09 December 2019 12:39:26 IST

Zomato must be the market leader in tier 1, 2 cities

Need of the hour for the unicorn is to change the Zomato Gold strategy

How can the situation be resolved in the best interest of every stakeholder?



The graphic describes the revenue growth and the increase in costs for Zomato from FY18 to FY19. While the revenue almost tripled, thanks to the spurt in Zomato’s food delivery business, costs have grown six-fold in the corresponding period. In such a circumstance, from Zomato’s perspective, it may be inferred that it is in no position to compensate the restaurant partners for the deep discounts offered via the Zomato Gold (ZG) programme. To put things in perspective, the ZG scheme was ill-timed, and restaurants should have done a proper cost-benefit analysis before jumping on to the bandwagon, purely for the sake of better visibility and customer access.

The need of the hour is for Zomato to change the strategy of the ZG programme.



Now, consider the revenue and expenses breakup in Figure 2. In spite of incurring huge losses, online food delivery continues to be the cash cow for Zomato. Hence, it , Zomato should concentrate on not just expanding its food delivery business into tier 2 and 3 cities, but also emerge as the market leader in this segment.

It can boast certain competitive advantages, like more cyclists in Gaya, highest delivery frequency in Manipal, more midnight deliveries in Indore, breakfast preference in Vijayawada, and untapped markets like Kerala with relatively low cost of food delivery to drive down the cost associated with food delivery. This would increase number of deliveries per driver, per hour, to boost the top-line growth and, thus, break-even in a couple of years. Once it establishes itself as market leader in these locations, it can further expand the dining out and sustainability business (this segment has a huge potential, given the concerns over use of pesticides in vegetable in especially consumerist States like Kerala) in these locations.

Once Zomato breaks even and generates profits, it may relaunch the ZG programme. This time, it can compensate the hoteliers for deep discounts, and even their rent and human resource requirements.

How can Zomato build great partner relationships with restaurants, protect their brand equity and minimise the effect of commoditisation? Should Zomato stop deep discounting? Should ZG go back to being an exclusive, invite-only service, as originally envisioned?

Even though there has been criticism that FSAs are eating the profit of restaurants, it is important to note that 25-30 per cent of the revenues generated by the restaurants are due to the help of FSAs. It is important that Zomato must collaborate with the restaurants so that it would benefit both. Zomato should focus on its user interface in its application and give more filtered options,. The different amenities available at restaurants should also be mentioned in the application, such as children play area, outdoor dining, and rooftop dining. Thus, Zomato can protect its brand equity and minimise the effect of commoditisation.

The company should not discontinue the ZG programme because it will affect brand loyalty. However, instead of providing deep discounts, it can remove the 1+1 concept and give a modest amount as discount in the total bill, say 10-20 per cent, depending on the restaurants. So, the minimum requirement should be at least two at one table. Only one ZG can be used and it will provide a discount of 10-20 per cent in the total bill.

Restrictions like one Zomato Gold opening for 12 hours should be brought into place. Zomato O2 services should be continued and subscription fee should be increased. The joining fees of restaurant for ZG programme should be reduced and advertising cost in Zomato application for the restaurants should be increased. The customer service for Zomato Gold needs to be improved and problems faced by the customer should be rectified soon.

How can the scheme be redesigned to rein in deep discounts offered to customers? What will be the action plan to shift the focus of diners from discounts to loyalty?

— Zomato Gold users may be given the privilege of free and timely delivery.

— Cash vouchers of say, ₹100, for any online orders above ₹300 once in a month, provided customer makes a minimum of five orders a month. This ₹100 may be redeemed as cash back for subsequent ordering.

— Since sustainability is a fast-growing segment for Zomato, this facility should be made available to the ZG customers. For food ingredient orders above a certain price, delivery price may be waived.

— For online ZG customers, Zomato may ask the customer the diet plans — whether weight loss/gain, amount of calories, proteins, carbohydrates, or vitamins required in the food. Depending on the specification, Zomato may suggest the right food combinations and restaurants.

— ZG customer ordering via ZG more than five times a month, aggregating to more than ₹1,000, will be given 50 per cent off in any prominent buffet parties in star hotels in the city in the last week of the month.

Adarsh AN


Joshua Victor

(The Fourth Runners-Up are in 2nd year PGDM at LIBA, Chennai.)