1. Introduction

Zomato grew rapidly on the back of India’s food delivery boom. But aggressive discounts, high delivery costs, and fierce competition created intense pressure on margins.
The challenge: grow sustainably while reducing cash burn in a highly competitive market.

2. The Core Problem

Despite scale and strong brand recall, Zomato struggled with:

High delivery costs vs. low order value
Low profitability in smaller cities
Intense reliance on discounts to retain users
Rising fuel and logistics expenses
High customer churn outside top cities

In short: Unit economics were weak, even as order volumes grew.

3. Why This Problem Emerged

Using the profitability lens:

Revenue Drivers

Flat AOV in many cities
Pressure on commissions due to competition
Limited upsell/cross-sell levers

Cost Drivers

Delivery partner payouts rising
Cost of customer acquisition through discounts
High fixed costs in dark kitchens, cloud kitchens
Fuel price fluctuations

Zomato’s growth strategy was volume-first → but volume wasn’t translating into profit.

4. Applying the Frameworks

A. Profitability Framework

Revenue Breakdown

Commission revenue (restaurant take rate): pressured by rival discounts
Delivery fee: capped due to price sensitivity
Dining-out + subscriptions: not enough to offset delivery losses

Cost Breakdown

Variable cost (delivery): largest driver, varies by city
Customer incentives: heavy expense to drive retention
Fixed cost: cloud kitchen leases, tech costs, marketing

B. Cost Structure Tree

Total Cost
├── Variable Costs
│   ├── Delivery partner payout
│   ├── Packaging cost
│   ├── Payment gateway fees
│
└── Fixed Costs
    ├── Cloud kitchen leases
    ├── Technology & engineering
    ├── Marketing & branding
    └── Corporate overheads

Insights:

Delivery partner payouts = ~60–70% of cost per order
Cloud kitchens = high fixed costs with inconsistent utilization
Discounts = direct margin killers

C. Customer Segmentation Analysis

Segment 1: Tier-1 High-Frequency Users

High retention
Strong willingness to pay
Lower delivery time → better unit economics

Segment 2: Tier-2/3 Value Seekers

Highly discount-sensitive
Lower order value
Poor density → higher cost per order

Segment 3: Occasional Users

Hard to retain
High CAC
Irregular ordering pattern

Conclusion: Profitability varies massively by city and customer type.

5. Key Insights

Insight 1: Profitability is concentrated in top cities.

Tier-2/3 cities drag margins due to lower density & lower AOV.

Insight 2: Delivery cost per order is the biggest lever.

Increasing delivery partner efficiency delivers outsized results.

Insight 3: Discounts distort true customer willingness to pay.

Removing discounts drops orders but raises profitability.

Insight 4: Subscription + dining-out are under-leveraged.

Zomato Gold creates recurring revenue and improves retention.

Insight 5: Cloud kitchen strategy was too capital-heavy.

High fixed costs reduced flexibility.

6. Recommendations

Recommendation 1: City-Level Profitability Restructuring

Double down on Tier-1 cities
Reduce footprint in long-tail cities
Shift from presence → profitability mindset

Recommendation 2: Optimize Delivery Network

Increase batching (multiple orders per rider)
Improve routing algorithms
Incentivize peak-time efficiency
Expand delivery partner pools in dense clusters

Recommendation 3: Reduce Dependence on Discounts

Personalized deals instead of blanket coupons
Dynamic surge pricing
Focus on AOV uplift (combos, add-ons)

Recommendation 4: Strengthen High-Margin Verticals

Zomato Gold (subscriptions)
Dining-out programs
Hyperpure (B2B supplies to restaurants)

These drive recurring revenue without proportional cost increases.

Recommendation 5: Exit or Pivot Cloud Kitchen Strategy

Move to asset-light kitchen partnerships
Reduce fixed costs
Monetize kitchen data for partners

7. Expected Impact

Short-Term (6–12 months)

8–12% improvement in contribution margin
Lower cash burn from discounts
Higher partner efficiency

Medium-Term (1–2 years)

Sustainable profitability in top 15–20 cities
Recurring revenue from subscriptions
Better unit economics through batching + AOV increases

Long-Term (2–3 years)

Profitable, stable delivery business
Growth led by high-margin verticals
Strong competitive moat vs Swiggy

8. Summary

Zomato’s path to profitability lies in city prioritization, operational efficiency, discount discipline, and diversifying revenue streams.
A structured, consulting-style breakdown shows a clear roadmap from cash burn → sustainable, defensible profit.

Zomato’s Profitability Challenge: Structuring the Path to Sustainable Growth