When I come across the business mode of Zomato (& Swiggy), I considered it as a type of business like e-commerce - Amazon & Flipkart. Ecommerce companies provide convenience (home delivery) & cost advantage (discount). Their growth may have been limited if they only offered convenience. Home delivery is cost-saving for consumers and they may have grown even if they have offered free or minimum home delivery charges. E.g. I used amazon to order my ccl coffee and girnar green tea. Am getting it at MRP (No discount) but am not charged for delivery hence am saving on transportation (girnar and ccl are not available at nearby Kirana). They have grown multifold as they created an ecosystem where they offered both convenience and cost advantage. Amazon and Flip did a great job.
On the other side, Z & S as a business model did a poor job. They may have offered a discount to consumers as a restaurant is saving by delivery vs Dine-in. The same discount is used to offset full or some delivery costs. Take an example of Restaurant A X km from home.
A. I can go there, order and take delivery which cost me say Rs. 50-100 of transportation & 30 mins of my time. May save time if I order them on phone and get delivery.
B. Restaurants provide delivery, which may cost them manpower and transportation.
C. Z delivers – As they use manpower efficiently it cost them lower than options 1 & 2 and they got the negotiation power to offer discounts to consumers or offset the delivery cost to consumers.
Hence naturally business model is beneficial to Z & S. But the same is not the case practically. I come across specialised paratha chain which offers their item at Rs. 200. In general 2 families of 8 needs 4 items; cost Rs. 800. The same item is offered by zomato at Rs. 300 (Price is fixed by Restaurant); hence it may cost Rs. 1200. Rs. 400 additional is no way most of us are happy to shed.
I will invest in Z if they offer me the same cost as the restaurant offering in Dine-in (no discount is okay). Will be happy to pay them reasonable delivery charges which may be equivalent to the actual cost of my transportation and after that, they are breakeven at a unit economic level.
Just a random note for my investment thesis.
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