Zomato, the largest online food delivery company in India, has established the country's largest food delivery network, employing hundreds of thousands of individuals to provide restaurant food to households across India. Despite starting as a small company in 2008, Zomato's valuation has now reached Rs 56,000 crore. However, the true story behind this valuation of 56,000 crore rupees lies in the investors who have invested in the Indian stock market. The company's shares are currently priced at just 65 rupees. It is important to note that Zomato, which has been operating since 2008, has not yet generated any profit. In fact, the losses incurred by the company are quite staggering. Despite this, many universities are investing significant amounts of money in Zomato. However, the logic behind these investments goes beyond the food delivery business alone. In 2018, Deependra Goyal and Pankaj Chedda launched an online website called Pudibe, which featured restaurants and customer reviews in major Indian cities. Although the website did not offer online food delivery at the time, it eventually evolved into Zomato in 2010. With a population of over 100 crores, India is a country where word-of-mouth spreads rapidly. Zomato has capitalized on this by expanding its business to nearly 25 countries. Now, let's delve into how this business generates its earnings.
Zomato possesses a vast amount of personal information regarding its customers, including their preferences for food, flavors, price range, and even the specific time and season they prefer to order. This extensive data allows Zomato to provide tailored recommendations to each registered customer on what they would enjoy eating at any given time. This exemplifies the power of data science in understanding customer preferences and enhancing their overall experience. If you are considering setting up a shop in a particular area, Zomato's consultancy service can inform you about the most popular types of food consumed in that area and the preferences of the local population, including their price range. Zomato India has also utilized this customer data to develop the concept of Cloud Kitchen, which is similar to catering services. Unlike traditional restaurants, Cloud Kitchens solely focus on food preparation without providing a sitting area for customers. This allows for a more cost-effective operation compared to establishing a full-fledged restaurant. Zomato's expertise in customer data analysis enables them to easily identify the areas with the highest customer demand, making it convenient to determine the ideal location for a Cloud Kitchen. Additionally, Zomato generates revenue through advertisements, further diversifying their sources of income.
For instance, if you access the Zomato app and search for biryani, you will find a vast list of restaurants available on Zomato. As you browse through, you may come across food delivery advertisements, for which a fee must be paid. Consequently, the prices of biryani dishes listed in the top 5 restaurants tend to be slightly higher compared to those below. This is because all the restaurants factor in the cost of advertising when determining their food prices. Therefore, when you search for biryani, the initial list of food items will also have higher costs. Additionally, if you decide to place an order, you will incur a significant delivery charge paid to the person delivering the food to your home. In this way, a portion of the payment goes as commission to Zomato. You may wonder how Zomato manages to generate revenue from various sources. It is worth noting that both Swiggy and Zomato are major players in the food delivery industry in India. According to recent calculations, Swiggy's company valuation stands at eight billion dollars, while Zomato's valuation is seven billion dollars. Despite not yet turning a profit, let us explore the reasons behind their success. When ordering food, many of us compare prices on both the Swiggy and Zomato applications. If one platform offers lower prices, we tend to make our purchase there. To stay competitive, it is crucial for companies to offer lower prices than their rivals. This creates a challenging environment where they strive to outdo each other by providing enticing offers and discounts, ultimately making the food delivery business less competitive.
Due to this situation, these two companies are experiencing significant financial losses each year. In 2019, Zomato's revenue increased from 1300 crores to 2600 crores in 2020. However, during the same period, the company's losses rose from 1000 crores in 2019 to 2400 crores in 2020. It was revealed that Zomato had incurred losses exceeding 350 crores, leading to the elimination of its competition. Zomato has also adopted a paid subscription strategy similar to Amazon, aiming to retain customers. For instance, if you become an Amazon Prime member, you are more likely to order from Amazon instead of using Flipkart. Many individuals used to opt for this approach to quickly order food, but it was not very successful due to delayed deliveries. Zomato attempted to achieve success by offering additional discounts, but it proved to be unfeasible. Similarly, in 2019, there was a campaign called "logout" against Zomato. This campaign emerged because restaurants believed that by partnering with Zomato, they were not making any profits. Not only Swiggy and Zomato, but other American food companies also faced setbacks after entering the Indian market. If you are curious, the reason behind this is that Zomato is not solely a food delivery business. In fact, Zomato has a multidimensional business model similar to Amazon, and one aspect of it is Zomato Hyper Pure.
Chicken and spices are utilized, and all the related materials for these spices are procured from separate stores owned by the restaurant. This may seem simple, but only those in the restaurant industry truly understand the challenges of sourcing raw materials. Pure, a company that supplies all the restaurants in India with high-quality ingredients and vegetables, understands this well. Similar to how individuals go to Demart for groceries, restaurants rely on Hyperpure for their supplies. Unlike other suppliers, Hyperpure deals directly with farmers to ensure the best quality materials are provided to restaurants at affordable prices. They have also established a network of dealers to ensure the delivery of quality food. This option of joining Zomato company promises good profits and there is no doubt about compliance, as a trusted company ensures the sale of quality food, attracting a large customer base. When food is prepared well, customers are likely to order again and again. Zomato's business models, such as consultancy services, cloud kitchens, and Hyperpure, along with effective strategies, have garnered the interest of many investors. The company has also gathered valuable data on customer preferences and dining habits, which is beneficial for restaurant owners who have established numerous establishments in cities. This data helps in determining the appropriate food offerings and pricing. Zomato has made the decision to convert the company into restaurants, assuring that it will be advantageous for all parties involved. The company follows strict rules and regulations to ensure the delivery of food to every customer, and they are focused on sourcing unadulterated food directly from farmers and packaging it correctly for restaurants. If this endeavor proves successful, it will undoubtedly lead to significant profits. Only time will tell who will emerge victorious and reap the rewards.
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