Zomato, a leading food delivery and restaurant discovery platform in India, has evolved into a multifaceted technology-based platform that connects customers, restaurants, and delivery partners across local markets. Zomato’s primary services revolve around food delivery, but it has expanded its business to include Hyperpure (B2B restaurant supplies), quick commerce (Blinkit), and dining-out services. This article will delve into Zomato’s business model, financial performance, growth trajectory, and future outlook.
Company Overview
Core Business Offerings
Zomato started as a restaurant discovery platform but quickly transformed into one of the most recognized food delivery services in India. Its platform offers a seamless solution for customers to search for local restaurants, order food online, and have it delivered quickly and reliably. The delivery network consists of independent delivery partners who onboard themselves to the platform, and restaurant partners who are charged a commission for orders generated through the platform.
Zomato’s revenue comes primarily from commissions charged to restaurants, as well as advertising income from restaurants that promote their services on the platform. Customers also pay delivery fees, which are passed on to the delivery partners, along with any tips they might receive.
In addition to food delivery, Zomato operates Hyperpure, a B2B platform supplying fresh, hygienic ingredients to restaurant partners. Hyperpure is a critical part of Zomato’s strategy to deepen its relationship with restaurants by providing them with high-quality supplies, which in turn helps Zomato retain and grow its network of restaurant partners.
Another major business segment for Zomato is Blinkit, its quick commerce platform that allows customers to order groceries and essentials for rapid delivery. Zomato acquired Blinkit in August 2022, marking its entry into the quick commerce space.
Zomato’s Business Segments
- Food Ordering and Delivery: Zomato’s primary offering is its food ordering and delivery service. Customers can discover restaurants, order food, and get it delivered using a network of delivery partners. The company earns revenue through commissions on orders placed through its platform and from advertising revenue generated by restaurant partners.
- Hyperpure (B2B Supplies): Hyperpure is Zomato’s farm-to-fork supplies business, offering fresh and hygienic ingredients directly from farmers, producers, and processors to restaurant partners. The service helps increase restaurant engagement with the Zomato platform by offering a reliable and high-quality source of ingredients. Hyperpure has grown rapidly and has become an integral part of Zomato’s overall business.
- Blinkit (Quick Commerce): Zomato entered the quick commerce space through its acquisition of Blinkit in August 2022. Blinkit allows customers to order groceries, essentials, and other products for fast delivery. Quick commerce is seen as a natural extension of Zomato’s core food delivery business, as it expands the company’s addressable market and allows for better utilization of its delivery fleet.
- Dining Out: Zomato also offers services for customers who dine out at restaurants. These services include discovering restaurants, reading and writing reviews, booking tables, and making payments at restaurants. Zomato has recently launched a new monetization model for its dining-out segment, driving transactions at restaurants through the platform. The previous monetization models, including the Zomato Pro membership program, have been discontinued.
Zomato’s Financial Performance
Zomato has demonstrated significant growth over the years, fueled by its expansion into various business segments. Below is a detailed look at the company’s performance across key financial metrics.
Revenue Growth
- Five-Year Compound Annual Growth Rate (CAGR): Zomato’s revenue has grown at an impressive CAGR of 56% over the past five years.
- FY24 Revenue: Zomato reported revenue of ₹12,114 crore in FY24, a 71.1% year-on-year (YoY) increase. The growth was primarily driven by the food delivery business, which grew by 26.8% YoY, in line with a 22.5% growth in Gross Order Value (GOV).
- Hyperpure: Zomato’s Hyperpure segment grew by 110% YoY, reflecting the increasing adoption of B2B services by restaurant partners.
- Quick Commerce (Blinkit): Since its acquisition, Blinkit has also grown significantly, contributing to Zomato’s top-line performance.
In Q1 FY25, Zomato’s revenue increased by 74.1% YoY to ₹4,206 crore, with adjusted revenue growing by 62% YoY to ₹4,520 crore. The food delivery business saw GOV grow by 27%, while Hyperpure revenue surged by 96% YoY.
EBITDA and Profitability
- EBITDA: Zomato became profitable at the operating level in FY24, reporting an EBITDA of ₹42 crore, a 103.5% YoY increase. This improvement was driven by growth in both food delivery and quick commerce, as well as margin improvements across segments.
- Q1 FY25: EBITDA improved further to ₹177 crore, signaling better operating performance and margin improvements.
Zomato’s EBITDA margins in FY24 were minimal at 0.3%, but in Q1 FY25, they improved to 4.2%, reflecting Zomato’s ongoing efforts to improve efficiency and profitability. Over the medium term, the company aims to achieve an adjusted EBITDA margin of 4-5% for its food delivery business.
Profit After Tax (PAT)
- FY24: Zomato posted a PAT of ₹351 crore in FY24, a significant improvement compared to previous years. The company’s PAT margin stood at 2.9%, driven by operating leverage and increased other income.
- Q1 FY25: Zomato’s PAT grew to ₹253 crore, with a PAT margin of 6%, marking a strong start to FY25.
Zomato’s improved profitability is a result of increased sales, better cost management, and a focus on operational efficiency. The company has also benefited from higher income from its investments.
Efficiency and Cash Flow
Cash Flows
- Cash from Operations (CFO): Zomato’s CFO stood at ₹646 crore in FY24, supported by positive working capital changes. This reflects the company’s ability to generate cash from its core business operations.
- Cash Flow from Investing (CFI): CFI was negative at ₹347 crore in FY24, mainly due to investments in long-term assets like bank deposits, government securities, and bonds.
- Free Cash Flow (FCF): Zomato’s free cash flow for FY24 was ₹0.9 crore, indicating that the company’s capex needs are minimal.
Working Capital Cycle
Zomato operates with a negative working capital cycle, as it collects payments from customers upfront but pays restaurant and delivery partners after a few days. This allows Zomato to generate cash flow and reduce the need for external financing.
Competitive Landscape and Sector Potential
Industry Growth Drivers
Zomato operates in a fast-growing industry driven by several macroeconomic factors:
- Young Demographics: India has a young population with increasing disposable income, which is driving the growth of online food delivery and quick commerce.
- Urbanization: Rapid urbanization and rising income levels are changing consumption patterns, leading more people to order food and groceries online.
- Smartphone Penetration: With increasing smartphone usage, more Indians are adopting digital applications, contributing to the growth of platforms like Zomato.
Competitive Landscape
Zomato operates in a duopolistic market, where its primary competitor is Swiggy. Both companies dominate the food delivery industry in India. While Swiggy is not listed, it remains a formidable competitor, especially after its acquisition of Dineout, a dining-out platform.
However, Zomato faces challenges from emerging players like ONDC (a government-backed initiative) and Wayyu (a localized food delivery service in Mumbai). Although these competitors are currently small, their presence adds dynamism to the market.
Future Outlook
Zomato is well-positioned for future growth, with several initiatives underway to strengthen its market position:
- Geographic Expansion: The company plans to increase its presence in more cities across India, which will help expand its customer base and increase the number of orders placed on its platform.
- Hyperpure Expansion: Hyperpure’s rapid growth is set to continue as Zomato expands the service to more cities, offering restaurant partners an increasing variety of ingredients and supplies. This will deepen engagement with restaurant partners and drive growth.
- Blinkit Expansion: Zomato is expanding Blinkit’s footprint by increasing the number of dark stores (small warehouses from which quick commerce deliveries are made). The company plans to have 1,000 dark stores by FY25 and 2,000 by FY26, which will help reduce delivery times and increase order volume.
- Zomato Gold: Zomato has relaunched its membership program, Zomato Gold, which offers benefits like free delivery and on-time guarantees. As of September 2023, Zomato Gold has scaled to 3.8 million active members, and it continues to be a key growth driver for the company.
- Dining-Out and Events: Zomato plans to leverage its dining-out platform by adding event and ticketing services under the brand “Zomato Live.” This will further diversify the company’s revenue streams and increase engagement with users.
Conclusion
Zomato has come a long way from being a restaurant discovery platform to becoming a dominant player in the food delivery and quick commerce industries. The company’s diverse business model, which includes food delivery, Hyperpure, Blinkit, and dining-out services, has positioned it as a leading technology-driven platform in India. Zomato’s focus on expanding its services and increasing engagement with restaurant partners and customers has helped it achieve significant growth over the years.
Zomato’s financial performance in recent years highlights its ability to scale its operations while improving profitability. The company has grown rapidly, driven by strong demand for food delivery, the success of Hyperpure, and the integration of Blinkit into its business model. As Zomato continues to expand into more cities and diversify its offerings, it is well-positioned to capture a larger share of the market.
Key Takeaways:
- Strong Business Model: Zomato’s core business model, which integrates food delivery, restaurant supplies, and quick commerce, provides it with multiple revenue streams and opportunities for growth. The platform’s ability to connect customers, restaurant partners, and delivery partners creates a seamless ecosystem that supports its long-term success.
- Profitability and Growth: After achieving profitability at the operating level in FY24, Zomato is poised for further improvement in margins, particularly in its food delivery and quick commerce segments. With the company targeting adjusted EBITDA margins of 4-5% over the medium term, Zomato’s focus on cost management and operational efficiency is paying off.
- Geographic and Service Expansion: Zomato’s plans to expand its presence in more cities and grow its service offerings (such as Hyperpure and Blinkit) indicate that the company is not resting on its laurels. Its strategic moves, such as acquiring Blinkit and relaunching Zomato Gold, demonstrate its commitment to innovation and staying ahead of the competition.
- Industry Trends: Zomato benefits from favorable industry trends such as rising disposable incomes, urbanization, and increased smartphone penetration. These factors are expected to drive continued growth in online food delivery and quick commerce, providing Zomato with a large and growing customer base.
- Competitive Position: While the food delivery industry remains competitive, with Swiggy as its main rival, Zomato’s diversified business model and strong market position give it a significant edge. Its focus on technology, efficiency, and customer experience ensures that it remains a top player in the sector.
In conclusion, Zomato is a strong, growth-oriented company that has successfully built a comprehensive platform catering to multiple segments of the food delivery and quick commerce industries. With a clear strategy for expansion and profitability, Zomato is set to continue its impressive growth trajectory, making it an appealing player in India’s dynamic digital economy.
