Case Study : Zomato
Case Study series of Zomato.
Introduction:
Zomato is dominating the food-tech industry with it’s services and recently it got public with hyped IPO.
Every coin has two sides, so does zomato. Everyone thinks that zomato is burning money and providing 50-50% discounts and thinks that food aggregators are at loss, but that’s not the scene zomato is heavily profiting from that and the restaurants are at heavy loss. What if zomato stops giving discounts and some other platform starts giving discounts, obviously people will rush to the platform which provides same item at low price. It’s game theory between rivals called Dominant Strategy, whoever lowers the bar or make decision faster and knowing the rivals decisions, wins the game.
So how does zomato earns lots of money, despite throwing lots of discount.And why Investors invested on zomato.
Zomato Business Model
Advertising
Priority Listing
Promotion and Ads
Orders Delivery
Consultancy
Marketing strategy
Festival market strategies
Strong brand name
Product Strategy
Pricing strategy
A telephone call and direct mail promotion
coupons and price offer
Online delivery application
Order Delivery Breakdown
Discount Average = 30-40%
Zomato not burns money on lowering the price or discount but burns money on it's operations.The operation cost of restaurant daily if dine-out is greater than delivery.
Dine-out Operation cost - Waiter + Workers for washing dishes + Ambience or Electricity + Managing
Delivery Operation cost - Packaging + Delivery Partner or Delivery Guy
Price of dish at restaurant - 100 Rs
Price of dish at Zomato - 100 Rs + 20 Rs
Restaurant Gives discount of 15-20% on 100 Rs of Dish = (20% Discount) on 100 Rs —> 80 Rs.
Zomato overprice by adding 20 Rs that is 100 Rs and gives discount of 15-20% on 100 Rs. of Dish = (20% Discount) 100 Rs —> 80 Rs.
So the restaurant is at loss of 20 Rs.
Priority Listing :
Zomato takes fees from restaurants to list specific restaurants on top from fees zomato puts discounts on that restaurant from discounts comes the customers and the loop goes on.
Consultancy
Zomato knows which items and locations are best.
Which dishes sell best in which location?
Optimum price at peak season.
Price discovery data for other new restaurants on requested location.
From all these data zomato will make a business plan and launch the restaurant.
Investors are investing for the data.
Zomato Solving Pain Point
Ordering Food
Convenience to customers
Discoverability to restaurants
Consultancy
Customer Acquisition
More investors led to more customers acquisition
Marketing, lots of marketing
Profitability
Getting customers into habit of ordering food via zomato app
Customer Acquisition cost ~ Avg. 200-250 Rs Per Customer
Personalisation
Personalised and curated customer experience
Tempting advertisements
Switching Cost
Incentives to keep a customer hooked
Zomato Pro
Zomato Gold
Zomato Unit Economics
What is unit economic?
If one packet of food is getting delivered to your home how much money did zomato spent in terms of ensuring that, and how much profit it is making out of it.
Profit Per Package of food
One of the biggest obstacles for food delivery companies in India has been to crack the formula for positive unit economics — which means making more money than spending for an average order.
The revenue comes from charging the customer and through commissions earned from restaurants. Whereas on the spending side, variable costs such as discounts, delivery partner fees and other marketing costs come into play.
Why Zomato is not sustainable right now.
Food is not a commodity good.
If your favourite pizza restaurant is Pizza hut, if pizza hut moves from zomato, will you still order another from zomato?
Zomato will have to be wary of partner relationship.
Because of technology restaurants are nowadays building their own app and website which reduces cost significantly.
That’s why platforms like HuddleUp and Dotpe will grow exponentially without losing any customer in long term and will be more focused on customer generation and customer retention at very low cost as much as approx under 5%-10% total platform charges and with all the tools and technology like AI recommendation, POS system, and more features which will turn any restaurant to be more productive and profitable.