Strategic Management II

Caselet
Strategy Implementation Challenges of Zomato.Com
Submitted to: Prof Sabyasachi Sinha, IIM Lucknow
Submitted by: Group E2, Section E

Tushar Gupta
Naina Agrawal
Hansneet Kalra
Vasu Dani
Justin James Mathew
Sudheer Tatikonda

Introduction

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In August 2014, Deepinder Goyal, Zomatos CEO was sipping coffee sitting on the balcony of his
bungalow. He was deeply engrossed in evaluating the long term strategy of his company Zomato. While
the company has been seeing a strategic shift from being a domestic to a global player, it hasnt been
without its due share of costs and challenges.
Aggressive overseas expansion has cost a lot of money already. Moreover, Zomato is growing at an
exponential rate and continuous innovation has come out as a major challenge for the company. Funds do
not grow on trees, as is the common saying, and Zomato needs to ascertain its priorities soon.

Background
While working with Bain and Company, Deepinder Goyal started Foodiebay.com - a website that posted
hundreds of restaurant menus, reviews of eating joints and recommendations. It was officially launched in
July 2008 with information and menu cards of 1200 restaurants in Delhi. Pankaj Chaddah and Gunjan
Patidar, colleagues of Deepinder from IIT Delhi, developed the database for the system. Later Pankaj was
to become the COO and Gunjan assumed the position of CTO in the company. In August 2010, Sanjeev
Bikhchandani, the founder of Naukri.com and an avid FoodieBay user, invested $1 million in Zomato as
seed fund through his company Info Edge India Ltd. The company then offered four additional rounds of
funding to Zomato, thereby acquiring 50.1% stake for a total of $25.4 million.
In November 2010, the founders realised a need gap. They observed that people in malls have little
knowledge about the restaurants there. Hence, they decided to develop restaurant application which can
be accessed on smart phones. They change the name to Zomato and launched Zomato application for
Google Android. It has been downloaded over 1 million times from Google Play Store since then.
Zomato now listed 180,500 restaurants in 36 cities. The information on restaurants included high
resolution photos, real reviews and lookalike menus. Zomato rolled out plans to double its reach from 11
countries to 22 countries in the next two years. Its main source of income is from the website, despite the
popularity of its mobile app.

Zomatos Current Business Strategy

Customers Point of View
Zomatos offers to the customers are: provides the databases of various restaurants with information like
food menu, prices, budget constraints, contact related, working hours, location of restaurant and more
usefully, the reviews from other users. It also provides the option for mobile apps for almost all mobile
platforms. Zomato has a huge presence over social media which has further contributed to app usage.
Restaurant Owners Point of View
Restaurants through this route have got access to a large pool of customers registered on the app, which is
growing at an exponential rate. Zomato provide restaurant owners a platform for online visibility. This is
particularly useful for many small restaurants which cant afford a website themselves or didnt have
much business due to location drawbacks. The contacts information on websites has increased the home
delivery orders to nearby places. The customer interaction happens in the form of feedback and reviews.
Restaurants can enjoy additional visibility by Zomatos dedicated marketing campaigns, but this comes at
a cost.

Zomatos Point of View

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Zomato sells advertising spaces on websites to restaurant owners and make recommendations to
restaurants based on changing trends & sales performance analysis. Zomato also initiates various paid
marketing campaigns for clients. Product pricing which is sustainable, offering products with longevity
an expanding operations in a calculated but committed manner are the ways through which Zomato
signal their desire for longevity.

HR Turnaround
For any startup acquiring the right talent is the most essential part of the strategy. A startup needs to
attract the right minds to take up leadership positions so that scaling up operations easy. For Zomato, the
main challenge was to hire people in 2 specific domains, Technology and Leadership. Zomato came up
with innovative methods to hire people in these positions.
1

Trial Week:

To test an engineers technical skills, not many would agree that an hours interview is enough especially
those that have been looking for a job. Many companies also later realize that the talent they hired has not
performed as per expectations. Moreoever, Culture fit which is an important aspect in a startup cannot
really be tested in an interview with time constraints. Thus, Zomato launched the Trial Week program. In
this week, students and engineering graduates are invited to work on live projects with the Zomato Tech
team. All applicants stay as guests of Zomato in Delhi and their expenses like travel and food are also
taken care of by Zomato. This makes the program more accessible to all thus, bringing in the right talent
from all over. It helps Zomato test the ability of applicants to work on real life problems in a fast paced
environment and their fit with culture. Also, the applicants get a chance to experience the culture and life
for working with Zomato.
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Leadership Program:

This aspect of the strategy aims at hiring people who have owned their own startups. Zomato believes
that failing to grow their businesses has enabled them to understand what challenges a startup faces.
Entrepreneurs possess a unique skillset, they are solution oriented, highly adaptable and are focussed
decision makers. As any startup faces ups and downs, when working at Zomato these entrepreneurs can
overcome such challenges. When Zomato went to international markets, it needed to ensure that its
leaders are capable of handling the tasks of setting a business from scratch. Getting office space, hiring,
legal and regulatory challenges all have to be taken care of. Such high norms are set when hiring
entrepreneurs. They need to understand how to fit the offering into different cultures and also have the
flexibility to work in any situation.
As Zomato is expanding into new geographies and entering into new market. It faces challenges of hiring
and managing a team. Also, it needs to test if the above two hiring models would work for all countries.

Knowledge Management
Zomatos existing business model is extensively dependent on aggregating knowledge regarding local
restaurants. With a no. of key restaurant inclusions and international acquisitions, Zomato is facing
challenges with respect to regular updating of these menus. This requires co-ordination. However Zomato
has a relatively flat structure due to which the skills can be passed on in an easier fashion.
Another key challenge which Zomato is expected to face is the increasing customer requirement of
searching for restaurants serving a particular dish. For example a customer may want to explore the
restaurant options where a dish of his choice is available. This is possible only by having structured and
codified data for all the dishes served in a restaurant. Zomato made an effort to satisfy this requirement
through manual entry of few thousand menu cards in all the cities for which they provided information on
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the website. However the problem of high churn rate in the restaurant industry creates complexities in
manual entry mode of catering to the customer requirements as it requires constant updating and entering
of number of new menu cards. Zomato is working upon creation of intelligent optical character
recognition systems (OCR) which will supplement their current dish ontology. However, the job becomes
tougher and complicated given the high frequency of misspellings in the menus and those resulting due to
the OCR mechanism.
Impediments in information management are further compounded as Zomato aims to cover all streets in
the cities where it has its presence. To attract customers the relevancy and comprehensive nature of the
required information cant be compromised with. Zomatos data collection teams in each city makes daily
visits to collect first hand data. Zomatos international experience has been instrumental in making it
realize the importance of own research and data collection. Also, before making a launch decision Zomato
sends out data collecting teams for scouting the market.

Innovation at Zomato
Zomato operates in a niche segment by offering restaurant database to customers along with the menu, the
location and perhaps the most important, reviews. One can ponder over how a player operating in a niche
segment be so successful that the segment itself has started grabbed eyeballs and is becoming mainstream. This has been made possible by the strategic innovations the website has carried over the years of
operation.
A 360 degree turnaround strategy was employed in the spheres of Marketing, Operations and IT
infrastructure. While many of the innovations can be termed as proactive, Zomato managed to find
creative solutions to some of the major problems prevalent in the segment.
Marketing
Being a niche player, it is very important that the masses are aware about website and its offerings. Not
only did Zomato achieved the same, it established advertising as its core competency. They employ both
Below the Line (advertising) and TV ads to remain at top of the consumers mind. Most of their
campaigns went viral due to creativity in their ads, be it print, social media or television. As a result,
Zomato has become synonymous with the term restaurant database. Most of the other players do not
have any significant presence online. Zomato has a major presence on social media i.e. Facebook and
Twitter. There are two kinds of people in the world has been the most successful campaign so far in
terms of customer engagement (See Exhibit 1). Zomato believe in Content is the King. They never
spam the wall with irrelevant posts, create ads around food, replies to each and every user post and have
apps for all the mobile platforms.
The re-branding in 2010 proved to be a major challenge. Foodiebay became Zomato due to i) having the
term ebay in their name and ii) having received funding by InfoEdge of which large part was to be used
for marketing. The company saw it as the right time to adopt a different identity and lay out a formal
organizational structure and culture. The company was growing rapidly and a rule book had to be
followed. But Zomato lost many loyal customers and was a target of a number of hate mails due to the
name change. Moreover, the sales team wasnt aware of the reason of re-branding and there was
widespread confusion. The company didnt do well in this regard, none of the employees were informed
and there was a fear that they were being taken over. Things have been much better lately.
Operations
Zomato isnt as involved in intensive operations as a manufacturing or FMCG firm would be. The
challenges being faced by Zomato are more of growth pangs. Their operational strategy is to get things
done on priority rather than creating new processes for them to be accomplished. Since, the teams are
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getting bigger and bigger in size, controlling them and infusing order in the chaos has lately been proving
difficult. As the company is growing, a restricting or some innovation in operations division may be
necessary. Moreover, the company is following global strategy and will soon be open for business in
Singapore and Dubai. Hiring the right people has been the challenge. A lingering question of whether to
hire Indian for overseas operations or hire the local personnel who may prove to be difficult to control,
has always been at the back of the mind.
Meeting demand for new features on the website from the customer has been another big challenge. The
idea may not be a strategic fit for the company but they have to think hard on the issue if a major chunk of
customer demands the same feature.
One such often requested feature is accepting orders online on behalf of restaurants. While Zomato
affirms that they possess the necessary technical skills and sales personnel to implement the same,
operational challenges such as customization of food as per the customer and adhering to promised
delivery time are yet to be worked upon.
IT Infrastructure
Zomatos website is visited by 20 million foodies every month. The website provides them innovative
features such as opportunity to share their stories being a foodie and allows them to create and share their
personal food diary. The website automatically detects the users location and has a customized page for
everyone (see Exhibit 2). There is an active blog updated by the CEO himself. New features are added
almost every week. Such large traffic has to be backed up by a robust infrastructure and Zomato is
constantly working towards meeting up to the challenges.
As the website is growing bigger, customer reviews are becoming all the more important. A review can
make or break a restaurants business. Lately, the website is seeing a lot of spam, a lot of restaurants are
planting fake reviews. Zomato has to evolve its IT system for having basic automated spam filters to
sophisticated pattern matching algorithms. All this will of course involve costs.
Most of the companies of Zomatos size do not even care about load times of their websites. But Zomato
is planning to lay infrastructure in every country where it operates, so that load times are faster and users
can get food faster. Cost is again a major issue.

Financial turnaround strategy of Zomato

There are 4 major sources of Revenue for firms like ZOMATO:1

Advertising:
Placing ads for restaurants on ZOMATO website and app constitutes a major part of strategies and the
key motto of the business model. These advertisements can be seen under the title Trending
Restaurants this week. In addition, complementary advertisements regarding events in restaurants in
the locality accounts for another 5% of the total revenue of ZOMATO.

Event ticket sales:

The tickets for various events are made available through the site, thus working as an interface cum eticketing partner (somewhat similar to bookmyshow.com). The revenue generated is certain percentage
of the ticket amount or according to the advertising contract with the restaurant.

Consulting (Solutions supplier) and advisory roles:

Data analysis and business intelligence tools are widely used by ZOMATO content expert to advice
clients on number of issues. ZOMATO maintains a huge database (terabytes) and analyzes them to
understand demand and crowd patterns, customer tastes and preferences, competitions, etc. Thus,
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indirectly, ZOMATO acts as a consultant (information supplier) to the restaurants, providing them
specialist solutions to improve the visibility of the restaurant on the online space.
The breakup of revenue from various sources is shown in Exhibit 3
Analysis of the income statements
The increasing losses of ZOMATO can primarily be attributed to its turnaround strategy of aggressive
international expansion as shown in Exhibit 4. It has launched operations in Sri Lanka, UK, Qatar,
South Africa and Philippines. It also launched its operation in Singapore but were forced to roll-back
due to conservative nature of the restaurants refusing to share the menus and price online. This made
the intake of cash flow imminent for ZOMATO to sustain amongst companies providing similar
support services like Yelp, Foursquare, Burrp, etc.
Fundings
The flow of working capital (in form of cash flow) has been regular in almost every year since 2010.
The recent business financing was primarily meant to go global. Interesting to note that, Info Edge had
credited all the five funding to ZOMATO.(Exhibit 5)
Should Zomato go public in India?
With funding required at regular intervals and plans to expand to 22 countries in next 2 years,
ZOMATO would need a lot of working capital or cash for financing its expenses. With all 5 fundings,
Info Edge now has around 51% share in ZOMATO. Further, funding would make Info Edge the clear
majority in holdings. Going public will pave the way in raising working capital and diluting the
majority status by Info Edge. It will also help in creating the base of being an Indian public
organization rather than a VC funded one (Emulating Yelp). Also, this will help banks and other
financial institution to provide asset based lending facilities to ZOMATO to improve the Debt-byequity ratio. Info Edge has also been the financing advisor of ZOMATO. Hence, if Info Edge plans a
turnaround strategy to acquire ZOMATO, the asset based lending facilities provided by banks would
correspond to the risk associated with InfoEdge and not on the risk of ZOMATO. The funding
approved by the financing advisor of InfoEdge is seen as a potential investment expecting hefty returns
on them.
Conclusion
Zomato has been able to grow at such an astonishing pace due to the adoption and effective
implementation of Turnaround Strategies in every field of the business, be it marketing, operations, IT
or HR. Funds have always been a major concern and every time Zomato has managed to obtain them
from an eager venture capitalist. Zomato is here to stay, and everyone realizes it.
Deepinder must decide whether the company wants to focus on innovating its business model and keep
providing new features in India or continue with the existing model and expand globally. Funds will
have to be directed accordingly. More and more competitors are entering the market, although they
havent seen as much success. Can Zomato afford to ignore them all and hope that no one replicates
their business model? Suddenly the phone rings, a person of the other side says, Sir, we are live in
Chile. Where do we expand next?

References
1. Behind the making of Zomato: The best places to eat are just a click away | In conversation with
Deepinder Goyal, CEO, Zomato.(2014, Feb 14). Retrieved from <http://www.letsintern.com/
blog/zomato>
2. Chaddah P. (2013, June 27). The Three Problems We are trying to solve at Zomato. Zomato:
Official Blog. Retrieved from <blog.zomato.com>
3. Chaddah P. (2011, Feb 26). Online Ordering: Housto,n we have a problem. Zomato: Official
Blog. Retrieved from <blog.zomato.com>
4. Mehta J. (2012, July 19). Interview with Pankaj Chaddah.
Retrieved from <http://yourstory.com/2012/07/zomoato-cofounder-pankaj-chadda/>
5. Gupta T. (2014, March 11). Insight into Zomatos Business Plan Retrieved from
< http://www.tarunspeaks.com/insight-turnaround-strategy-zomatos-business-plan/>

Exhibit 1

Exhibit 2

Exhibit 3: Revenue Sources

Exhibit 4: Income Statement Analysis of Zomato

Exhibit 5: Fundings to Zomato

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