Zomato Business Model: How Zomato Generates Revenue

Zomato is an Indian restaurant search, discovery and an online food delivery service. The foodtech unicorn was founded by Deepinder Goyal and Pankaj Chaddah in 2008. Zomato is well known throughout the country and has also managed to venture into many international markets over the years. It currently operates in 10,000 cities in 25 countries including USA, India, Australia, Brasil, New Zealand, Singapore and the United States and in Middle East Qatar.

Today, Zomato focuses on online food ordering, restaurant reservations and loyalty programs, consultant services and a lot more. Zomato is also a food search engine that works the same as google search engine but to explore a wide range of food and restaurants. The company has grown from a home project, to being one of the largest food aggregators in the world. Zomato not only connects people to food in very context but also works closely with restaurants to enable a sustainable ecosystem.

With its unique and sustainable business and revenue model, the company has managed to remain a top player in the market. Zomato has become successful because of factors such as affordability, easy accessibility and assortment has managed to build trust among people from the years of service. Zomato continues to work on finding out innovative ways to serve its customers.

A Brief History of Zomato

Zomato which was earlier known as Foodiebay, was established in July 2008 by two IIT graduates namely Deepinder Goyal and Pankaj Chaddah. The idea first struck Deepinder when his colleagues consistently had a demand for paper menu leaflets of different restaurants, to order food. That is when he thought of converting the restaurants paper menus to a digital app, which is far more accessible and easier to use.

The founders of Zomato, Deepinder Goyal and Pankaj Chaddah

In the matter of 9 months, the company grew to become the largest restaurant directory in Delhi and later expanded to other cities due to its success. By 2012, Zomato had started expanding internationally to countries like UK, South Africa, Qatar, Sri Lanka, South Africa, New Zealand, Brazil, etc. During this course, the company had to change its name since its last four letters of ‘Foodiebay’ coincided with ‘eBay’, the company name was changed to Zomato in 2010 to avoid any legal issues.

In 2015, the company forayed into the food delivery business and went on to launch Gold in India which was a subscription product, under which subscribers would get access to complimentary food and drinks. Zomato also launched Hyperpure, which directly works with Farmers to improve the quality of food produce and supply fresh produce to restaurants. The company now views its business as a combination of three key large pillars which are Delivery, Dining Out, and Sustainability.

Zomato Business Model

During the initial phase of the company, Zomato used to scan the menu of the restaurants, keep it on the site and the menu was received by people. It still follows the same formula, but has also added other services to its operation. The business model of Zomato is quite different from that of other food delivery company such as Swiggy and Foodpanda. The key partners of Zomato are Uber and London & Partners that could launch Zomato in UK within expected timeline.

The Business Model of Zomato

While the key resource of the company is that it has a large database of restaurants across 10,000 cities in 24 different countries. The business model is based on providing local restaurants search services and collecting data on food menus, contacts and providing relevant information to their customers. The main channels for Zomato are the mobile applications and its online website. The target audience of the company are the users who try to find local restaurants of various cuisine and restaurants who want their name to reach a large number of people.

Zomato also caters to customers that prefer home delivery, it helps out database and market research companies. While the online service is built with mandatory rating mechanism. The business model of Zomato has revolutionized the food business industries by incorporating various restaurants and making it convenient for people to find restaurants, provide feedback, check listings, and availability according to their choice of cuisine.

Revenue model of Zomato

Zomato in itself does not offer the products to customers but the revenue is massive. Zomato is not just a food business, as it also into the advertising business. Zomato business has two parts, one is the delivery business and two is that they are in the advertising business. Today, Zomato has multiple revenue channels besides online ordering, which most consumers would be familiar with. The revenue generating ways are:

Revenue	FY18	FY19
Delivery	$38 million	$115 million
Dining out	$30 milion	$49 million
Sustainability	$0 million	$2 million

Restaurant Listings and Advertising

Zomato first started out as a restaurant search and rating services. This brought in the advertising revenues from restaurants who joined the platform. They further extended this feature to food delivery and restaurant reservations, for this Zomato charges commissions from restaurants that want to be placed on the feed. Advertising is the major source of revenue for Zomato. The restaurants can promote their banner on the site in order to get better visibility and appeal to a large section of the audience via Zomato.

Food Delivery

Through the food delivery business, Zomato charges a commission to the restaurants on the basis of orders. The company earns through restaurants who pay a commission for each delivery, which is then spilt among the delivery partners and the company. However, the online food delivery only contributes a low percentage of income compared to other revenue streams because of the huge competition and the need to provide deep discounts etc.

Subscription programs

The next major source of revenue for Zomato is a subscription fee. Restaurants pay a certain amount of fee monthly and in return, Zomato offers them the analytical tools. Zomato has huge amount of databases that knows what a customer wants to eat, where he/she wants to eat, what the consumers is searching for and knows all this information through the cookies. It has a tool called Zomato order and is given to restaurants, which helps them know about the consumers interest. The restaurants then use this tool to flash their discount offers on food.

Live Events

Zomato has forayed into events space by patnering with restaurants and creating limited events. By which they made a sale through the price of the tickets. Zomato recently introduced Zomaland, and entered the live event market in 2019. Zomato charges users an entry fee to attend zomaland where besides food, they can witness live musical performances and other acts. Zomato also organized an entertainment carnival in 2018, in Delhi, Pune and Bengaluru, where more than 100 thousand people showed up.

White Label Access

The next source of revenue is app development. Zomato launched the service called Zomato Whitelabel under which they give offers to the restaurants to develop and customized food delivery app. It also works with cloud kitchens and restaurants for consultancy services. Zomato works with select restaurant operators to help in identifying locations for expansions at a minimal fixed cost, but with increased options for the user. It provides the requisite licenses and operational enablement for such restaurant partners.

Zomato Kitchens

Zomato also provides kitchen infrastructure services to select restaurant operators, it works with entrepreneurs to set up and operate Zomato kitchen under various other labels. This helps entrepreneur’s fund restaurant in the right location with an investment of Rs. 35 lakhs. It also claims to offer returns in the range of Rs. 2 lakh to Rs. 4 lakh per month to the investors and has so far completed with more than 180 affiliated kitchens.

Zomato Gold

Zomato Gold is a premium subscription based service which is offered by Zomato. It started in 2018 and is a paid service that allows customers with Gold memberships get complimentary food and drinks at the time of ordering form partner bars or restaurants. However, the Gold service is only applicable to dine in orders and not available for deliveries and can be used only once at each partner restaurant in a day. Zomato Gold offers either 1 + 1 on food or 2 + 2 on drinks when the customers visit their partner restaurants.

Value Proposition of Zomato

Zomato business model offers a variety of value to its customers. Zomato's revenue model focus has been on creating something new and extra which the customers cannot get anywhere else. Zomato is one stop shop for dinners and offers a way for restaurants to differentiate themselves. Restaurants have an option to create differentiation by keeping the listing updated, responding to criticism positively and also by being accountable to their action.

Zomato believes in creating value for its customers in order to sustain its business operation. The company tries to bridge the gap between the customers and restaurants by providing efficient technology application, which has helped them reduce its delivery time.0