The initial idea for came about for purely self-serving reasons. Founders Deepinder Goyal and Pankaj Chaddah were constantly ordering in meals while working at global management consulting firm Bain & Company in New Delhi. “We were bachelors, worked late hours and didn’t get home-cooked food,” recalls Goyal. The office café had a collection of menus from nearby restaurants — ceremoniously filed and stapled together so that no one could walk away with one. “We couldn’t risk losing them — then we wouldn’t have anything to order from,” he adds.

The duo eventually decided to put the 50-odd menu cards online, on an intranet website just for Bain. “We started getting traffic from within Bain, and we thought if a 100 people will visit the site so many times, a lot of other people will find it useful, too,” notes Goyal. “That’s when we decided to think of it as a serious business.”

That was in 2008. Initially called, the business started out by listing menus for restaurants in the Delhi-National Capital Region. The two didn’t know it then, but their small idea came at the perfect time to ride a huge wave gripping India: Spurred by economic development and a growing middle class, the nascent restaurant industry was on the precipice of sudden and rapid expansion. The organized sector retail market for food and beverages, which was US$500 million in 2006 and US$1.5 billion in 2011, is estimated to grow at 30% annually to reach US$6 billion by 2016, according to strategic advisory firm Technopak’s “Emerging Trends in Indian Retail and Consumer 2011” study.

These are obviously attractive numbers for investors. Last year, the food and restaurant sector received US$256 million in private equity (PE) funding. The first half of 2012 included four deals worth US$55 million, reported Venture Intelligence, a research service focused on PE and mergers and acquisitions (M&A). The deals gave a boost to ancillary businesses — menu card and review listing companies like Zomato and burrp!, online directories including Ask Laila and Just Dial, and group buying websites such as Snapdeal — that thrive on restaurant-related discount offers, and supply chain vendors like Brattle.

After four years and two rounds of PE funding (US$1 million in July 2010 and US$5.5 million in August 2011, both from Info Edge), Zomato (named because it rhymes with tomato) is India’s largest restaurant guide with 41,000 listings across 12 cities. The site receives 3.5 million hits a month. Zomato also has mobile applications with 850,000 downloads across multiple platforms and print guides in four cities. But the user-friendly website is more than just a menu-card listing service. Users can filter their searches not only by cuisine and location, but also on their mood: Search parameters for this feature include live music, outdoor seating and Wi-Fi availability.

“When we started off we wanted to create the value proposition [in the vein of U.S.-based menu and restaurant resource] of,” notes Goyal. “Over time, we put in [features similar to U.S.-based business review and search site] We now have print guides in four cities. That brings us closer to what Zagat does.” Anand Nandkumar, assistant professor of strategy at the Hyderabad-based Indian School of Business (ISB), says sites like Zomato add value when there is a significant difference between regions in local food. “If all regions looked similar, then one would need just a location service such as Google, which in my mind is a significant competitor in the long run.”

Made to Order

But Zomato is not just a mishmash of U.S.-based websites. It has been tweaked to cater to very diverse and strong local preferences. “Indians are a lazy bunch,” laughs Goyal. “So we wanted to create something very close to their physical world. While has menus in [a] standardized format, we scanned the actual menu cards and then put them up.” Second, Zomato focuses entirely on menu listings, rather than transactional services like reservations or online delivery. “Even lower-end restaurants home-deliver orders that total less than US$2,” he notes. “We still think of ourselves as a menus website, where people come in, look at the menu cards, pick up the phone and order food. Anything else is secondary to our business.”

That specialization is a big differentiating factor between Zomato and nearest competitor burrp!, which is owned by media group Network18. Launched in 2006, burrp! has not only restaurant listings, but also listings for other lifestyle categories, such as shopping, health and beauty, and movies. The site also offers a TV guide covering more than 150 channels. Like Yelp, burrp!’s content is mainly user-generated reviews and recommendations, driven by its 11 million page views a month. Zomato does offer user reviews, but prides itself on generating its own content.

“Burrp! is currently the only comprehensive reviews and recommendation portal for all lifestyle needs,” according to co-founder Anand Jain. “Our idea was to harness the collective opinion of locals for the benefit of locals.” Jain claims a 50% market share for burrp!. Goyal, who believes there is US$100 million to be made from this market in India each year, pegs Zomato’s share at 60%. There is no definitive independent source to put numbers on the size of this market or the market share of the companies involved. Nonetheless, Jain believes that multiple players can indeed thrive in such an industry as long as they are catering to differentiated user needs.

Like Jain, Goyal also believes he has limited competition. “There are two kinds of people who visit us — those who already know where they want to go and those who don’t and are looking for options,” he says. “For the first lot, there are multiple options, like Just Dial and Ask Laila, where they can get a phone number. For the second lot, there is no option; they have to come to Zomato.”

Pratichee Kapoor, associate vice-president for food services and agriculture at Technopak, suggests that customer analytics can take a portal a long way. “[Using analytics, a firm] will be able to decipher customer behavior and demands. The investment-to-return ratio will be very good,” she says. ISB’s Nandkumar agrees that data mining and analytics will be key to scaling up for these types of businesses, and act as a barrier to competitors.

Currently, the revenue model for both companies is almost entirely driven by advertising. “[Burrp! is] growing more than 100% every year revenue-wise,” Jain notes. Zomato brings in US$160,000 in revenue each month and has been doubling it every quarter. “The reason is because we doubled the number of sales people in the organization,” says Goyal  The growth for both sites comes despite relatively low online advertisement utilization rates in India — for Zomato it was only 17% (of total space available online on Zomato)  in July 2012. Unlike the U.S., Indian websites also have significant difficulties in selling advertising space through online portals. “People are just not comfortable paying online, especially because it isn’t even for physical goods,” says Goyal. “U.S. companies have defined packages for sale online with very few feet on the street. For them, it’s simpler. We need to employ people who can go to a merchant, sit with him for a few hours, explain to him how online advertising works and how he can benefit from it.”

If advertisers are difficult to convince, the investors have been a little more open. “The value proposition of the business is apparent, but the business model needs to be proved and, perhaps, refined to suit the Indian market,” notes Gaurav Saraf, founder and director of Epiphany Ventures, a Mumbai-based early-stage venture capital fund. “Success will depend not only on the ability to acquire a loyal customer base, but also on being able to monetize their offerings to restaurants and consumers.”

ISB’s Nandkumar says that not only will content need to hold users’ attention and convince them to return for repeat visits, but advertising will have to be customized for proper monetization. “Advertising just generally is not going to be good enough,” he notes.

Adding to the Menu

Burrp! wants to expand into other categories, a process that has already started. “We also want to provide transactional capabilities to our clients,” says Jain. Zomato has a different strategy — international expansion. Goyal is confident that he can easily increase revenues in India five to ten times; the company is also close to breaking even. “But beyond that, I think revenues will level out,” he notes. That’s why Zomato recently launched its Dubai operations; Singapore is next. “Dubai is how we are testing the waters for international operations,” Goyal states. “If that works, we will raise more funds and go full steam ahead with international expansion.”

Saraf of Epiphany agrees that the scale in the India market is limited for advertising-dependent firms in the sector. “According to a report by Citi, the global market for restaurant advertising is less than US$3 billion,” says Saraf. “The market in India is probably less than 1%-to- 2% of that.” 

Technopak’s Kapoor thinks Goyal’s strategy could go either way. She says more in-depth coverage of local geography is also important: The better the coverage, the greater the chance of increased followers. Having said that, creating sub-portals covering various countries can be a good model, she notes, as it then becomes a reference site for both native users and travelers, again lending greater credibility.

But international expansion does raise the question of management bandwidth. Food is a very localized business. For a company that has more than half its 160-person workforce dedicated to content generation, intuitively the knowledge transfer and resultant cost synergies seem minimal, experts say. Economies of scale would only come from the technology front — the backend engine. But Goyal says that each city is like a separate business for him and that launching a Dubai operation is the same as launching a site in Mumbai or Lucknow.

“The technology cost is a major chunk of our cost and that remains the same,” Goyal notes. “It’s all about setting up small branch offices that would do content collection and bring in revenue. Each office is already profitable for us. So if I can replicate this profitability in other cities, I would just add to the profit. If it took us one week to get the content in Lucknow, it will take us four weeks in Dubai. It comes down to local knowledge, so we hired local people there and sent some from India.”

In fact Goyal finds it easier to expand internationally than to some smaller Indian cities, like Kochi. “We just couldn’t get enough menu cards there,” says Goyal. “They think it is a ruse by the income tax department [to get information on their sales].”

Zomato’s long-term future lies in its mobile applications, Goyal notes. On the web, half of Zomato’s traffic comes through Google; the other half comes directly. In an ideal world, Goyal would like all of his traffic to come directly. “But we know that’s never going to happen,” he says. “On mobile, all our traffic comes through our applications, so it’s very important for us.”

Goyal’s challenges are more intrinsic to the organization he is trying to build. “Hiring is the most difficult thing to do. We interview a 100 people and hire one,” he notes. Disgruntled restaurant owners are another problem. The site gets the occasional, “delete this review else we won’t pay you” threat from businesses. “We need a strong sales team that does not succumb to such pressure,” says Goyal. “Ethics is the one thing we don’t compromise on.”

Ethics and, obviously, food. Goyal’s larger vision for Zomato is for it to become the Lonely Planet of food. “It’s quite difficult to get to where I want to go,” he admits. But Zomato’s working for him in more ways than one. “I am no longer a bachelor,” he laughs. “But I use Zomato more than ever.”