Can Travis kalanick's cloud kitchens compete with this?

Zomato has emerged as a prominent player in the world of food delivery.

Founded in July 2008 by Deepinder Goyal and Pankaj Chadha, this food delivery startup is now turned as a multinational company, serving in more than 24 different countries.

"At Zomato what sets us apart is that we are a one stop for everything - discovering places, looking up restaurant information, ordering food, booking tables - with more coming up", says Deepinder Goyal, the CEO of Zomato.

And here's comes a twist in the story!

But like many other startups, Zomato has also faced may disputes regarding its services. Such as, the 10 min. delivery model.

But this is just a tip of an iceberg.

From 2018- 2020 while the revenue of the company went from 65m to 368m dollars.
During the same time their losses exploded from 15m dollars to 300m dollars.

Every time Zomato tried to became profitable, it has led to nothing but outrage.

- They first tried to launch Zomato Gold to lock in the customers from going to swiggy.
But that led to massive losses to restaurants which later forced them to shut the service.

- Then they tried to increase the prices of the dishes, but that ended up making the customers unhappy.

From the outside, it almost looked like the company is stuck in a vicious cycle of cash drain. Which is leading to nothing but more and more losses.

But!

Amidst the challenges lies a crucial factor that has the potential to turn the tide in Zomato's favor.

Understanding Zomato's Gold Mine

Zomato is a platform used by cloud kitchens brands to sell their products, and people can buy them.

Due to this process going on for years, Zomato has all the data of the restaurants. And millions of consumers.

• Zomato knows exactly which dishes are in high demand and in which area.

• Zomato also knows what is the average price of a specific dish.

• Zomato also knows what is a best time to sell a particular dish.

Like this, the food delivery company is sitting on a DATA GOLDMINE.

The potential for leveraging this data is immense, allowing Zomato to launch its own food chain and eventually undercutting the existing food chains.

Just as what Amazon did with the smart oven manufacturing startup JUNE.

Zomato is trying to do exactly that!

And surprisingly, this company already ventured into this concept which now famously known as "Cloud kitchens".

We know you probably remembered Uber's fame Travis kalanick's cloudkitchens  but Zomato is planning something more than that.

Let's find out!

The 2 Business Model

- Zomato Kitchens
- Zomato HyperPure

Before moving into this, first, let's find out

What is a "Cloud Kitchen"?

- A "Cloud kitchen" is nothing but a super efficient kitchen, which only gives out take away order and no dining space.

- It's just a kitchen that only takes online orders.

A classic example of this concept is "Behrouz Biriyani". It has got no outlets but has got an amazing online presence.

But the story doesn't ends here!

"Cloud Kitchens" are something way bigger than anyone could imagine.

Why?

- It has got some game changing advantages over an ordinary restaurant and a x factor which we'll cover later in this article.

With standard assumptions and costing:

- If you take a 50 seater restaurant, it would require around 6 lakhs of rental cost.

- Which brings around 2000 sq.ft of space.

- It would require around 20 lakhs of rental security deposit.

- Licences and equipment would cost around 25-30 Lakhs.

- Working capital, including electricity bills, staff salaries, maintainence charges would cost around 20-25 Lakhs.

- And, finally the monthly revenue requires to break even in 2 years is about 20 lakhs/month.

And,

If you look into a "Cloud kitchen" it takes about only 50k-1 Lakhs in rental cost.

- Rental deposit would cost around 1 lakhs.

- Licences and equipment would cost the same.

- But the working capital would reduce significantly upto 50% as compared to an ordinary restaurant to 10 lakhs.

And, the revenue needed to break even in 2 years would reduce upto 50% to 10 lakhs.

So, in a Cloud Kitchen, it would require 10 Lakhs/month lesser than an ordinary restaurant.

This is the advantage a "Cloud kitchen" have over an ordinary restaurant.

Now, The X Factor

The Super Cloud Kitchen Model

Whoever today says that Zomato is a loss making company, they don't realise that the concept of cloud kitchens is just at a baby stage in India.

And this concept can later go on and give rise to something called the "Super Cloud Kitchen".

Which will be so effecient that in just a 2000 sq. ft. space ( total space of an ordinary restaurant), a "super cloud kitchen" can accommodate more than 50 brands.

A standing example of this concept is a Dubai based startup called "Kitopi".

Kitopi has more than 60 brands in one kitchen & process more than 3000 orders/day. And planning to fully automate their systems within next year.

Overall, Kitopi is currently the fastest growing unicorn in UAE.

Now, let's move onto the topic...

How Zomato will become profitable?

Let's break down the cost of a cloud kitchen in India today.

There are 3 types of cost for a cloud kitchen:

• Raw Materials which is about 40%.

• Commission to the aggregator (Zomato & Swiggy) which is about 25%.

• Fixed Costs (energies & salaries) about 25%.

- And profit is just a mere 10%.

If we take Kitopi's trajectory from 2019, this is what Zomato will look like in the next 3 years:

• Raw materials would cost 28%.

• Fixed Costs will go about 21%.

• Brand royalty will be 7%.

• Aggregator commission will be 28%.

- And this will make a profit of 16%.

Zomato's X Factor 

Even Kitopi works as a middlemen, which is why in case of Zomato, their profits will shoot up.

Why?

Because, Zomato doesn't have to pay the aggregator commission because Zomato is the aggregator itself.

So, the aggregator commission of Zomato kitchens will be 0.

And in the case of the cost of Raw Materials, Zomato is building something what is called the Zomato HyperPure. Remember this?

One of the 2 business model of Zomato.

HyperPure is a business model in which Zomato will supply raw material to its kitchens directly from the source.

Which will bring down the costs of Raw materials from 28% to even less than 25%, all the way down to 20%.

Now, if we check the profitability, Zomato's comission alone stands at a huge 44%.

If again we follow Kitopi's trajectory, in the next 10 years, Zomato's profit can go even above 50%.

Zomato's journey toward profitability hinges on unlocking the true potential of its data goldmine and leveraging the power of cloud kitchens. With its vast knowledge of restaurant operations and customer preferences, Zomato possesses a strategic advantage that can reshape the food delivery landscape. By collaborating ethically with partner brands and optimizing costs, Zomato is well-positioned to establish a sustainable business model and lead the industry towards a future of profitability. As the era of super-cloud kitchens dawns, the food industry braces itself.

Thanks for reading...

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