Why are restaurants inclined towards Zomato Gold?

As the most expensive and sought-after restaurants either refuse to honor Zomato Gold members or put in place drastic quotas on how many they might serve in a day, Zomato will then need to deal with irate customers.

This means complaints like “None of the restaurants I signed up for are still around” or “Restaurants are saying they’re fully booked for Zomato Gold orders for the next few weeks” might become more common.

Depletion of the money

Unless Zomato decides to fund some or most of the discounts. But that would quickly deplete whatever money Zomato made from selling the subscriptions, and then some more.

By all accounts, all of the early bird cash has gone into Zomato’s books. Zomato calls this a subscription fee to give customers deals. And asking someone to pay upfront for a service that may or may not be utilized is good business. It tells restaurants that this is a huge lead generator. Only those who are really interested will come to the restaurant. On the face of it, even if all 40,000 took annual memberships, Zomato makes a maximum Rs 4 crore ($600,000) from it.

Now zoom out. Goyal, in his blog, wrote that the company made $49 million in revenue in FY17. This is barely any money in the larger scheme of things. The point of launching Gold is to make real money elsewhere. Gold is a loyalty program, a hook to keep customers loyal.

Keep customers away from its competitor. It is exactly like Amazon Prime. And just like Prime, these freebies are all a hook for customers to look away from Swiggy and stick to Zomato. Even for deliveries. And those who already order on Zomato, well, it’s for them to order some more. (The Ken wrote about the way Zomato will use Gold to drive stickiness here.)

Do you really want to play?

How does the customer make her money back? This is the fun part of the game that Zomato wants you to play. How do you make your money back? By visiting these restaurants as much as you can. Maybe, ‘how much time will it take?’ is a better question. Let’s assume you are a weekend drinker. Twice a week, Friday and Saturday. A beer at one of these upmarket restaurants listed on Gold cost at least Rs 150-175. Two beers free. Three days. That’s it.

The question here is not if this is another smart Zomato viral product. It is, of course. The question is if others can replicate this formula and if it’s sustainable. As it stands today, Zomato may have priced it overwhelmingly in favor of bargain-hunting customers. And it will need to correct that somehow.

Amazon wrote the playbook on a subscription-based platform to increase orders and buy loyalty. Very few have been able to copy it. Flipkart tried and failed. Zomato is taking a crack at it.

Zomato has the sugar, the spice, and everything nice to make it work, but there are two major differences: Amazon has money to burn and then some. It also controls all the other parts of the hook, including Video and Music. Zomato’s hooks are the restaurants that give free sweets when it comes to its delivery-based subscription platform Treats and the restaurant Gold(mine).

Incidentally, none of these hooks are under Zomato’s control. Bad experiences on either side – the best restaurants and best customers – could easily spiral out of control and end up damaging Zomato’s brand, which has been on the upswing for a while now.