Food Delivery Business Model: The economics behind the success of zomato

What is the secret of success of Zomato- An economic point of view!

Times are changing, and we have to change ourselves to cope up with the changes around the world. Preparing a lunch box every day and carrying it to the workplace is not significant anymore as you have to spend 9 to 10 hours of a day in the office so the food may get spoiled till the time you take it. Along with that, it is challenging for both men and women to cook food every day and perform other household tasks. Due to all these reasons, the food delivery apps like- Zomato, Swiggy, Uber eats, etc. are flourishing. It is not surprising anymore that almost every smartphone in the country has one or two food delivery apps as it is the easiest option to get your favourite food anytime.

The story of food delivery applications is not too old. It is a new concept but manages to get an adequate number of users in a quick time. The reason is quite simple- food is something that no one can ignore at any cost. Food delivery apps are not just limited to restaurants anymore; even home-cooked meals are available on these platforms, which further enhances the significance of such applications.

In the financial year 2019, Zomato’s food delivery business model had generated a revenue of 206 million dollars. One of the most prominent reasons behind this huge commercial success is the quality service and the cosine marketing strategy. Zomato has overpowered other food delivery apps because it had carefully observed the economic trends of their targeted customers.

What are the sources of income?

The best part about food delivery application is their business model. There are several earning options available in such applications some of which are-

  1. Restaurant Listings-

For any business, advertising is the most critical aspect, and food delivery apps provide an opportunity for restaurant owners to become familiar names in the city. Restaurant and food stall owners willing to pay huge amounts for listing in food delivery apps as will help them in customer retention.

2. Food Delivery

The main source of income for such apps is food delivery. In the case of Zomato, they deliver food prepared in their own outlets, let’s say type A orders as well as pick up from the listed ones, let’s say type A orders Type B orders.

Type A orders, commission – AOV * Rate of orders = Rs 375 * (8.2% + 10%) = ~Rs 68

Type B orders, commission – AOV * Rate of orders = Rs 480 * 8.2% = ~Rs 40

So the numbers are clearly showing the huge profit margins of such applications.

3. Subscription Programmes

Different subscription programs like – Zomato gold also contribute to the income of food apps significantly and help them in user retention.

4. Events

Different events or food fests are also organised by such applications in the metros which serve delicious food, drinks, music, and many more; such events are attended by a large number of people usually. And a big crowd means big profits as the entry charges for such events are high.

5. Zomato Kitchens

The other source for income for Zomato is Zomato Kitchen. In this programme, the company helps the entrepreneurs to set up their own restaurants at different locations. 

Different elements of cost

Delivery

The major expenditure of Zomato is in the form of cost of delivery which includes the remuneration paid to the delivery boys, expenses of the purchase of different equipment and the vehicles used for the dispatch of the orders. Along with that, they have to spend on the training of delivery boys and their administration. Sometimes the order flow is too high due to which they also have to recruit delivery staff on an immediate basis to serve the customers.

Processing and support

When you order something from Zomato or any other food delivery app, then this request is sent to a particular restaurant. And when your food gets prepared, then the delivery boy picks that parcel and delivers it to you. It may look quite simple from the customer point of view, but the processing of each and every order is a difficult task. The platform has to appoint staff members for the proper execution of orders and at the same time keep the restaurants and delivery boys updated through personalised phone calls to deliver orders on time. A huge amount of money is spent on the proper processing of orders.

Customer acquisition

For any kind of application, customer acquisition is very important. A big percentage of paid-up capital spent on the acquisition of customers. The amount may vary according to geography and the overall budget of the application. One can decide how much they want to spend on the acquisition of each customer.

Fixed expenses

There are some fixed expenses which are associated with the food delivery business model like the salary of staff members, sales team, marketing expert, business analysis, and the development cost.

Things that one should consider before jumping into a food delivery business

As we all know, food delivery apps are showing high returns; hence everyone wants to jump into this suction, but the success depends on several crucial factors. Some of them are listed below; if you pay sufficient attention to these factors, then you will also be able to create histories like Zomato or any other food delivery business model. If you want to launch your own food delivery application, then you should consider the following points-

Target customers

 It is very important to find out your targeted customers, for that you have to spend a sufficient amount of money and resources on market research. In case of food delivery apps, sufficient research is done on the eating habits of the people like- for students you should focus on light snacks and beverages, on the other hand, office workers will prefer a complete meal.

Capital requirement

The next step should be the overall budget. In this step, you should decide how much you will spend on development and marketing, the salary of staff members and other setups. Along with that you also have to think about big containers for storage of food, small boxes for the packaging and dispatch of food materials.

Business plan

Any business idea can not get success without proper planning, and the same is the case with food delivery applications. If you are going to launch an app, then you must have a practically applicable business plan which will include all the possible scenarios from A to Z. In the business plan, one should include all the expenses, sources of funds, nature of the market, expected profit margins, etc.

Marketing

Marketing is the most crucial aspect of any business. In the case of food delivery applications, you can take complete advantage of different digital marketing platforms, especially through.

  • Play Store and App Store Marketing
  • Tie-up with different digital payment platforms like- Paytm, G-pay, PhonePay etc., then it will further increase the user retention
  • lucrative discounts
  • Brand recognition
  • Third-party sponsorship
  • CPI( Cost Per Install) campaign affiliate networks.
  • App installation campaign

Licences

It is essential to get permission from the relevant government departments to launch a new app, and for that, you have to undergo different formalities. Hence it is advisable to prepare all the necessary documents before the launch of the app.

Hence we can conclude that in the upcoming times we will witness lucrative profit in the food delivery business model and the example of Zomato sufficient to prove that food delivery apps can prove to be a profitable business idea. Even you can use them for the delivery of groceries, dairy products, and other essential items. To get success in this business, all you have to do is pay sufficient attention to the marketing and development aspects. In this segment, there are numerous applications in the market already, and many more will come, but only those who are able to acquire customers and retain them for a longer duration would be able to succeed in the future.

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