Zomato business model
Zomato was launched in 2010, from the rebranding of Foodiebay, a food directory website. Like any other startup in india, food tech unicorn Zomato too had its ups and downs. In 2015, during the massive layoffs and losses, there were big question marks on the company’s survival in the market. But, Zomato defied the odds and came out even stronger to dominate the food delivery industry in India.
Pankaj Chaddah and Deepinder Goyal, are the brains behind Zomato. They were alumni of IIT Delhi and co-workers at Bains & Co in New Delhi. In their office, they recognized how people had to wait for a long time to have a glimpse of the menu card. And, this led to the birth of Foodiebay.
In Foodiebay, the menu soft copies were uploaded so that people can check out the menu on their smartphone and order quickly with no wait. The concept became an instant hit, their website traffic numbers increased significantly so they decided to expand their services to Kolkata and Mumbai. The number of people using the Foodiebay soared with each passing fiscal year. Later, the founders of Foodiebay wanted to make the venture even bigger, thus leading to Zomato, a simpler name to remember. They didn’t want people to confuse Foodiebay and eBay. In 2010, Zmato was officially unveiled.
As the users of the Zomato website grew, Founders with the aim to enhance ease-of-use decided to launch a dedicated Zomato food ordering App.
However, this innovation needed a lot of funding to kick start. So they started doing series of funding :-
- In 2010, Info edge invested US$ 1 million into the Zomato
- Then the next year, they gave whopping funds of US$3.5 million and US $10 million the following year
- In 2014, Sequoia Capital joined in and poured 50 million+ for the next three years
- Later investment firms like Temasek Holdings, Vy Capital, Baillie Gifford, and multiple other firms joined in.
So far in the last three funding rounds Zomato has been able to raise 100 million + funding each time and was valued at $5.4 billion .
The formula of success of Zomato according to their founders is hiring the right people with passion and dedication to take the company forward. In fact, they believe this is the biggest hurdle, and now they are proud of their team.
During the earlier days of Zomato, the founders did not focus much on earning revenue, and only when the website gained huge popularity, they recognized the prospects of earning. When they had 62.5 million sign-ups, restaurants started contacting them to place their advertisement through which Zomato made a good revenue. Restaurants were eager to integrate Zomato’s online food ordering sytem into their ecosystem and multiply their sales. Later, Zomato enhanced the customer experience via cashless transactions.
Today, Zomato is operational in 24 countries, across 10,000 cities. The revenue of the company is ₹2,486 crore as of 2020.
Zomato’s IPO success is promising for other startups in India. The company’s stock market debit day ended at 66% at a value of $13.3B. The concept of Zomato is similar to US-based DASH that lets companies book restaurant tables and order food from restaurants.
“The response from institutional investors has been strong. This suggests that the overall float available for trading might be limited leading to a higher GMP. We had to issue a *Subscribe with Caution* rating for it’s IPO, keeping in mind the long investment horizon required for high-growth companies that are currently loss-making,” said Rajnath Yadav, Research Analyst at Choice Broking.
What Does Zomato Bring to the Table?
Since the launch of Zomato, it has created a buzz in tier-1, tier-2, and tier-3 cities throughout India. Zomato operates on the QAAA model, which stands for Quality, Accessibility, Affordability, and Assortment to both their partners and customers. Let’s understand what makes Zomato so distinctive from its market rivals.
Improving Food Quality: Yes, Zomato has invested big time in improving the food quality by funding restaurants through their Hyper Pure campaign. This funding helps restaurants to maintain the highest standards with the use of high-grade ingredients, fresh veggies, and a hygienic kitchen. Zomato gives food hygiene ratings to each restaurant thus allowing customers to order accordingly.
Increased Accessibility for Customers: With each quarter, Zomato is expanding to new cities across India, covering the suburbs along with the metro cities. Nowadays, they offer additional features such as corporate catering and table reservations. And, their feeding India initiative is a campaign that works towards creating a better India when no one sleeps on an empty stomach.
Maintaining Affordability: Affordability has been the major aspect that Zomato has never overlooked. They offer amazing deals and discounts on food ordering. Their gold package subscription was an instant hit, allowing customers to save a considerable amount on regular food orders. They have always strived in the direction of ensuring affordability without compromising much on their profits.
Aid in the Assortment: Zomato presents its customers with the opportunity to taste dishes of diverse cuisines with no geographical borders. They provide the most detailed information on their App so that their customers can make well-informed decisions.
How Zomato Earns Money?
Ever since Zomato’s inception it has been churning out good revenues but was never able to make hefty profit. Hence the reason why people think Zomato doesn’t earn much and they expect it to be the same in the future.
But only few are able to realize what Zomato brings to the table and apart from it’s cheap food delivery services, it has diversified it’s revenue into multiple streams and today we’re gonna talk about that:-
Restaurants are the backbone of Zomato. As of now, there are about 131,233 active restaurants added each month on Zomato and every restaurant on Zomato prefers to be on the top of searches whenever a customer searches for a relevenat dish in their locations. So, the food delivery App Zomato offers restaurant advertisements.
It typically charges 40 to 50 Rs per click on their platform. Also there is a zero restaurant listing fee on Zomato. Hence for F&B business owners all they can do is sign for free and to boost their order numbers, they pay upfront for the advertisments.
Approx 75% of Zomato’s revenue in the fiscal year 2019 was through food delivery commissions. Zomato has currently developed it’s own ecosystem for online food ordering where restaurants have to use Zomato’s own associate riders to delivery their orders and there is no way around. In the end, restaurants are charged for delivery commissions, which you can completely avoid if you use NinjaOS as your online ordering system.
Anyways, Zomato’s revenue was $155M in 2020 which was approx four times what they made last time.
The Gold subscription that aims at providing premium services to their customers is amongst the biggest revenue streams of Zomato. If a customer has a gold subscription, they get complimentary beverages and food.
In the year 2020, the revenue from the gold subscription model was about $49 million, and $30 million. The unlimited pack gold subscription charge in India is Rs 1800 for 365 days.
Another way Zomato makes good earnings is by hosting live events with the objective to promote their partner restaurant. These restaurants get great exposure & visibility via Zomato events, and they have to pay a hefty price for it.
The Zoomland event of Zomato is quite popular, it charges its users a nominal fee to enjoy food and live musical performances.
Zomato’s White Label Access
Recently, Zomato has an unrivalled Whitelabel Platform that is a suite of technologies that allow restaurants to operate their business over the Internet. The key feature of this platform is allowing restaurants to have their custom-branded native Apps to better engage with their customers.
The Whitelabel platform works on the subscription model of $200 per month.
Zomato also belives in cloud kitchen’s concept where they provide infrastructural services to certain restaurant partners. They fund food entrepreneurs to set up a restaurant in the right location with an investment of Rs 35 Lakhs.
It offers a return of 2 to 4 lakhs to the inventors. Presently, Zomato is having 180 affiliate kitchens. Zomato is always in search of passionate entrepreneurs for setting up Zomato kitchens.
Zomato Hyper pure
Zomato under the Hyper pure program collaborates directly with the farmers to enhance the quality of raw ingredients supplied to the restaurants at the most competitive rates. The hyperpure venture was launched in August 2018, and within a few months, the concept rapidly grew in numbers.
By November, Zomato was supplying raw ingredients to 350 restaurants across Bangalore, and approx 1,000 restaurants as of now. The significant increase in demand led to encouraging Zmato to considerably invest in large scale operations to meet the growing raw material requirements.
Recently, Zomato bought a warehouse of 6,000 sq. ft in Bangalore, having a capacity of 4,000 metric tons. They are in the process of setting up an even bigger warehouse in Delhi, and then expanding to nine other cities by the end of the year, and eventually exploring the international markets.
Multiple Business Partnerships
Zomato has a key partnership with Uber Taxi. The App has a feature that allows its users to book a ride to the Zomato restaurant they want to dine at.
Zomato is in collaboration with London & Partners to boost their online presence in the European regions. Their other big business partnerships include PayPal and Visa.
What is Zomato’s Future?
In the Zomato business model case study, let’s talk about Zomato’s future. Zomato’s IPO is re-imagining the future of food in India.
Their IPO was the biggest hit in India in 2021. They raised approx Rs 8,250 crore via an initial share sale.
When the COVID-19 pandemic and swerve restrictions have hard-hit most of the Indian sectors, Zomato stayed strong during these challenging times.
They brought in more funds to grow their business. Their delivery boys worked tirelessly to deliver orders to even the containment zones throughout the country. This allowed for foodies to enjoy their favourite food from the comfort of their homes even when there is lockdown everywhere.
“We need to continue to invest in three core areas for the growth of our business which includes a) customer and user acquisition, b) delivery infrastructure, and c) technology infrastructure. We have made these investments in the past, and we expect these to continue to be critical for the growth of our business in the future,” Zomato said.
The next couple of years looks good for Zomato, with coronavirus is here to stay, even when the global vaccination drive is happening at a rapid pace.
The future plans of Zomato include setting up hyperpure in some of the major cities throughout the country. They will be expanding their food delivery services to about 500 cities across India.
They also have big plans of expanding in foreign countries. Drone delivery is the new buzz in the food App delivery, especially internationally, and in coming years, it is expected that it will come to India. Zomato will also be adding new cities to their Zomato gold subscription. The Zomato infinity dining expansion is the next big thing to happen.
In the end, we hoped that you learned the right lesson for this Zomato’s business model assement and case study, that if you have an idea, determination and success will come hunting you.
Do you have anything to add to this, why Zomato has been so successful in India, even when people here are used to ordering delivery from restaurants near them? Share it with us in the comment section below, our readers would love to hear your thoughts.