Most of us, regardless of our age, have used Zomato at some point and are hooked on the convenience it brings to our lives. Did you ever wonder how they make money and how they managed to grow their business and seal a ₹4,447 crore all-stock deal to acquire Blinkit?

Background:

Incorporated in 2010, Zomato Limited is one of the leading online Food Service platforms in terms of the value of food sold. Today, Zomato focuses on online food ordering, restaurant reservations, loyalty programs, consultant services, and a lot more.

Key Highlights:  

• As of Q4FY24, Zomato has a quarterly Gross Order Value (B2C) of INR 13,536 crores with a YoY increase of 51%. Their Adjusted EBITDA stood at INR 194 Crores, with an INR 369 crores YoY improvement.
  Source: Zomato Shareholders Letters and Results, Q4FY24, May 13, 2024

• Zomato has officially exited almost all major overseas markets and has decided to focus on India.

                 Source: livemint.com

• Zomato garners 90 billion monthly visits and its app is ranked #1 on iOS and and #2 on Android in the Food & Drink Category.

Source: zomato / App Store and Playstore charts

• Zomato currently has 55% and Swiggy has 44% market share in India. In order to kill the competition, Zomato has made a total of 26 acquisitions and investments in multiple sectors, such as food tech and online grocery, while Swiggy has made 10.

Source: finfloww

Business Segments:

Broadly, Zomato operates in four business segments; Zomato + Blinkit + Hyperpure + Going-out, and has an internal name “Eternal” for it.

Revenue Model: 

Zomato, in itself, does not offer the products to customers, but the revenue model of Zomato is massive. 

1. Ad-revenue - Advertising is Zomato's major source of revenue. The restaurants can promote their banner on the site in order to get better visibility and appeal to a large section of the audience via Zomato.
2. Commissions and Delivery fees - Zomato charges a commission ranging from 20% to 25% on each order made at a specific restaurant, which is then split among the delivery partners and the company. 
3. Data analytics - Zomato has a huge number of databases that know what a customer wants to eat, where he/she wants to eat, and what the consumers are searching for, and in return for a monthly fee, it is given to restaurants, which helps them understand consumer behaviour.
4. Zomato Gold - Zomato Gold is a premium subscription service offered by Zomato, providing members with exclusive dining benefits. It is fully margin accretive for Zomato as it is not shared with the restaurants.
5. Platform Fee - The platform fee is a per-order flat charge levied on all orders. Zomato levies the platform fee in addition to a delivery charge. The platform fee is applicable to Zomato Gold members as well.
6. Other sources - Zomato kitchen, live events, zomato pay, etc are a few other revenue streams for the company.

Acquisition of Blinkit:

Zomato announced the acquisition of Blinkit on June 24, 2022, for a total price of Rs 4,447 crores in equity. Their rationale?

Well, the main drivers behind this acquisition were:

• Survival - One of the key reasons to acquire the business was to defend the food delivery business, because a well entrenched quick commerce player could pose an easy threat to the food delivery business in the long term.
• Entry into quick commerce industry - Zomato wanted to set foot into the e-commerce grocery industry which was dominated by Amazon Pantry, Big Basket, Grofers, Swiggy and other players. Despite trying a few times, they kept failing. This acquisition helped Zomato set a strong foot in the sector.
• Delivery Fleet Utilisation -  Food delivery is something that peaks at meal times, weekends (etc.), whereas grocery delivery has its own peak and non-peak hours. Thus, asset (fleet) utilization is better, and this improves the cost-benefit ratio.
• Convenience of ‘10-minute delivery’ - The monthly order frequency on Blinkit in May 2022 was higher than that of Zomato’s food deliveries. Customer metrics have shown distinct trends that customers, spurred by the convenience of the ‘10-minute delivery’, are motivated to shop spontaneously, even impulsively. Therefore, Zomato’s addressable market saw a healthy expansion through the addition of Blinkit’s quick-commerce.

Key Financials of the Company:

 *Amount in INR billion, unless specified otherwise

Source: Zomato Annual FY reports

Key Metrics:

*Amount in INR billion, unless specified otherwise

Source: Zomato Annual FY reports

DISCLAIMER: This blog is solely for educational purposes and not to offer any investment advice. Please do your own research or consult a financial advisor before making any investment decisions.