The online food delivery market in India is growing rapidly. It is expected to reach INR 1.5 trillion by 2025. Zomato and Swiggy are two of the leading players in this market. They have a robust technology platform, an extensive restaurant network, and a reliable delivery fleet. This positions them well to capitalize on the growth of the market. Through their innovative approach, they have transformed the food delivery landscape in India, creating a win-win situation for both customers and restaurants. Zomato & Swiggy today stand as the synonym for food delivery in India, however, it is noteworthy that they are not the first players in the Indian market.
Mumbai Dabbawalas! Does it ring a bell? Established as long ago as the 1890s, Dabbawalas were the first food delivery system to deliver freshly home-cooked meals to workers in Mumbai. Several years later today, this food delivery concept has married into technology and woven a perfect ecosystem.
Let’s break into the business model of these food delivery giants and dive into how they run their businesses and make money.
The Platform and Operations
The food delivery business broadly works on the marketplace model but is more complex in terms of operations than generic marketplaces.
The key pillars of Zomato & Swiggy’s business model include:
- Technology - A robust tech framework holds the giants’ food delivery business straight up like its backbone. From restaurant listing, menu ordering systems, delivery tracking systems, and search engines to ratings, rewards, and reviews mechanisms, their technology stack is no easy feat. It is all put together in a single mobile/web application delivering the best user experience on the go.
- Restaurant Network - The most important brick in the wall. Both Zomato & Swiggy have a wide network of restaurants ranging from small cafes to fine dining hotels. The duo competes to win over customers using lucrative discounts, zero delivery charges, etc. The commission rate that restaurants need to pay on each platform is one of the biggest competitive advantages Zomato & Swiggy have over each other.
- Delivery Fleet - Quality and efficiency of delivery service directly impact customer satisfaction in this business. It is a very critical component of both Zomato & Swiggy’s business model. According to data by Firstpost, Swiggy delivers around 1.3 million orders a day, while Zomato delivers 1.5 million orders a day.
Food delivery experience can become the major differentiator between the two giants. Owning a delivery fleet is an asset and significantly reduces the cost to the company and positively impacts the financial projections. Delivery quality can be controlled firsthand and made cost-effective. On the other hand, it also contributes to a majority of their operating expenses making it difficult to reach profitability. Investing in delivery vehicles, insurance, and delivery staff salaries is a significant operating cost that needs accurate financial modeling to plan for sustainable growth.
Delivery fleets also play an important role in projecting market expansion. It determines how many new markets you can reach and at what cost efficiency, ultimately giving you a competitive advantage.
The Business Model
Both Zomato and Swiggy have a similar business model when it comes to operations and marketing, however, their business models individually stand apart from each other.
Zomato’s business model is built on Food Delivery, Hyperpure, and Dine Out.
The commission rate for Zomato’s food delivery ranges between 10-20% of the average order value. This is one of their key sources of revenue generation. It also generates income from restaurants via its Hyperpure platform. At Zomato Hyperpure, they sell raw vegetables and fruits to their partnered restaurants in the hope of becoming profitable.
Advertising fee from restaurants listed under Zomato’s dining-out service is another channel of revenue for Zomato. The fees are usually based on the number of times a restaurant listing is viewed or clicked on.
Swiggy’s business model on the other hand is built on Food Delivery, Grocery Delivery, Last Minute Delivery, or Quick Commerce and Advertising.
Swiggy generates revenue from grocery delivery through commissions from grocery stores and delivery fees from customers. It also offers quick commerce services, which allow customers to order groceries and other items and have them delivered within 15 minutes. The delivery fee is typically between INR 50 and INR 100.
Zomato reported a net profit of ₹220 million in the financial year 2022-23, while Swiggy reported a net profit of ₹1.2 billion in the same period.
Customer Acquisition and Revenue Generation
Both Zomato & Swiggy generate revenue from multiple streams such as, Restaurant Commissions that range between 10-25% of the average order value.
Subscription Fees on different plans that offer benefits and discounts on delivery charges etc. Delivery Fees range from 20 INR to 200 INR per order depending on the delivery location, weather conditions, etc.
Advertising space is sold to restaurants to run targeted ads, promotions, etc. Cloud Kitchen Rentals, loyalty, and rewards programs are also one of their revenue streams.
Zomato and Swiggy make financial projections for their 3-year and 5-year growth based on a number of factors, including the growth of the online food delivery market, the number of new customers acquired, and the average order value. They also factor in the cost of customer acquisition, marketing, and other expenses.
Both Zomato & Swiggy are well-positioned in the market today and have demonstrated what having a solid foundational business model can deliver.
Building a data-driven and concise business model sets the foundation for sustainable growth for your business.
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