Is Zomato a Goldmine or will it fail?
The much-awaited IPO of Zomato is here and has been a great success being oversubscribed by 10.7 times, with institutional investors flooding into the company’s stock (source: Outlook India). The big question is the future business prospect it has to offer and how it will make profits in this competitive space.
Let us first talk about the challenges, one of the most concerning factors is that even after the revenue increase from Rs 487 Cr in FY18 to Rs 2,742.7 Cr in FY20, the losses exploded from Rs 104 Cr to Rs 2362.8 Cr between FY18- FY 20 (source: Inc42). They tried to reduce losses by cutting down discounts and increasing their commission, but nothing worked out well because with the increase in prices the customer shifted to a different platform like Swiggy and with an increased commission, there was a backlash from the restaurant owner’s side.
Another issue that food delivery aggregators like Zomato and Swiggy are facing is “The Order Direct Campaign by National Restaurant Association of India (NRAI)” where they urged restaurants to skip aggregators and opt for channels that will take them to customers directly. There are two reasons why this will benefit the restaurants in the long run first they won’t have to pay aggregators commission that is upwards of 20% of the order value and the second and the most important advantage is that they will get to know the consumer insights and understand consumer behaviour. There is a flurry of Startups like Gupshup, Dotpe, Uengage and many more that are helping the restaurants to go digital and get customer insights. (source: ET)
Let us now understand why Zomato is a gold mine. It has all the data that customers are ordering and has the understanding and the taste preference of its users. As it plans to launch its Cloud Kitchen service, this data will help map out places where they are most profitable and start this service with the understanding of what exactly will work in a place and plan out their menu accordingly. The concept of cloud kitchen is such that it is very cost-effective, this can lead them to generate more profit. As Zomato has its super-popular platform in place it can rank its brand kitchen at the top and is likely to generate profit upwards of 30% for an order.
Still, it needs to figure out a way to keep the restaurant’s owners happy or else restaurants would start to prefer other platforms or start their channels this will lead to loss of user base as well.
In your opinion, how will Zomato perform?