How does Zomato, India's Food Delivery Pioneer, Actually Make Money?

  • How does Zomato, India's Food Delivery Pioneer, Actually Make Money?

    Dec 25, 2023

    "Food is life, but Zomato makes food delivery easy". This tagline sums up the immense value and utility Zomato brings to our lives by satiating food cravings with speed, reliability, and convenience.

    What started as a restaurant listing and discovery platform in 2008 has today morphed into an indispensable food delivery app for urban Indians. With over 250 million app downloads now, Zomato processes a mind-boggling 1.35 million daily orders in India alone, quickly delivering anything from biryani to brownies to your doorstep.

    Valued at nearly $5.4 billion, Zomato is the country's most prized food tech unicorn looking to take a big bite from India's $15 billion food delivery market and overseas geographies.

    But what truly sets this food delivery disruptor apart is its ability to generate multiple revenue streams that fuel its operations and ambitions.

    Let's analyze Zomato's business and financial model in depth to understand what drives its earnings engine and how it makes money:

    Decoding Zomato's Revenue Model

    Zomato operates a multisided marketplace model that connects customers seeking great food experiences with quality restaurants looking to widen their reach. This enables Zomato to earn revenues from both the demand and supply sides of the food delivery chain.

    Specifically, Zomato has 5 key avenues to monetize its platform and user base:

    Commissions from Restaurants

    This forms the bulk of Zomato's revenues today. For each order successfully delivered via its platform, Zomato charges restaurants a commission ranging from 10-30% on order value. The exact percentage charged depends on factors like a restaurant's existing popularity, order volumes, revenue potential for Zomato, and more. So popular chains may pay a 15% commission while a newer cafe relying heavily on Zomato for sales may be charged 25%.

    With thousands of small, medium, and large restaurants participating, the commissions quickly add up creating a sizable revenue stream for Zomato. The funds help finance working capital needs, platform upgrades, hiring, delivery infrastructure, and other investments. As Zomato continues to attract more restaurants and sustain order volumes over time, this core channel holds much monetization promise.

    Delivery Fees

    In addition to restaurant commissions, Zomato also charges customers a small delivery fee per order which is used to finance operating delivery services. The exact fee can range from Rs. 20 to Rs. 50 based on distance to be covered, vehicle used and estimated time for delivery, etc. While a portion goes to Zomato as earnings, a majority of this fee is passed on to its external food delivery partners actually facilitating orders.

    As monthly order volumes are massive running into tens of millions in India alone, even a small delivery fee creates substantial revenues for both Zomato and its external delivery partners.

    Advertising & Visibility Packages

    Zomato allows restaurants, brands, and food retailers to promote themselves by purchasing advertising packages. This includes sponsorships, social media promotions, improved visibility in search results, branded listings, and more. Popular offers include guaranteed placement on the first page of search results for relevant keywords for a daily fee.

    Premium restaurants rely heavily on Zomato to drive discovery and awareness amongst its hundreds of millions of app users. So many voluntarily purchase high-visibility ad packages to stand apart on the platform, earning Zomato a steady income stream in the process.

    Zomato Gold

    Arguably Zomato's most profitable monetization innovation is its Gold subscription program that offers privileged dining out benefits and discounts to customers along with extra reach and guaranteed footfalls for partner restaurants. With exclusive offers like 1+1 drinks or 25% off food bills or a free dessert, Zomato Gold has emerged as a win-win for users seeking deals and restaurants targeting affluent patrons.

    For restaurants, a Zomato Gold partnership promises not just wider reach via sponsored listings but also more orders and higher customer spending thanks to large in-app banners and prominence in recommendations. Hence eateries pay a substantial sign-up fee of Rs. 25,000 to Rs. 75,000 plus a recurring annual subscription fee to access Zomato's Gold user base and visibility firepower. With over 1.2 million active Gold subscribers dining out frequently, the platform's annual Gold earnings alone may cross $25 million as per estimates.

    Zomato Pro

    Expanding the premium subscriptions model, Zomato also recently launched Zomato Pro targeted at its most loyal, high-value customers who rely heavily on its services. For a monthly or annual subscription fee, Pro users enjoy benefits like discounts, faster deliveries, exclusive offers, and other privileges across both delivery and dining-out use cases.

    If Zomato can get the pricing strategy and positioning right while persuading users to pay, Zomato Pro may evolve into a promising earnings vertical fueling incremental revenues for years.

    In summary, Zomato relies on a blended financial model encompassing...

    Marketplace commissions connecting customers and restaurants

    Delivery fees

    Advertising revenues

    Premium subscriptions

    Special initiatives

    to generate cash flows across diverse verticals. This reduces overdependence on any one channel while creating a framework for launching fresh ideas.

    New Initiatives to Unlock Future Revenue

    While still in the early days, Zomato is now laying the foundations for its next wave of monetization from upcoming pivots into video streaming, nutraceuticals, and hyperlocal delivery in the years ahead.

    Zomato Originals

    This new business vertical focuses on producing premium quality shows around food that are streamed exclusively via the Zomato app. With acclaimed titles like 'Off the Menu' already launched, video content helps boost app stickiness while setting the stage for revenue generation in the future.

    As Zomato Originals gains more content hours and loyal viewers over the next 2-3 years, the platform can tap into video advertising, sponsorships, product placements, and similar models to start monetizing its streaming channel.

    Zomato Nutraceuticals

    As part of plans to venture into preventive healthcare, Zomato is gearing up to launch a range of dietary supplements and fortified food products under the Zomato Nutraceuticals label. Specialized offerings targeting better sleep quality, protein intake, weight management, and nutrition may take on established brands like Abbott and Amway in the $3 billion Indian market if Zomato plays its cards right.

    But for now, product research, regulatory approvals, and distribution tie-ups remain key priorities before actual sales open up an entirely new income avenue in the coming fiscal.

    Hyperlocal Delivery

    Groceries. Medicines. Offline retail. Zomato now wants to cater to all of a user's hyperlocal delivery needs extending beyond just food while matching the likes of Dunzo and Swiggy Genie. Kickstarted in select metro cities already, Zomato's hyperlocal delivery arm Instamart is being positioned as the 15-minute convenience store for regular households, sourcing merchandise from both online and physical stores.

    If Zomato manages to carve out a niche here leveraging the scale and penetration of its food delivery business, Instamart may be able to emerge as a viable long-term income generator.

    In addition to the above, both B2B catering and cloud kitchen verticals hold strong future revenue potential for the company.

    Examining Key Expenses

    Generating healthy earnings is one crucial pillar for success. However long-term profits and viability depend greatly on how well a company manages expenses across facets of its operations. Let's assess some of the major costs Zomato grapples with:

    Customer Acquisition Costs

    Like most digital platforms, Zomato invests substantial sums in online and offline marketing to attract and retain customers. Be it app install ads, influencer promotions, or offers to incentivize orders, these promotional expenses strain budgets but are essential.

    Industry estimates suggest Zomato spends over INR 150 per customer acquired which eats into a chunk of its revenues. However, the company is now focused on driving more organic growth to lower reliance on paid channels alone. Offering a stellar customer experience and using referral programs to activate existing users to invite more friends can help reduce overall acquisition costs over the long run.

    Delivery Partner Incentives

    To fulfill over a million food orders daily, Zomato relies on over 1.5 million active external delivery partners to cover the last mile. To keep these drivers and riders incentivized for reliability and performance, attractive pay structures including minimum guarantee amounts and timed targets are offered.

    Nearly 80% of what customers pay as delivery fees goes to the actual delivery partner. So while incentives are essential to maintain scale, efficiency and lower operating costs in this human network hold the key to long-term profitability.

    Technology Costs

    From servers to cloud infrastructure to hundreds of developers working round the clock, running a mammoth real-time platform also demands mammoth tech investments regularly. What keeps Zomato lean is its extensive use of open-source technologies and robust architecture that allows reasonable scalability without massive redundancy.

    Still, as digital facets expand into streaming, Hyperlocal, and more, reining in cloud and hosting fees will be crucial. Finding the optimal balance between resilience and costs remains vital.

    General Overheads

    Operational overheads like office infrastructure, legal and professional charges, admin costs, and similar expenses account for a sizable share of total spending for Zomato annually. For example, top-level hiring like ex-Unilever executive Chaitanya Mathur as global head of marketing pushes up overall salary costs.

    Driving automation using AI and ML to optimize decision-making and tightening budgets for non-core areas can potentially whittle down such expenses substantially.

    Who Actually Delivers Zomato Orders?

    While Zomato owns and operates the technology layer and captcha billions of digital transactions via its platform, the crucial last-mile delivery Responsibility lies with external partners. Instead of relying on a captive fleet of its own, Zomato has forged over a dozen smart partnerships with specialized logistics providers to fulfill actual order delivery in cities across India.

    Depending on geographic clusters and locations, tie-ups with both national players as well as hyperlocal outfits power Zomato's massive operations.

    Key Delivery Partners

    Runnr

    Founded in 2015, Runnr focused on hyperlocal delivery before being acquired by Zomato in 2017. Runnr now serves as Zomato's fully owned subsidiary using its own personnel to handle order fulfilment challenges in India's smaller cities.

    From Indore to Vadodara, Runnr facilitates affordable and efficient deliveries leveraging data analytics and its dense network.

    Shadowfax

    One of India's fastest-growing logistics startups, Shadowfax relies on a mixed delivery partner model to drive rapid fulfillment. Leveraging everything from full-time employees to freelance riders to local grocery stores doubling up as mini-warehouses, Shadowfax handles considerable order volumes across metro and tier 2 regions for Zomato.

    Dunzo

    The leading concierge and hyperlocal delivery player has also emerged as a crucial logistics ally fulfilling Zomato food orders in India's biggest cities. Its large fleet and availability of dedicated delivery partners across most neighborhoods make Dunzo a natural ally for Zomato's coverage needs in urban markets today.

    Uber

    The global ridesharing giant also plays an important supplementary role in Zomato's delivery infrastructure. Be it peak dinner hours or pouring rains disrupting mobility, Uber's driver network provides additional bandwidth ensuring orders reach reliably regardless.

    In addition, Zomato also relies on small, hyperlocal delivery partners on a city-by-city basis. For example, hotels and restaurants in smaller towns often have their own personnel delivering orders which Zomato aggregates via its platform.

    The Road Ahead

    As a pioneer transforming India's food tech landscape and a bellwether for startups globally, Zomato's growth journey has just begun with so much more yet to unlock.

    Expanding its restaurant discovery and food delivery platform overseas remains a top priority for the company on the back of continued market share gains and category growth at home.

    Driving greater efficiency in existing operations through process improvements, better routing mechanisms, and load planning using ML will help optimize costs and unit economics.

    Launching successful new business verticals beyond food delivery will prove crucial for taking revenues to the next level while diversifying income streams.

    But most importantly, obsessing over customer delight and leveraging technology to elevate user experience across payments, support interactions, and delivery will be the hallmark of what defines Zomato 2.0 as it aims for even greater scale and profitability.

    Conclusion

    By smartly leveraging a multisided marketplace model and tapping into the appetite for convenience of time-starved urban Indians, Zomato has made itself invaluable in the daily lives of hundreds of millions. Its ability to cater to both users seeking great food as well as restaurants targeting more orders gives it access to multiple income streams.

    From small commissions to advertising sales to premium subscriptions, the company has been able to stitch together diverse monetization avenues to support its billion-dollar ambitions. Hyperlocal delivery, nutraceuticals, and video streaming now offer fresh opportunities to widen its total addressable market beyond food over time.

    But eventually, profits, financial discipline, and prudence will equally matter alongside breakneck growth and innovation for long-term success. Managing costs optimally across operations, delivery, and other overheads while extracting better efficiency and improving unit economics at scale will ultimately prove vital.

    While Zomato races ahead to make the most of India's food delivery gold rush moment, financial sustainability will separate the achievers chasing outsized impact from those fading away as mere unicorns with unfulfilled promises.

    FAQs

    Does Zomato have its own delivery fleet?

    No, Zomato relies on third-party logistics partners like Runnr, Shadowfax, Dunzo, Uber, Ola etc. to deliver its food orders instead of owning the last-mile delivery.

    How much does Zomato earn per order?

    Zomato earns between 10-30% in commission from restaurants per order in addition to a delivery fee it charges customers. Part of this delivery fee also goes towards paying its delivery partners.

    Is Zomato Gold free for customers?

    No, Zomato Gold requires customers to pay a monthly or annual membership fee to access its benefits and exclusive discounts.

    Does Zomato deliver groceries also?

    As part of expanding into hyperlocal delivery, Zomato has started same-day delivery of groceries and essentials in select cities under the Zomato Instaprime branding.

    How does Zomato make money from advertising?

    Zomato allows restaurants to promote themselves through sponsored listings, social media posts, ads and visibility packages to gain more orders, earning advertising revenue from restaurants.

    Is Shadowfax owned by Zomato?

    No, Shadowfax is an independent logistics startup. But it has tied up with Zomato for food order deliveries in small cities and towns.

    Does Zomato hire its own delivery professionals?

    While Zomato-owned Runnr handles deliveries in small towns using its own personnel, Zomato otherwise does not yet directly employ delivery professionals relying on partners instead.

    Does Uber deliver for Zomato also?

    Yes, Uber supplements Zomato's delivery partner network specially during periods of high demand like weekends and peak dinner hours.

    Can restaurants opt out of Zomato Gold?

    Yes, Restaurants have the option to leave the Zomato Gold program if they wish though it may lead to loss of privileged access to premium customers.

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