Technical

Zomato’s strategy for making money & how it becomes profitable?

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Zomato, a food tech platform, is famous for providing restaurant discovery and food delivery. A company started accidentally in 2008 as Foodiebay (2008-2010). The company started as a website based on a restaurant listing-and-recommendation portal. Now, the company has a market cap of $17.18 billion.
Zomato has been known as a giant in online food delivery. But did you know Zomato generates more revenue from ads than food delivery services? The last quarter of FY23 observed 15.3 billion rupees in food delivery at Zomato, higher than in previous quarters, as per Statista.
Zomato is not just about food delivery; it also has ownership of Hyperpure (B2B supplies), Blinkit (quick commerce), and other resources.

How is Zomato making money?

Let's take a look at Zomato’s revenue from different streams:

Advertisement:

Zomato generates more than 70% of its total revenue through ads. It allows restaurants to put their banner in Zomato’s app or website feed to gain more visibility and customers. It also makes money from promoting special events for restaurants.

Food delivery services and commissions:

Zomato charges around 20-25% commission from its restaurant partners, split between the company and the delivery partners. However, the commission may vary depending on location, timing, and who will deliver the order: zomato or the restaurant's delivery drivers.

Zomato subscriptions:

Zomato Gold and Zomato Pro listings and subscriptions provide a consistent source of revenue. These subscriptions allow clients to take advantage of complimentary delivery, 1+1 deals, and table reservations at partner gold restaurants.

Live Events:

On occasions like New Year's Eve or Christmas, Zomato hosts live events with restaurants that are popular as Zomaland. These events have entry fees for the attendees. Zomato generates revenue from selling tickets. At this event, users can witness live concerts and get a chance to taste exclusive dishes.

White Label Access:

The next source of income is app development. Zomato developed a service called Zomato Whitelabel, which provides restaurants with offers to design customized meal delivery apps. In addition, it provides consulting services to cloud kitchens and restaurants. Zomato collaborates with selected restaurant operators to assist in finding places for expansions at a low fixed cost while providing more options to users. It provides the required licenses and operational capabilities for such restaurant partners.

Zomato Kitchens:

Zomato collaborates with enterprises to create and manage Zomato Kitchens under various labels to provide culinary infrastructure services to certain restaurant operators. It assists entrepreneurs by financing INR 35 lakh or more for eateries in strategic locations.

Hyperpure (B2B platform):

Zomato’s Hyperpure model is based on B2B supplies. Zomato directly buys groceries, vegetables, and other ingredients from the farmers and vendors. It provides kitchen supplies to hotels, restaurants, and caterers.

In Q3 FY24 (as of December 2023), Zomato's Hyperpure vertical achieved a more than doubled YoY revenue growth to INR 859 Cr. Hyperpure's Q3 sales increased 15% from INR 745 Cr reported in the quarter ended September 2023, as per inc42.

Blinkit (Quick commerce business):

After acquiring this quick commerce arm in June 2022, Zomato added one more revenue channel. However, Blinkit didn't perform as well as other Zomato business model revenue streams.

Blinkit's overall contribution margin increased to 2.4% of gross order value (GOV) in Q3 FY24, up from 1.3% in Q2 FY24.

Blinkit's revenue in Q3 FY24 was INR 644 Cr, compared to INR 505 Cr in Q2. The adjusted EBITDA loss decreased to INR 89 Cr from INR 125 Cr in the previous quarter. It generated more than INR 1,533 crore in revenue in FY24 until December.

The Zomato-owned company also reported that 70% of its dark outlets contributed positively, with over 20% running at or above a 5% contribution margin. Zomato announced its third consecutive profitable quarter, with consolidated net profit quadrupling from QoQ to INR 138 Cr, as per inc42.

How Zomato becomes profitable:

After being in the food tech industry for a long time, Zomato turned profitable in Q1 and Q2 of FY24. The foodtech company recorded its second profitable quarter in Q2 FY24, with a profit after tax (PAT) of INR 36 Cr, up 18X from INR 2 Cr in the previous quarter.

The significant reasons for its profitability in Q2 FY24 are the following:

  • B2B arm (Hyperpure)
  • Quick commerce business (Blinkit)
  • Zomato Gold loyalty program
  • Food delivery

Let's understand each of them:

B2B arm (Hyperpure):

Hyperpure, the B2B supply arm, reported a 123% YoY increase in adjusted revenue to INR 745 Cr in the quarter ended September 2023.

Quick commerce business (Blinkit):

With the increased AOV (average order value) of INR 607 and increased GOV (gross order value) of 29%QoQ and 86% YoY, Blinkit noticed a record 45.5 million orders during the quarter.

Zomato Gold (loyalty program):

The company gained 38 lakh members in that program since its launch in January 2023. According to Zomato, gold orders accounted for approximately 40% of the vertical's total GOV (about INR 3,192) in the second quarter of fiscal year 24.

Food delivery:

Despite a 'flat' average order value (AOV), GOV for the food delivery vertical grew 20% YoY to INR 7,980 Cr in Q2 FY24, recovering strongly from the demand slump observed in the final two-quarters of FY23.

In addition to the reasons mentioned above, the profitability of Zomato was largely affected by growth in its Gold program, growth in gross order value (GOV), and an accumulation in order volume.

Also, verticals like dining out observed an 88% increase in revenue to INR 49 Cr in Q2 FY24 from INR 26 Cr in the year-ago period. In Q2 FY24, the dining out arm also noticed an increased average GOV of 2.28 times YoY that reached out to INR 682.

Wrapping up:

Zomato makes money through its various revenue streams that we discussed earlier. Advertising is the main source of revenue generation for the company. After seeing two consecutive profitable quarters, Zomato would like to move into the next phase of its business.

Let's see what they have for the future and how they will manage to sustain their profitability for the long term.

What do you think are the ideas by which Zomato can sustain its profitability for the long term?

Pin it in the comment section and suggest any changes we can make to our articles.

References:

https://inc42.com/buzz/zomato-q2-highlights-profit-streak-continues-all-verticals-deliver-growth/

https://oyelabs.com/zomato-business-model/

https://www.volumetree.com/zomato-business-model/

https://www.elluminatiinc.com/how-zomato-works-business-model-revenue-insights/

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