While Zomato was started as simple restaurant listing directory in 2008, the company has come a long long way since then venturing into multiple business segments, making the business more diverse that a Zomato user interacting with the business would think it to be.
At the time of writing, Zomato is present in 24 countries & 10000+ cities globally.
In this blog, we will try to demystify Zomato’s business and have a look at the three key pillars that now define its business, but before we do that, let’s dive into the founding story of Zomato to establish better context.
How Zomato Started & How It Made Money in its Early Days
The only person who has always been involved in the operations of Zomato is the current CEO, Deepinder Goyal. He first launched what would eventually come to be known as Zomato with a friend called Prasoon Jain under the name foodlet.in in the Delhi NCR region.
But Prasoon left soon and shifted to Mumbai, leaving the company struggling. And that’s when co-founder Pankaj Chaddah joined Deeepinder’s venture. At the time, they began afresh by changing the name of the company from foodlet to Foodiebay.
By Dec 2008, in a matter of 9 months, the company grew to become the largest restaurant directory in the Delhi NCR region. After seeing success in the Delhi NCR region, the company soon expanded to other cities like Bengaluru, Chennai, Pune, Ahmedabad, and Hyderabad.
By 2012, Zomato had started its international expansion, extending its services to countries like the UK, South Africa, UAE, Qatar, Sri Lanka, South Africa, UK, and the Philippines. New Zealand, Turkey, and Brazil got added to the list in 2013.
In the midst of all of this growth, the company had to go through a minor naming glitch which led to changing the name of Foodiebay to Zomato. Since the last four letters of ‘Foodiebay’ were ‘eBay’, the company’s name was changed to Zomato in 2010 to avoid any legal issues. Ironically, the company got a legal notice from eBay 5 days before changing their name to Zomato. But since they had already initiated the name change process, they did not have to fret over it.
In its initial years, Zomato’s primary money-making source was restaurant advertising, much like any other aggregator that aggregates user attention & sells it to advertisers. In its 2019 Financial report, Zomato highlighted that up until 2016, restaurant advertising represented their 100% revenue & focus.
However, Zomato’s focus started changing in 2015, after which it launched three new business segments in the years that followed.
In around mid-2015, the company forayed into the food delivery business.
In Nov 2017, Zomato launched Gold in India, a subscription product, under which subscribers get access to complimentary food & drinks.
In August 2018, Zomato launched a new initiative called Hyperpure, under which Zomato works directly with Farmers to improve the quality of food produced & then supplies the fresh produce to restaurateurs, thereby improving the quality of food people eat.
In its FY19 annual report, Zomato mentioned that it had stopped considering advertising as a standalone P&L. Instead, the company now views its business as a combination of three key large pillars — Delivery, Dining Out, and Sustainability.
Source: FY19 report
Here’s a revenue breakdown of each of these three segments in FY18 & FY19.
Food delivery revenue increased from $155m compared to $38m in FY18, contributing 75.24% to Zomato’s FY19 revenue, up from 55% in FY18. In April 2019, at the time when Zomato published the annual, it was providing food delivery services in 200 cities in India.
With regards to the unit economics of the food delivery segment, here’s what Zomato said in the annual report,
“Unit economics of the food delivery business have come a long way. We now lose Rs 25 per delivery, compared to Rs 44 per delivery in March’18. Our last mile cost per delivery is now Rs 65, compared to Rs 86 in March’18. The key driver metric of unit economics — number of deliveries per rider per hour has gone up to 1.4 from 0.9 last year.
Important note – some high density neighbourhoods in larger cities are already unit economics positive. So are, some Tier-3/4 cities.”
In the last few years, Zomato has ventured aggressively in the Dining out space. It has launched a range of new initiatives like Zomato Gold, online table booking, Food@work & Zomaland (a food carnival festival).
As of April 2019, more than 10000 restaurants had partnered with Zomato for the Gold programme. Zomato Gold had more than 1m active subscribers as of March 31 March 2019, up from 170k active users as of 31 March 2018.
With Food@work, Zomato offers digitised cafeteria management services to companies. Zomato was serving 70 companies with help of 300 partner caterers as of April 2019.
Online Table Booking
Zomato’s table reservation service is available in eight countries across 16,000+ restaurants. More than 1m diners in India were reserving tables on Zomato every month, as per their FY19 report.
Imagine an event where all the favourite restaurants in your city had individual food stalls & you could hop from one stall to another, eating special dishes from each one of them — that’s Zomaland. And not just that, the food carnival also hosts street performances & a line-up of music artists and DJs, along with a dedicated zone for little children.
In its FY19 report, Zomato mentioned that 120k people attended the Zomaland event collectively, with over 200 restaurants participating.
Hyperpure, Zomato’s initiative to improve the quality of ingredients used by restaurants falls under the sustainability segment of its business.
On the supply side, Zomato helps farmers grow crops that are pesticide and chemical-free by providing them with surety of demand cycles & better prices. In the future, Zomato plans to integrate rainwater harvesting & composting for waste to build a more ecological model.
Restaurants that buy ingredients from Hyperpure are recognized through a ‘Hyperpure Inside’ tag on Zomato. Not only does the ‘Hyperpure Inside’ tag help users make informed choices, but it also highlights a differentiation between Hyperpure & non-hyperpure restaurants, eventually leading more restaurants to switch to Hyperpure since Zomato users would get habituated to prefer Hyperpure restaurants over non-hyperpure restaurants.
Is Zomato Profitable?
While Zomato’s revenue grew from $68 Million in FY18 to $206M in FY19, losses grew too from $12M in FY18 to $294M in FY19.
Most of the losses were due to the food delivery segment, which grew strongly in FY19 with the introduction of food delivery services in many new Indian cities, where Zomato was first-to-market.
Justifying the losses, Zomato said that being first-to-market gives them a distinct advantage. With regards to when the investments would bear fruit, Zomato mentioned the following in their FY19 report,
“Food delivery in India is creating an entirely new market; 70% of our regular users in Kolhapur had never tried food delivery in their life (even over a phone call), and Zomato was the first food delivery experience of their lives.
All the marketing investment we made in FY19 will bear fruit in FY20 and beyond — when we realise the LTV (Lifetime Value) of the users that we have acquired.
Will we continue to invest in growing the market at the same pace? Yes — as long as there is long term value to create, we will continue to invest and expand this category.”
Note: All financial numbers mentioned in the blog were taken from Zomato’s FY19 report, in which they had mentioned that the numbers were basis management information systems and unaudited at the time they shared the report.
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