Zomato not an IPO review | CA Rachana Ranade - YouTube

Hey folks, CA Rachana Ranade here and I welcome  you all to a brand new video, which is about  

understanding the business model of Zomato. Now  coming back to our original discussion, where  

did the name come from? When these people who are  the founders of the company, we are going to talk  

about them in the coming part, but these founders  when they sat down together and when they started  

thinking that what should be the brand name, they  said that ''it should be something which is short,  

which is easy to remember and which makes people  think about food''. So while they were doing the  

brainstorming, there was a lot of energy involved,  energy is zing and something about food is  

tomato. So many people call it as Zomato  including me but some people call it as  

Zomato. Wait wait wait wait, really, is this not  an IPO review? answer is yes. You might be like,  

entire world is talking about Zomato IPO, why are  you not talking about it? Answer is very simple,  

I personally believe that many of you might be  feeling that Zomato is equal to a food delivery  

business, answer is not true, because Zomato has  two major business verticals, which are these? One  

is a b to b business vertical and one is b to c,  inside b to b also, there are lot of sub types and  

same case applies for a b to c vertical as well.  So what is the main thought process of this video,  

thought process of this video is first understand  the various business verticals nicely, once you  

grasp them properly over this weekend, on Monday,  what am I going to do ,I am going to come live  

at 9 00 p.m on the same YouTube channel  wherein, I will be talking about financials,  

I will be talking about valuation and many  many more other interesting facts about Zomato,  

so first over this weekend watch this video  and then see you on Monday 9 P.M. live  

on this channel. Well way back in 2008, Mr.  Dipinder Goel and Mr. Pankaj Chaddah were working  

at Bain and Company. When they started working  there, they found that many of their colleagues  

especially during lunch time were standing  in long queues to order for their food,  

that is when an idea came in their mind and  that is what typical IITans do with an idea,  

they start a startup.This thought of putting all  the menu cards of all the restaurants nearby on an  

intranet website which they called it as  foodiebay.com, but eventually they saw  

that there was a lot of surge in the traffic  on their intranet website as well and that's  

where they decided to take it as a proper public  website. And then, the journey began wherein they  

expanded to many restaurants in Delhi, then  Kolkata, then Mumbai and then to Bengaluru.  

Let's quickly understand the timeline of Zomato.  In 2008, they launched foodie bay about which  

I just talked about a minute ago, in 2010 they  went PAN India and they got their first funding  

of 1 million us dollars from info edge India,  by the way that's a listed company. In 2012,  

Zomato was renamed as Zomato Media Private Limited  and they also launched their mobile application.  

In 2012, they expanded their operations to  Dubai Sri Lanka, United Kingdom, Philippines,  

South Africa, Turkey, Brazil, Indonesia and  New Zealand. In April 2020 they renamed the  

company to Zomato Private Limited, in April 2021  they renamed again the company to Zomato limited  

and currently the company has its presence in 24  countries and 10 000 plus cities across the globe.

Now let's shift our focus to the core  business model of Zomato wherein,  

we'll try and understand their key  activities. So primarily they have  

two business activities one is b2c and the  other one is b2b. When I talk about b2c,  

all these business activities come up under  this segment and if I talk about b2b, all  

these different business activities come up under  the b2b segment. Now what we are going to do, we  

are going to try and understand in short about all  these activities in the coming part of the video.

So now let's understand their b2c business model  wherein, the first point that we are going to  

talk is about their food delivery service. You  might have wondered that many a times on Zomato,  

they offer 30 to 40 percent discount, how  on earth can they really bear this big cost?  

So just have a look at this table, the total 30 to  40 percent I am going to divide it into two parts  

15 to 20 percent, another 15 to 20 percent.  The first 15 to 20 percent is nothing  

but Zomato says that whatever is the cost in the  menu card they'll charge an additional 15 to 20  

over and above that and that will be there on  the Zomato's menu card. So just to give you  

an example let's say 100 rupees is the menu card  cost in the hotel, that 100 rupees dish on Zomato  

will be listed at 120 and then tomato people will  say we are giving you 10 percent discount okay,  

so who is bearing the discount? Is it Zomato? No,  it's you and me who is bearing the discount number  

one okay. Right hand side if you check out, it is  that 15 to 20 percent the hotel owner is ready to  

bear that much cost, how? See if a person eats  at home, there are certain overhead costs which  

are reduced for the hotel, like what? Overhead  cost like that table is free, overhead cost like  

no extra waiter needs to be there, overhead costs  like less utensils to be cleared, right, so hotel  

owner very happily is ready to give additional  15 to 20 discount. So in short the first 15 to  

20 percent was born by people like you and me and  the second 15 to 20 percent was born by the hotel,  

so nowhere in picture, Zomato is going to bear  the brunt of this big discount okay, but of course  

just to give you a small note here that there  are certain restaurants like Wadeshwar and Pune,  

where the menu card rate and Zomato menu card rate  it's the same okay. So with that let's move on,  

why, because the first one which I discussed which  was about the food delivery service, that forms a  

very minor part of their revenue okay. Second one  is subscription. What is subscription? They have  

nice tools amazing analytical tools like Zomato  order and Zomato book. Now through this Zomato  

book, analytical tool I am sure everyone many  of you might have used it, we can book tables in  

in advance right, a normal feature, next one is  Zomato loyalty services, now what is this? I am  

sure again you might have heard about Zomato pro  and piggy bank wherein you will be able to enjoy  

complementary food, drink something like one  plus one on a food or two plus two on a drinks.  

So it's always good to get all these freebies  right, plus you also get a priority delivery, as  

well as money back guarantee schemes. The next one  is Zomato other features wherein, they will say  

you get an on-time delivery or you get the free  delivery. So many times what Zomato does is that,  

you have to pay 10 rupees extra okay, why 10  rupees extra, if the food doesn't come to your  

home in time then you will get the food delivery  free of cost okay, but then they know that they  

are going to deliver in time, so that 10 rupees,  10 rupees, 10 rupees is going to be their income  

right. So I hope you have understood what  are the different services under b2c.

So let's start with the b2b segment and the very  first segment which forms the major source of  

income for Zomato is advertising revenue. Now  many times while surfing through their app,  

you might have wondered that why a specific comes  right on the top, is it because it has a higher  

demand always, answer is no. Possibility is  that they have a higher demand but there is  

another possibility that, that restaurant  might have paid certain charges to Zomato  

so that their name appears on the top. You  might have heard a similar analogy with just  

dial as well okay. So, that's how the advertising  charges work for them, now you might be wondering,  

why restaurants would be willing to pay them  these advertising charges? Many times restaurants  

get to know through their analytics that a lot of  their revenue is being generated through Zomato  

only, so then you know their dependency on Zomato  increases, so they want that more and more order  

should come from Zomato and their name should go  on keeping in the first two three names right,  

that's why they willingly pay these  advertisement charges to Zomato  

and that might be one of the reasons why  this is their number one revenue segment.  

The second one is sustainability, now  what is? This this is something new,  

might be new for many of you, they have started a  new initiative which is tagged as hyper pure, now  

what is this hyper pure? In simple words, they're  acting as a middleman okay, what middlemen, they  

help the farmers to grow organic crops okay  and they supply these organic crops to whom,  

to the restaurants okay. Now those restaurants  were actually taking such products from Zomato,  

organic products these restaurants will have  a separate tag near their name which will be  

called as the hyper pure inside tag okay .So  those customers who are crazy for organic food,  

so we want to eat only pure food these category of  customers right, so they will just try and ensure  

that, Oh! hyper pure inside tag, now I will go  to this restaurant okay so, automatically can I  

say these restaurants might have a separate niche  segment of customers automatically built in for  

them right. So that was their second b2b service.  Third one is business consultancy service, this is  

again an amazing service given by Zomato. Zomato  has such a huge database, they have so many,  

this is like a data mine that they have, they know  which people, from which area, prefer what food,  

at what time, in which price range. So now you  can imagine, if they have all these data points  

it will be so simple for them to analyze this  and give this service as a business consultancy  

to another hotel, has this ever happened, yes,  which which is the example, Jubilant Food Works.  

I am sure many of you might be knowing  Jubilant Food Works is domino's pizza right.  

When they wanted to venture into something new,  they had taken other consultant services as well  

but they had also approached Zomato right, they  asked Zomato that which was the food item which  

was being ordered highest in north Delhi and south  Delhi, then they took month on month analytics  

and they found that biryani was the item which  was being ordered as the highest food item through  

Zomato and other apps right, they also tried to  analyze what was the price range with which the  

customers were comfortable with, taking all these  data in hand, Jubilant Food Works announced their  

new brand which is eight dumb which sells biryani,  that is an example of business consultancy  

services. The fourth one is Zomato Cloud  Kitchen. Now I am sure you might have heard about  

Rebel Foods, so what is this concept of cloud  kitchen, let me just tell you. It's as good as,  

there is one single kitchen and there are two or  three families which are using the same kitchen,  

now instead of two or three families, two or  three food brands are using the same kitchen,  

then where do the customers sit? at their  own home. There is no overhead cost okay,  

so they'll just prepare in the kitchen, food  delivery boys will come they'll take it and go  

away. Now, if I am talking a bit again about the  rebel foods example, they have various brands like  

Faso's, Beherouz Biryani, Oven Story, Lunchbox  and few more right. So this is again one of the  

upcoming areas which is Zomato cloud kitchen.  Zomato claims, that return on investment for  

this specific segment is more than approximately  80 percent and they have broken even in less than  

a year in this segment and so far they have  completed more than 180 affiliate kitchens,  

right. So moving on to the next one, the next one  is Zomato Whitelabel services, now what is this,  

so like a customer says the restaurant says  I don't want to get myself listed on Zomato,  

instead of that Zomato please make a separate app  for me, Zomato says that our basic mold is ready,  

okay it's ready, so we just have to copy paste  this as good as make minor modifications, give it  

that is nothing but white labeling. This service  is also given by Zomato to other restaurants  

and the last one is Event Segment and what is  this? They have recently introduced something  

which is known as Zoma land and they conduct  live events, typically like a new year's event,  

like Christmas event wherein, they'll also promote  their restaurants which are listed on their  

app. So I hope, all in all you have understood  what are the different services which are rendered  

by them in the b2b segment. Well it's just that  it doesn't have to be any great or mind-blowing  

business idea to start your own business or have a  startup. It's just about observing what's going on  

in our surrounding, any small incident, any small  problem, if it is identified and tackled in the  

most clever manner, can become a good business  idea like Zomato. It's also said that ideas are  

no one's monopoly, it's all about execution. So  I hope you have loved today's video, if you have,  

just share it with your friends till  then take care, Jai Hind and bye bye.