech-giants go head to head almost every single day to get the most amount of orders and market share.
Consultation with Restaurant Owners
Zomato has a massive database of users, which might, and often does, reveal a lot of facts about the behaviours and their wants and dislikes. They have data consultancy services with a lot of restaurants and eateries across towns to provide valuable insights into what their customers like, and more importantly, what they don’t like.
The company also works with restaurants to enable them to build their own food delivery app. What this essentially does is, it takes in orders only from that particular restaurant and has Zomato deliver its food to its loyal customers.
The platform has access to multiple points of exposure. You can access Zomato almost everywhere the App Store or the Google Play Store is available – it’s available on your phone, tablet, laptop, and desktop. Thus, it can be on anyone and everyone’s screens almost all the time, provided it’s ready to pay the price. And backed by investors, Zomato has the money to make that decision. However, it has to take into account certain costs and expenditures that, if not managed properly, could sink the unicorn way below what it is today. Let’s take a look at these costs and expenditures, and why Zomato needs to be careful with them.
The operating costs of Zomato used to be roughly less than a million dollar. But during FY2018, they had surprisingly increased to around 500 million dollars, indicating how the business has expanded vigorously in recent years.
To build a massive online presence, Zomato has put a large amount of the investors’ money into online and offline advertising. You do need to have eyeballs on you at all times afterall. A chunk of its money also goes into developing its applications and maintaining relationships with its customers.
Zomato needs to take care of its legal and proprietary rights, so money goes into that too. As you all know it operates in 24 countries including Portugal, India, UAE, Qatar, Turkey and Indonesia. The maintenance costs also need to be taken care of here. And let’s not forget about the 5,000 employees with different pay scales at Zomato that need to be kept happy.
These are just some of the costs that take up a major chunk of Zomato’s revenues. Now, we might wonder if the company is actually making any profits after all these charges are met, and we’ll get to that, but first, let’s take a look at how much money Zomato makes and from where the money comes in.
Revenue Sources : How does zomato make money
75% of the whole revenue from Zomato constitutes the commission collected from transactions carried out during deliveries. Zomato’s services brought them around 38 million USD in the year 2018. This amount shot up to 155 million USD in 2019 – a little over four times more growth in just a year. Clearly the marketing and advertising section did its job very well.
Zomato has partnered with several restaurants to bring up offers like providing complimentary food and drinks to its premium subscription service – known as Zomato Gold with an annual membership fee of INR 1199 – and the program has up to 1 million active subscribers. Even this sector has skyrocketed from 30 million USD from last year to 49 million USD in 2019.
Zomato also deals with the sale of tickets for several events and shows it has partnered up with. The transaction brings a good amount of money, though not as big. All money is good money.
Like we mentioned in a much earlier section of this blog, Zomato also offers paid consulting to restaurants that are looking to boost their sales and want to get out there and reach more loyal foodies. Following in the footsteps of Swiggy’s cloud kitchens concept, it is also planning on introducing a similar concept, though not much is known about it right now.
It seems Deepinder and Pankaj have shifted their focus to becoming more of a transactional company instead of just relying on the advertising revenue. The company is constantly trying to balance their delivery and dining out features. They’re currently in an effort to milk more out of the $2000000 revenue model through their sustainability strategy. We will have to wait to see how this one plays out for the company. But for now, Zomato is certainly in a league of its own, and Swiggy will have to sweat it out to keep ahead.