how zomato business model evolved

Zomato Business Model Evolved

Published On:Saturday 07-Sep-2019


Zomato the 1st Indian food- tech startups is not free from the competition threats from its rivals especially these days food delivery start-ups has been entering everyday and making the completion even stronger. Zomato is financially backed by a well known online business group namely Alibaba raked in $200 million in funding from the Alibaba Group. Similar to the traditional business, online food delivery setup is expanding speedily and like Zomato, Swiggy and Foodpanda are the other big groups dealing in food tech. However, as far as Alibaba’s investment and vote of confidence is concerned, it did not work well in bringing Zomato on strong footing due to numerous reasons. Therefore, Zomato is striving to have its own place as India’s most popular & successful food-tech startup and its prospectus seems hopeful.

Particularly you will learn in this report about evolution of the food-tech sector including Zomato’s business model revamping. Let’s start a real story to see what’s going on!

Food-tech in India

The food-tech space in India has been a topic of much discussion over the past couple of years, owing to the influx of capital, the rise of ‘Me Too’ start-ups besides the high burn rate in the sector. The term food-tech means & includes all internet-based food businesses of the world right from cloud kitchens to food delivery. In India, the sector was launched in the late 2000s with the introduction of restaurant discovery platforms like Burrp and Zomato.

The years 2015 and 2016 were not considered as the prosperous years for the Food Industry in India as there had been certain ups and downs in the past due to discount policy, poor scalability and low margins. The sorry state of affair led to layoff of a number of employees, however after one decade of years, the first food-tech startups popped up.

1. The leader in Food-Tech:

In the year 2105, Zomato paid attention to revive food business by restaurants’ search and discovery. The company has transformed into a big food delivery chain like Swiggy and Foodpanda. The company also boosted up their advertising, marketing & development strategy by conducting several loyalty programs besides giving necessary training to the employees.

The company’s founders have always believed in having strong unit economics, robust margins, and good basics. Financial years 2107 & 18 proved very lucky years for the company as Zomato turned profitable in many geographical locations.

2. Alibaba’s investment:

It is very interesting to note that Alibaba(online business group) had invested $200 million in Zomato through its affiliate Ant Financial which was known as Alipay. Alipay is the most valuable financial technology company in the world. Alibaba’s aggressive expansion into the Indian market did not benefit Zomato the most. Alibaba was not new in food industry as it had already been on the Chinese e-commerce roll where it had invested in Snapdeal and BigBasket the huge money $2 billion. Alibaba has become very popular in the food delivery stratups as well because it had invested huge of its capital to have a good place in the industry.

3. The Revamped Business Model:

Zomato had a big cut to the extent of $500 million on its investment due to “an advertising-heavy business model in the year 2016. Zomato decided the aforementioned action mainly due to growing competition in the food-tech and financial losses in the international operations. Morgan Stanley valued Zomato in January, 2018 as $2.5 billion which was considered a drastic reduction in Zomato’s capital.

4. HSBC securities slashed the valuation

The crisis increased in the year 2106 being a very difficult period for Zomato which was due to heavy loss, employees’ layoffs and consolidation in international operations. Resultantly, company’s operational losses increased three times or even more. This sort of situation had discouraged the investors to the great extent. However, thereafter, the company took rise and made substantial development to come out of the crises.

5. Latest developments:

Some of Zomato’s new service offerings included the following:

  • Table reservations through ZomatoBook
  • Zomato Gold and
  • Zomato treats.

It was a great achievement of Zomato in becoming the largest reservation player in India within the shortest possible period of one month through ZomatoBook in 2016. Under this app the users could have reserved the tables in more than 10000 restaurants worldwide. In order to enhance the business under a policy, the company waived off table reservation fees for partner restaurants in 2017. The main object of waiving off the fee was to build stronger relationships with partners and also to increase user access. .

Zomato made a wonderful progress by launching Zomato Treats in April 2017 which remained highly successful and with the company on-boarding, it had engaged more than 20,000 customers onto the platform within the shortest period of about four months of the launch. Therefore, it was considered the revival of Zomato as it had a big jump to the extent of 25% in orders’ frequency for members subscribing to Zomato Treats. Zomato Gold was the company’s paid subscription product and the same was launched in November 2017 which had got tremendous results by registering about 26,000 members only within first eight hours after the launching. It is very important to mention here that the membership was launched in Dubai and Lisbon. Through these programmes, the company is very much particular and hopes to reward its loyal customers.

It is worthwhile to say that the company has tried its best to come closer to Swiggy (the leader in the food delivery space) which is the sign of development as Zomato seems to reach the base of a huge setup like swiggy.

6. Zomato Vision:

The likes on social media in favor of Zomato’s rival companies such as Food panda and Swiggy establish the fact that these likes will prove a threat to Zomato. Therefore, Zomato can only surpass the target over the two of its competitors, provided the company improves its business model through diverse service offerings. In the year 2107, Zomato got a huge jump up to 80% in revenue and reduced cash burn by more than 75% which indicates a prosperous future of Zomato. Moreover, the company had been functioning in 23 different countries in the world and showing profit. Since Foodpanda and Swiggy are well established companies and bleeding out the revenue of Zomato, hence, the cash burn out shall remain in practice. It would be important to understand how to survive under the stated circumstances.

7. The standout for Zomato:

Zomato is lucky in making a lot of money from various advertising and subscription programs which will enable them to forego profits in favour of a market share in the food delivery segment. Moreover, they are on the look of food requirements & tastes of the Indian customers which will guarantee Zomato the availability of a larger user database and tremendous success in near future.

It may be kept in mind that the rival companies like UberEats and Google’s Aero are still paving their paths with a limited & growing market share in the industry

Therefore, keeping in view the current pace of the Indian food-tech sector, Zomato’s future is quite hopeful as it has now got a lot of experience by going through numerous phases. It seems to be rolling forward and soon its better will be the best, I wish Zomato good luck for its bright vision!

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