The Zomato Comeback: From Market Struggles to Industry Dominance

Most of us are familiar with Zomato as a popular food delivery service we use for ordering our favorite meals. But how many of us are aware of the incredible journey Zomato undertook to reinvent itself and outperform its competitors? From navigating a turbulent period following its IPO to reclaiming its position as a market leader, Zomato’s story is one of remarkable transformation. In this blog, we will explore how Zomato not only turned around its fortunes but also set new benchmarks in the industry, emerging stronger and more competitive than ever before.

Zomato’s Humble Beginnings: From College Dream to Industry Leader

The tale of Zomato’s rise is nothing short of cinematic. It all began with a young student, whose academic struggles belied his immense potential, making his way to one of India’s premier institutions, IIT Delhi. Driven by a passion to revolutionize the food delivery industry in India, he embarked on a journey to tackle a problem he had long envisioned solving. That student was Deepinder Goyal, and his journey is as fascinating as any blockbuster.

Before Zomato became the household name we know today, its origins were marked by determination and vision. In fact, we’ve created an insightful two-part documentary that delves deep into Deepinder Goyal’s school days, his time at IIT Delhi, and his early career at Bain and Company where he first launched Zomato under its original name, Foodlet.

Initially, Zomato capitalized on its early mover advantage as a restaurant discovery platform, operating since 2008, long before it ventured into food delivery in 2015. During these formative years, Zomato focused on building a comprehensive database of restaurants, encouraging establishments to list their menus and profiles. By 2015, Zomato had partnered with over 1.4 million restaurants across 22 countries, establishing itself as a key player in the global food scene.

This strategic groundwork allowed Zomato to outshine competitors in India’s rapidly growing food delivery market, leading to the decline of rival platforms such as TinyOwl and Foodpanda. Zomato’s robust network and early relationships with restaurants not only solidified its market position but also set the stage for its remarkable journey from a startup to a dominant force in the industry.

The Road to IPO: Zomato’s Journey from Crisis to Triumph

From its inception in 2008 to its landmark IPO in 2021, Zomato’s journey has been nothing short of dramatic. By 2015, Zomato had firmly established itself as a leader in India’s food delivery market, achieving unicorn status by 2018. Yet, the path to its IPO was fraught with challenges, revealing a rollercoaster of highs and lows.

As Zomato prepared for its IPO, the company faced a severe crisis. The COVID-19 pandemic in 2020 brought unprecedented hardships, with restaurant closures and a sharp decline in food orders. During this period, Zomato’s revenue plummeted by 90%, leaving the company with only six months of financial runway. To make matters worse, a geopolitical conflict between India and China further complicated their situation. A crucial funding round with China’s Ant Financials was abruptly halted due to tightened Foreign Direct Investment (FDI) regulations, which restricted Chinese investments in Indian companies.

Faced with dwindling funds and a collapsing revenue stream, Zomato explored an IPO as a lifeline. The company was prepared to lower its valuation drastically—down to $500 million, a significant drop from its previous $4 billion valuation. Despite being a loss-making entity, Zomato pushed forward with its IPO amidst an uncertain market.

Fortunately, Zomato’s fortunes began to turn. As lockdowns eased, food delivery demand surged, driven by a phenomenon dubbed ‘revenge eating’—a trend where consumers ordered more food to make up for the lockdown period. Additionally, the successful IPO of DoorDash in the U.S. boosted market confidence in food delivery companies, providing a favorable backdrop for Zomato’s own public offering.

Zomato’s IPO in July 2021 was a resounding success, with shares oversubscribed by 38 times and an opening premium of 66%. However, the post-IPO period was challenging. The initial excitement faded, and geopolitical tensions, such as the Russia-Ukraine conflict, led to a negative shift in market sentiment. Zomato’s stock price fell significantly, and investor confidence wavered, especially following the company’s decision to acquire Blinkit, a grocery delivery startup. This move, though strategically sound for long-term growth, faced criticism from short-term investors, resulting in further stock price declines.

To navigate these turbulent times, Zomato undertook several strategic measures. The company scaled back operations in 225 smaller cities, laid off 4% of its workforce, and increased commission rates from restaurants. These actions helped Zomato transition from a net loss of ₹347 crore to a net profit of ₹2 crore within two quarters. Concurrently, Blinkit began showing positive financial contributions, reinforcing its value to Zomato’s broader strategy.

Looking ahead, Zomato’s founder, Deepinder Goyal, has set ambitious goals. He aims to propel the company’s valuation to $100 billion by 2030 and achieve $1 billion in profit. Currently valued at around $16 billion, Zomato’s path to this goal will involve diversifying beyond food delivery. Hyperpure, Zomato’s B2B vertical, represents a key growth area, potentially offering significant expansion opportunities.

The Road to Profitability: Zomato’s Strategic Comeback

Zomato faced a stark reality: achieving profitability was no longer an option but a necessity for survival. The company knew that without immediate action, recovery from their financial downturn would be nearly impossible. Here’s how Zomato navigated its path to profitability and set ambitious future goals.

In February 2023, Zomato made a strategic decision to exit operations in 225 smaller cities across India. These were locations where the company had established delivery fleets but lacked sufficient revenue to sustain the business. This move allowed Zomato to streamline its operations and focus on more profitable areas.

The company also undertook a significant reduction in its workforce, laying off approximately 4% of its employees, which equated to around 150 individuals. Additionally, Zomato adjusted its business model by increasing the commission rate charged to restaurants from 27% to 33%. These strategic steps were crucial in turning around the company’s financial health just like how Colgate gathered momentum.

The results of these measures were evident in Zomato’s financial performance. By June 2023, Zomato had transitioned from a net loss of ₹347 crore in March 2023 to a net profit of ₹2 crore. This remarkable turnaround was also complemented by improved performance from Blinkit, Zomato’s quick commerce arm. Blinkit, previously seen as a liability, started to contribute positively to the company’s overall financials. Some of Blinkit’s dark stores became profitable, signaling progress and renewed confidence in the business model.

Deepinder Goyal, Zomato’s founder, expressed optimism about Blinkit’s future, stating in a letter to shareholders that he believes Blinkit will ultimately drive more value for shareholders than Zomato itself over the next decade.

Looking ahead, Deepinder has set ambitious targets for Zomato. The goal is to achieve a valuation of $100 billion by 2030 and generate $1 billion in profit. As of February 2024, Zomato is valued at around $16 billion, indicating a significant growth trajectory ahead. However, reaching the $100 billion mark will require diversification beyond food delivery.

Zomato’s Hyperpure, its B2B vertical, is expected to play a crucial role in this growth. Hyperpure sources and supplies products like fruits, vegetables, groceries, and dairy directly from farmers to restaurant partners. In the most recent quarter, Hyperpure generated revenue of ₹859 crore, showing impressive growth with a 100% year-over-year increase compared to the 53% growth in Zomato’s food delivery segment. This rapid growth suggests that Hyperpure may soon surpass Zomato’s core food delivery business in revenue.

Additionally, Blinkit is set to expand into the home services sector, akin to platforms like Urban Company, and explore high-commission product categories such as electronics and home decor. These initiatives are aimed at differentiating Blinkit in the highly competitive quick commerce space.

In summary, Zomato’s journey from crisis to profitability demonstrates a remarkable comeback driven by strategic realignment and innovation. As the company navigates its path toward achieving a $100 billion valuation, its focus on diversifying revenue streams and leveraging emerging business verticals will be pivotal to its long-term success.

What are your thoughts on Zomato’s future prospects? Could they really reach a $100 billion valuation by 2030? Share your views in the comments, and stay tuned for more updates.