Understanding the business model of Zomato

You can also listen to the podcast of this same blog post, here

If I were to ask you, name 5 things that you can think about when I say Red.

One of those 5 things will definitely be Zomato.

We have all been using this app, and over the years the brand has ensured to change or bring in the much-needed shifts to cater to audience requirements.

Earlier, the aim was to check out places to dine out.

Or read food reviews.

Later, with the introduction of Swiggy- there were added food delivery options.

The introduction of Zomato Gold, made us all feel special.

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The brand, I feel has stood the test of time and has never disappointed.

In today’s blog post- we analyze the business revenue model of Zomato, keeping in mind their offerings and the way they earn.

The blog post includes the following parameters:

1. History of Zomato

2. Analyzing the revenue streams for Zomato

3. Important factors of the business model

Let’s begin with the first one

1. History of Zomato

Not many of us might be aware, but Zomato started as ‘Foodiebay’ back in 2008.

The founders Deepinder Goyal and Pankaj Chaddah are IIT Graduates.

The basic idea behind the app came through when the founders realized that there is a constant need for consumers to keep all the paper leaflet menus around.

So they wanted to come up with a digital platform that would provide ease in storing all the information in regards to restaurant menus.

From then, to now when Zomato is one of the largest food aggregators in the world.

It has managed to bring in a change in the way people visit a restaurant, most likely you and I will check out reviews on Zomato before trying a new place.

We would also use the app to book a table at a restaurant we shortlisted based on the reviews.

To now using it as a platform for online food delivery.

Zomato has come a long way, in gaining their customer’s trust no matter what the offering.

2. Revenue Streams of Zomato

Zomato has managed to generate millions and has expanded on a large scale.

So there clearly has to be a steady flow of revenue, let’s understand some of these revenue streams.

a. Advertising

The major chunk of revenue for any business these days is advertising, and Zomato is no different either.

So Zomato until recently was only used as a directory for restaurant listings.

But now, the app is used for food ordering as well, so it provides an option for the restaurants to advertise on the app.

You might have come across these banner ads on the app, those are advertised.

In fact, Zomato earns 50-70% of its revenue just through this.

It also provides the restaurants with an option to place the restaurants higher up in the list, even that is paid for!

b. Food Delivery

Zomato charges a fixed commission to all the restaurants from where customers place an order.

So the prices that you are charged, take into account both the cost to the restaurant and the commission earned by Zomato.

c. Restaurant Listing

Restaurants pay a fixed subscription for the listing monthly.

And again, as mentioned earlier- restaurants have an option of ranking higher in search if they are willing to pay a little more for it!

d. Zomato Gold / Zomato Pro

Zomato Gold has now changed to Zomato Pro is another important revenue stream for the brand.

It’s based on a subscription-based model, where consumers can purchase the Zomato gold pass and get more exclusive offers.

Earlier, this was only applicable to dine-in, with offers like 1+1 on food or 2+2 on drinks.

And restaurants were willing to add this feature in because gold members would be extremely keen on visiting places with this offer.

Again, a great revenue stream for the brand.

e. Consultancy

This is one of the lesser-known revenue streams for Zomato.

Put yourself in the shoes of a restaurant owner, and say, you wish to open a restaurant in a posh locality in South Mumbai.

Now you may have plans of opening a burger joint, but wouldn’t it be a lot better to know the preference of people around?

How do we get this information though? Through Zomato!

Zomato has this great analytics tool, that helps in tracking the food preferences of consumers in and around a specific area.

Of course, they won’t share this information with you, free of cost- so this becomes another revenue stream.

3. Important factors of the business model

Now that we know the revenue streams for Zomato, let’s look at other important parameters that play an important role in the success of the brand.

a. Value Proposition

One of the most important factors that have worked in the favour of Zomato is its value proposition.

It’s a one-stop solution for both restaurants as well as food lovers.

Zomato does enjoy some advantages given the first-mover advantage.

But it’s also the only medium that provides ratings, reviews, etc. when it comes to restaurants.

So even if with food delivery, they might face tough competition from Swiggy, but for this specific things-Zomato is your only bet!

b. Customer Relationships

Ratings and reviews provide a great opportunity to build customer relationships.

You may not have realized this, but especially while using Zomato- the main focus is around buying/visiting the highest-rated restaurants.

And more so, your food order choices are also affected based on the reviews.

So it’s a great way to build relationships since few restaurants also appreciate positive reviews and can comment on the same.

c. Customer Segments

One of the most crucial factors that aid the business model of Zomato is the varied customer segments.

We have restaurants catering to various areas, various price points, various cuisines, so they are targeting various customer segments.

With this wider reach, the brand is bound to have a successful business model.

Conclusion:

Zomato is one of the perfect examples of a start-up that has ensured strategic changes in its business model to sustain profits and growth.

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Also read: Marketing changes in the post Covid-19 world