Zomato and Swiggy, both have become Food Delivery giants in India today. But have you wondered how they make money even if they give this much discount? What are their Business Models?
With over $1.28 Billion raised from its investors, how does Zomato make money? What is the Business Model of Zomato? The business models of both Swiggy and Zomato are similar and hence we will be sharing a common business model for them both.
With its popularity in India, Zomato has also expanded its business in international countries. Till 2010, Zomato was known as Foodiebay, an app that provided restaurant menus and reviews of the hotels and restaurants. In other words Foodiebay which was a Restaurant Directory earlier.
A decade later, the company came up with some add ons to Foodiebay with components, like online food ordering, restaurant reservations and several loyalty programs in order to attract more customers. Foodiebay was then named as Zomato.
Zomato faced many ups and downs after its launch. But today it has matched up with its rival Swiggy.
But, How can Zomato and Swiggy afford to give huge discounts? If they give discounts, how do they earn? You might think that there has to be a total loss in this business. But you think from a customer’s point of view. They have got various segments in their App itself to make a way towards generating revenue.
Today, Zomato has bifurcated its business into 6 subcategories:
- Restaurant Listings / Advertising
- Food Delivery
- Subscription Programmes
- Live Events
- White Label Access
- Zomato Kitchens
All these are their revenue generating models which customers are well aware of.
Before understanding the business model, let us understand their customer base first.
Zomato’s customers are divided into three segments.
- Users: Those who order food online or research about the nearby restaurants.
- Local Business: Restaurants who register on Zomato for Food Delivery. Those who want to promote their business to reach their target audience.
- Reviewers: Those who visit restaurants and review their food on Zomato.
Now the question arises how do they manage to provide huge discounts?
It is said that both Zomato and Swiggy have investors who invest in their businesses and the companies use this fund in giving you discounts. This means that they burn the investor’s money in providing huge discounts to their customers.
Now it is an obvious question that even if Zomato and Swiggy are in loss, why do investors invest their money on them? India’s biggest investors have invested their money on Zomato and Swiggy.
With this investment, both these companies have an evaluation of about ₹25,000 Crores. Even Though the companies are in loss.
The answer to this question is that, the motive behind spending this much money even being in loss is to gain more users. Both the companies have become Brands by using investor’s money and giving discounts to its end users.
But again the question remains the same, once the required users are registered on their sites, will the user order from their app even if the discounts are removed? NO.
Investors obviously are aware of these things and hence the business model doesn’t only include attracting customers by giving them discounts. The actual business plan is like the other side of the coin.
Zomato Business Model:
Basically, Zomato has divided its business into three major segments:
- Food Delivery Service
- Advertising Service
- Business Consultancy Service
Talking about the first segment, the Food Delivery Service Segment.
1. Food Delivery Service:
The 30%-40% discount that a user gets is not entirely the investor’s money. When a particular dish is sold at ₹100 in the restaurant, Zomato sells it at a higher price of around ₹120. Hence the 15%-20% discount is directly covered from over-pricing.
Further, if you ask a restaurant owner, whether he bares more cost when a customer visits the restaurant and eats there or he bares more cost while selling on food delivery apps? He would surely say he bares more cost when a customer visits his restaurant. This is because he has to pay to the waiters and cleaners there which is deducted when he delivers the food online.
Hence, if the restaurant is getting more orders online then he would happily give 10%-15% discount on his food. This will save his service charges and also his business is doing good with less waiters.
So here we get to know that the discount given to a user on their orders is derived from the restaurant discounts and over pricing. Also the user is getting ₹100 dishes at a cost of around ₹85-₹90.
Thus Zomato/Swiggy delivers food with no loss no profit model.
But still Zomato/Swiggy are in loss. This is because other costs of valets are included. Zomato pays delivery boys more than other industries. With a person earning ₹10000 to ₹15000 in a normal job, the valet of Zomato or Swiggy is earning ₹25000 to ₹30000 a month just by delivering food.
Thus in order to keep up with the user experience, the delivery boys are paid more so that they are ready to deliver whenever a user places an order.
Continuing with Zomato, other than the delivery boy salaries, Zomato also faces cash burn in maintaining data, App updates and its loyalty programs like Piggy Bank and Zomato Gold.
In order to overcome this cash burn, Zomato relies on its second segment which is its Advertising Service.
4. Zomato Advertising Model:
Zomato is used all over India and almost all the Local Restaurants have registered on Zomato.
Let us understand this model with an example:
Say for example you are searching Pizza on Zomato. Here Zomato gives the restaurants an option to advertise their business for specific dishes. Thus the restaurants who have paid for Advertising on Zomato for “Pizza” will be shown first.
Now if there are more than one restaurants bidding for the same keyword(pizza), then on the basis of priority listing, restaurants will be shown to the users.
For these Ads Zomato earns fees from those restaurants.
Further, if a restaurant is newly opened, then it can also sponsor its Ad among the list of restaurants shown organillay on the App. Zomato also earns money by these sponsored Ads.
Hence, in order to show their restaurants on the top, local businesses are continuously paying for Advertisements to Zomato.
Now coming up to the last segment, Business Consultancy Service.
3. Business Consultancy Service:
Just imagine, how huge data is Zomato having because of the restaurants who have registered on it. Also on the basis of reviews and analytics, Zomato knows which restaurant in Ahmedabad has the best South Indian Food or which restaurant in Bangalore has the best interior.
Above all on the basis of the orders that Zomato receives, it knows which dish is old at what price in which area. What is the popularity of every dish sold?
With the use of this data, Zomato guides startups to set up their businesses in a specific area with the proper guidance of rates and place.
Hence, using this data, Zomato helps in building a perfect business plan for food providing startup.
With this, we conclude that both Zomato and Swiggy works on the same business model.
- It earns 72% of revenue from the Advertising Model
- Business Consultancy Services can help a start-up set up its business in any area with Zomato’s Guidance.
- With a massive amount of data and preferences, Zomato can also open up its offline restaurants in several areas of India.
Thus, this Business Model was quite complicated but very well planned.
To know more about the Zomato Business Model, reach us in the comment section below.