To be clear, Goyal was referring to a metric that Zomato made up called “Adjusted EBITDA”, which excludes share-based payment expense and rent. 

Again, I predicted this too. I said that 2023 would be the year when companies would come up with creative ways to talk about profitability. I even made a profitability bingo table.

Statement 1: Zomato will become profitable in 2023. 

Statement 2: Zomato will talk about how it’s already profitable using arcane measurements of profitability. 

A long time ago, when food-tech was vastly different from what it looks like today, I wrote my first article for The Ken. It was a two-part story titled ‘The Illustrated History of Food-Tech in India’. Looking back, I think my writing was a bit juvenile and derivative, but my underlying thesis was solid—food-tech is a notoriously hard business, especially if you are a company trying to find profitability, and I explained why. Most of those reasons remain true even today. 

So now, a little over six years later, as food-tech stands on the cusp of profitability, I’ve decided to revisit that story, and hopefully take it a step further. There’s a lot we’ve learnt since 2016, and the equation is much simpler now. 

Fundamentally, the way I like to think about food-tech is that it tries to solve for efficiency of discovery in order to transfer value across a two-sided marketplace. There’s demand on one side, i.e., users, and supply on the other, i.e., restaurants.

At the beginning, food-tech companies started by aggregating supply. Zomato famously spent years sourcing and digitising menus from scores of restaurants and putting it on their website and app, until they found out that newer companies like Swiggy could do the same. To make matters worse, there was little incentive or differentiation in doing this—restaurants don’t really care where their orders come from, and it was next to impossible to get them to be “exclusive” to you. 

So, Zomato and Swiggy figured that owning and aggregating demand was far more valuable than trying to differentiate based on supply. They went on a literal arms race to acquire more and more users on their platforms, believing that this would eventually be the valuable part, which they could “unlock” at the right time. In essence, the approach was—get the users, and pass orders to restaurants. Over time, both Swiggy and Zomato would create their own logistics fleet so that they could own the experience for their users. 

They didn’t do it for the restaurants. 

They did it to lock-in demand.

As Zomato and Swiggy grew and their competitors threw in the towel, it became apparent that it would take much longer for food-tech to be profitable. Also, it became clear that the path to profitability wouldn’t come from the demand side (i.e., the users), especially because consumers were used to getting things for free. 

So they decided to expand to the right, and tried to aggregate the supply.

The premise of both Zomato Infrastructure Services and Swiggy’s Cloud Kitchens was the same—unlock efficiency by aggregating the supply. Here’s how Zomato described it in their blog back in 2017.

This is a great explanation, and it summarises how Zomato and Swiggy were thinking about expanding their position by becoming more entrenched in the supply side to create efficiency. Own the user. Now, own the restaurant. Increase take rate. Boom. 

Swiggy did something similar by offering cloud kitchen services and launching private label brands like Homely, The Bowl Company, etc. 

The problem was that they weren’t the first to think of aggregating the supply side. 

Enter Rebel Foods.

Rebel Foods is an interesting company. It started off as a restaurant called Faasos before it discovered that most of its delivery orders came from users who had never stepped into one of their restaurants. A few pivots later, they raised a massive round of funding, and over time, created more and more food brands across categories.

Swiggy and Zomato believed that they could aggregate the demand side first and then get to the supply side. Rebel did the reverse. It aggregated the supply side, and then… well, went after the demand side. It did this by launching a new food delivery app, exclusively for its portfolio of brands, called Eatsure.

Also, because Rebel owned the supply side, it could do things Swiggy and Zomato couldn’t do—like accept a single order from a user and fulfil it using multiple restaurants, even if they were all different cuisines. 

Just take a look at how it positioned this benefit in its marketing communication, and how distinct it looks as compared to Swiggy or Zomato.

These are the two paths to growth that food-techs employ. Either aggregate demand first and venture to the other side, or aggregate supply first and go after demand. 

But right now, when capital is scarce, and every dollar counts, Zomato and Swiggy are withdrawing from the supply side. Zomato shutdown its supply-side venture, ZIS in 2018, and even invested in a supply-side aggregator. And yesterday, Swiggy did almost exactly the same thing. 

Zomato and Swiggy have decided that the best way to get to profitability will be to keep their focus on users, and try to get new use-cases to upsell to them, like grocery delivery through Instamart and Blinkit. This will bump up order values, and eventually, at some point, they hope to become profitable without going into the supply side at all. 

Meanwhile, Rebel Foods continues to invest and aggressively promote EatSure, but it remains to be seen whether it will continue to do so. It’s also going through heavy losses, and I suspect they will try to find efficiencies on the supply side before investing more into adoption and user acquisition on the demand side, which may be expensive. 

That’s the second blueprint for profitability in food-tech. 

Ideally, though, the one sureshot way to find profitability in food-tech seems to be to not aggregate demand and supply at all, but connect the two together, even for one narrow use-case. If a company could do this, it would maximise efficiency on both sides and become profitable. 

There’s one company that’s done this. 

Back in 2016, it wasn’t anywhere in the picture. Today, it’s probably the only profitable food company in India, and it did it by integrating both restaurants and users, connected through its own app and delivery fulfilment.

The third way, it seems, is the one that worked.