Thursday, July 25, 2024

Business Model Of Zomato. How Does Zomato Make Money?

When you think about ordering food online, the 2 most popular names which come to your mind are Zomato and Swiggy because of how popular they have become in the past few years.

Zomato is a company that provides online food delivery service to the customer’s doorstep. 

The stats say that the revenue in online food delivery industry is growing rapidly and is being projected to reach US$151,526m in 2021

At present, Zomato has its visibility in more than 24 Countries with around 1.25M orders daily. 

Zomato has more than 1.4M restaurant listings with 90B monthly visits and has its presence in more than 10K cities all around the world.

In this blog post let’s look into everything you need to know about Zomato’s business model, how does Zomato make money, their success story, and more!

Success Story Of Zomato

The success story of Zomato was all started in the year 2008 by Deepinder Goyal and Pankaj Chaddah. Both were graduated from IIT Delhi who passed out in the same year and started working in a management consultancy company known as Brain & Company. 

(Note: Pankaj Chaddah has left Zomato in 2018 and has set up a mental health platform known as Mindhouse. At Present Deepinder Goyal is the CEO of Zomato)

And while working there they realized that there was a problem in the food industry. Many people would go to restaurants and waste too much of their time just by looking into the menu cards. 

So to get rid of this problem, these 2 started a website known as Foodiebay where you can avail the menu cards of many different restaurants so that people can come to know about the dishes and their prices online without even going to the restaurants. 

So basically Foodiebay was an online restaurant directory.

Soon when Foodiebay got popular among the people, they changed the name of the company from Foddiebay to Zomato. 

As Foodiebay’s name was quite similar to the online shopping company eBay, and to follow the legal compliances they named their company as Zomato. 

You might be surprised why they even named the company name as Zomato (Which is quite a weird name) they choose the name because of the vegetable Tomato! They wanted a name that is simple and people can easily remember. So that’s why “ZOMATO”!

How Does Zomato Make Money? Zomato Business Model

business model of zomato

Zomato provides lots and lots of discounts to their users and you would wonder if Zomato is offering such great discounts then how does Zomato even earn money right? 

There are lots of investors who have invested in Zomato and even though the company is going in loss it still has a valuation of over $5.4billion!

Zomato uses the money invested by the investors to provide discounts to their customers. So even when the company is at a loss, why investors are putting their money on Zomato? Even lots of global investors have invested in the company.

Discounts are given by spending money of the investors. So why would an investor do that? As a common person, you would say that it will help Zomato to acquire more customers and it will become a habit for the customers to use Zomato for ordering foods. 

But this is business! That is not their business plan and their ultimate goal. Let’s understand their real business plan.

Let’s take a look at Zomato’s business model and income streams so that you’ll come to know why investors are spending too much money on Zomato.

Food Delivery Service

success story of zomato

Zomato usually provides around 30% discounts to their users. So all these discounts are given by making use of investors’ money? The answer is NO! Let’s understand this with an example:

Suppose if any restaurant sells a dish for 100Rs, then in Zomato platform the dish will be sold for 15 to 20% extra amount i.e the dish will be sold in Zomato for 115 or 120Rs.

So out of the 30% discount which is offered by Zomato, 15% of the discount is already taken care of by overpricing the food.

If you ask any restaurant owner, do they incur more cost when customers sit in their restaurant and eat food or if the customers take a parcel of the food, the restaurant owners would say it would cost more time and money if the customers eat food by sitting in their restaurant.

There are a lot of factors for this such as one needs to clean the utensils, waiters will become busy with the customers, and if your restaurant is already filled with customers then someone else cannot enter and occupy the seats. 

So all these costs must be borne by the restaurant owners.

But if the customers entering the restaurant becomes less and the delivery of their dishes increases then the restaurant owners would happily give 10 to 15% discounts as this will cost less and yield them more profit!

So if a dish costs 100Rs then the restaurant owners would be happy to send out the dishes for 85 to 90Rs. 

And these 10 to 15% discounts from the restaurants are taken as commission from the Zomato. This is one-way how Zomato earns money.

And even if Zomato offers to give 30% off on the dishes then there won’t be any profit or loss for Zomato. Zomato delivers the dishes with no loss and no profit. (But not every time there will be 30 to 40% offs)

So you might be wondering why Zomato is still in loss right? That’s because Zomato has other expenses to take care of.

Zomato spends hefty amounts on delivery guys. They give them 20 to 25K amount which is more than other industry standards so that they won’t leave Zomato and are always ready to deliver the foods to customers.

When you as a customer ordering food from Zomato and if there isn’t anyone to deliver the food to you then your experience with Zomato will be bad. 

So providing a delightful customer experience should be the focal point in any kind of business. 

So for this very reason, Zomato has ensured that they have more than the required delivery guys to deliver the food to their customers in time.

This is where Zomato has to spend lots of their money and other than that they have to maintain their app, customer support expenses, R & D expenses, etc for which they have to spend the investor’s money!

Advertising Service

how zomato works

This is one more way by which Zomato makes money and it’s through advertising service. The majority of the revenue generated by Zomato is through advertisements (around 70%). 

Zomato gives an option for restaurant owners who are partnered with them to showcase their restaurants on top of all other restaurants. 

At present advertisements and sponsored content on their platform are the main sources of income for Zomato. Till now more than 12K restaurants have advertised on Zomato.

For example, if anyone searches for let’s say Biryani on the Zomato app then you can pay Zomato to show your restaurant on top of search results and Zomato will charge a certain fee from restaurant owners to show their restaurants on top.

And also if your restaurant is new and just getting started with Zomato then you can show your restaurant’s advertisements in the middle of other restaurants which are known a sponsored ads so that you can get more visibility on Zomato. 

These are the main 2 ways by which Zomato earns money by providing advertisement service for restaurants on their Zomato App.

Business Consultancy Services

features of zomato

Zomato has a lot of data in their database. They know exactly in which area what kind of food category works great, what kind of price works better in certain areas and so on. They have all the data and food habits of people available with them.

Suppose if you want to open a new restaurant then Zomato can help you with that by creating a perfect business plan for you with the help of loads of data that is available with Zomato. 

And for providing this kind of consultancy service they will charge a fee from you which makes it one of the revenue streams of Zomato.

Investors invest a lot of money in Zomato just because of the data that is available in Zomato. It is quite understandable in the future that there won’t be any restaurants running without Zomato and Swiggy or there won’t be any which can compete with these 2 giants. 

That is the reason investors are very much interested in these companies even when the company is at a loss because they know sooner or later the company will grow and make huge profits.

Through Zomato Pro

This is also one way through which Zomato earns money. Before Zomato had Zomato Gold, but now they have upgraded from Zomato Gold to Zomato Pro with better features. 

Zomato offers some additional features for their pro members and Pro membership comes with an affordable price. It is just 200 bucks for 90 days which is very much affordable.

Some Of The Features Of The Zomato Pro

  • You can get up to 30% offs on food deliveries
  • You can avail faster food deliveries as Pro members will be given top priority
  • You can get up to 40% offs for Food dining
  • A wide selection of restaurants 

Zomato also offers a pro option for their restaurant partners through which they can acquire new customers and increase the traffic to their restaurants even during weekdays and non-peak hours! 

So through Zomato pro, Zomato makes money both from their customers as well as from their restaurant partners!

Zomato Whitelabel

Zomato offers services for the restaurant owners to develop their own and customized food delivery app which makes it as well one of the revenue sources of Zomato.

Zomato Kitchen

Zomato also offers restaurant owners to expand their business to other locations with a very minimal cost through which they can have more ROI and a faster brand expansion!

Recently on July 14th 2021, Zomato went public listing its IPO. Now the Zomato’s share can be purchased by the public it gives Zomato to raise capital for other business opportunities and expand their business.

Zomato’s IPO offering is only going to help Zomato to make more money in the long term.

Check the below tweet from Zomato about their IPO listing:

Features Of Zomato App

Below is a list of a few features of Zomato which is designed by keeping customers’ experience in mind.

  • The Zomato App is very user friendly
  • The navigation is very simple and straightforward.
  • Multiple payment options for easy and hustle free payments
  • A simple 3 to 4 clicks to place the order 
  • Live tracking of your delivery guy
  • The name and phone number of the delivery guy will be displayed
  • Estimated time to reach at your destination
  • Zomato chat if you had any issues with the order
  • Provide ratings and reviews for the food
  • Provide ratings and reviews for the delivery guy

And many more features.

Notably, Zomato is currently using 51 technologies for maintaining its website and App.

How Zomato App Works

The working process of Zomato is very simple. It is a simple 4 step process.

Step 1: The customers go through the Zomato App and check for the various restaurants and book their preferred meal.

Step 2: The restaurant owners will receive the order request right after the order is booked by the customer and then they will start preparing the meal. The delivery request be received by the Zomato delivery guys as well.

Step 3: Once the food is prepared and ready for dispatch, it will be handed over to the delivery guy.

Step 4: The delivery guy will take the food on their 2 wheeler and delivery it to the customers in their preferred location. 

And that’s it. That’s how Zomato works which is very convenient for restaurant owners, delivery guys as well as for Zomato customers.

Acquisitions By Zomato

Zomato has acquired a total of 14 companies at present including Uber eats India (which was quite a competitor for Zomato) for an acquisition price of $206M. 

Most companies do this tactic, if they feel like they are having a threat from another company then they will just acquire that company.

The very recent acquisition by Zomato is a fitness-based company known as FITSO. So you would wonder what was the purpose of this acquisition as it has nothing to with the food delivery business. 

The reason for this is to diversify the income potential of Zomato and moreover, the fitness market is having a very good annual growth rate.

Till now Zomato has raised a total of $2.1B with over 21 funding rounds. A total of 25 investors have invested in Zomato as of now and Zomato has made 3 investments in 3 organizations. 

Ending Thoughts

People love comfortable, convenience, affordable and hate to waste their precious time and that’s what Zomato brings to the table. Always try to find a problem and provide a great solution for it that can solve the real-life problems of people and always thrive to bring forth a delightful customer experience.

Hope you have understood how online food delivery businesses like Swiggy and Zomato make money and their business model.


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