May 12, 2020

Zomato Business model || Zomato case study

Smart Business Strategy of Zomato

Zomato is a food delivery service founded by Deepinder Goyal and Pankaj Chadda. Zomato is a food-chain service that gives a huge discount on its orders.

But, How they give a huge discount? The interesting thing is that Zomato is in loss, even then, investors are investing Zomato. is that mean Zomato is burning the cash of its investors? actually it is not the case here.

How Zomato works and earns

Zomato works in the 3 business segments.

  1. Food Delivery Services
  2. Advertising Services
  3. Business Consultancy Services
These are the three main strategies adopted by Zomato then you will understand, the reason behind heavy investments of investors in Zomato.

Food Delivery Services

Food Delivery Service
Food Delivery Service Source-Freepik

Let's understand this by an example. suppose you have ordered a dish from Zomato, with MRP of 100 rupees if you purchased it from the hotel itself.

But, the question is how Zomato is capable of Giving a discount of 30-40% every time. is Zomato is burning the cash of the investors? the answer is no, Suppose you have to order a dish from a restaurant on Zomato, and you have chosen a dish of 120 Rupees, but the actual price of that dish in the restaurant is 100 rupees.

That means you are paying 20% more on that order, and when you apply any promo code you will get around 30% of the discount every time.

So, Now that dish is cost you around 85 Rupees, now include the packaging cost of rupees 10, now your dish is of 95 rupees.

So, Are you going to order from Zomato, yes why not you still getting the order at home, with 5 rupees off.
online ordering Source
online ordering Source-Freepik

Here is the opportunity for Zomato, They charged 15% of the MRP of the dish as a commission, so now the MRP of the dish for the Zomato is 85 Rupees and they are selling it at 95 Rupees.

The restaurant owner is happy with parcels orders because there is no need to deal with problems like table occupancy, don't have to put a waiter at the tables, utensils, electricity, cleaning and etc. that's the reason the owner of the restaurant is happy with online orders.

Still Zomato is in Loss! because the salary of the delivery boy of Zomato is high as compared to other online food delivery services. They paid around 25k net rupees to the delivery boy.

Online Application maintenance expense and customer support workforce expenditure is very high, these are the reasons, Zomato is still is in loss.

Advertising Services/ Priority listing

priority listing
priority listing Source-Freepik

This is an amazing strategy of Zomato, they charged the fees from the restaurant for promoting their restaurant for the search query.

For example, if you are searching for a biryani, Zomato gives an option to the restaurant to priorities their name at the top results. so when someone is search for that query then their restaurants appear at the top. because most often people open the results which are at the top.

New Restaurants and Hotels promotion

New restaurants and hotel promotion Source-Freepik

For new restaurant promotions, Zomato charged the fess for sponsorship. So if someone wants to promote their hotel they have to pay the amount and when customers search for the query then their sponsored ad will appear in the search list of restaurants.

Zomato charged for advertising, priority listing, and for restaurant visibility on Zomato application.

Benefit of Adverting of restaurants

If the 50% of the sales of the restaurant is coming from the Zomato,  then that restaurant is heavily dependent on the Zomato service, to remain at the top position they will pay a good amount of money, and for the competition perspective, the amount will increase and eventually Zomato makes a huge profit.

"Smart move of Zomato is, they used this money of advertising to attract more customers by giving them discounts on that particular restaurent dishes"

 Because of that cycle, the hotel is heavily dependent on Zomato. most of there Business is coming from that platform, so they pay more to remain in a secure position.

Business Consultancy Services

Business Consultancy service
Business Consultancy service Source-Freepik
Around 10 lakh restaurants are listed on Zomato in India, Zomato is present in 150 cities of India, and every 30 seconds they are listing a new restaurant on their platform.

huge data of customers
huge data of customers Source-Freepik

Zomato has tremendous data of its customers, Zomato knows in Mumbai which restaurants have maximum sales of south Indian food, they also know in which state which dish is at what price.

Let's take an example(assumption) of Pizza, Zomato knows if the price of the paneer pizza is around 100-150 Rupees then it has higher sales in North Delhi and Mexican pizza of 200-250 will sales better in South Delhi. 

Zomato knows the popularity of dishes with respective regions. and this is the important point of the Zomato business model.

Zomato uses data for restaurant building

If you want to open a new restaurant then Zomato gives you the proper data of,
  • What kind of restaurant you should open as per the data of your locality.
  • They will suggest the type of dishes you should provide in your area.
  • What should be the appropriate price for particular dishes?

Zomato uses that data to create a restaurant business plan and help you grow your business.

Zomato charges heavily for proving this data and building the business plan for your business.

What Zomato can do with huge Data?

Zomato has the data of millions of users and they can open their own restaurant chain across the country, well Zomato is now working in 24 countries so its now a global brand.

Investors investing, because of the data, that Zomato has, Investors know the potential of this data, hence they are invested in Zomato.


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