Retailers Need Zomato's Walmart Moment

In 2022, food delivery firm Zomato made two investments in one go (pdf). One was software company UrbanPiper, which helps restaurants manage their online orders from across food ordering platforms. The other, more interesting bet, was on advertising firm AdOnMo. 

 

The Hyderabad-based company, founded in 2016, is a relatively new entrant in the very old business of outdoor advertising. Its competitors include The Times Group’s billboards business (founded in 2005) and Selvel Media (founded in the 1940s). 

AdOnMo runs a network of ‘screens’ or digital billboards, the kind found on top of taxis, in office lift lobbies, and inside malls. Just like any other billboard company, the firm helps real estate owners install screens for ads and brings them advertisers interested in the space. For instance, in 2022, it signed a contract with Schindler to manage a network of screens in and around lifts operated by the elevator maker-operator in India. 

Zomato led AdOnMo’s Series A funding round in 2022, becoming its largest non-promoter shareholder with just over 17% stake in the company. Zomato invested more than Rs 112 crore for its stake, per its FY22 annual report (pdf). 

Three weeks ago, its bet was validated: AdOnMo raised nearly Rs 58 crore in a Series B from individual investors along with Qatar Insurance Company and Z Nation Lab.

The billboards business is a fraction of the Indian advertising market. Yet in 2022, it was worth Rs 3,690 crore, according to a report by consulting firm EY (pdf). A year later, it was up more than 12% to cross Rs 4,100 crore in revenue. More importantly, digital advertising is now about 9% of the total billboards advertising revenue. Digital out-of-home advertising, also called DOOH, relies on screens rather than plain vanilla hoardings to play ads that target people seeing the ad better and measure their attention more accurately. In India, these screens grew 67% to 150,000 nationwide, largely in gated residential communities and shopping complexes and malls in metro cities. 

That is where the big opportunity for Indian retail media really lies.

The Search For Eyeballs

Retail advertising—aka ads on shopping apps—is one category that is eating into the duopoly that Google and Meta enjoy over India’s advertising business. Flipkart, Swiggy, Zomato, Nykaa, Zepto, and other e-commerce (and quick commerce) companies are racing to offer ad inventory to brands. None of the Indian retailers have been able to build a self-serve platform to rival Google’s and Meta’s in India so far, leaving the leadership position clear for Amazon. 

Yet, ad income is crucial for e-commerce companies because, with little upfront investment required, their ad earnings go straight to the bottomline. Food delivery companies, for instance, are now earning about 10-12% of their revenue from advertising. Besides, as Zomato and Amazon increase their platform fees and commissions, they are running out of new levers of revenue growth. Advertising is that high margin lever that can boost revenue and generate new business. 

However, food delivery and quick commerce companies are far more hyperlocal than Amazon. It makes sense for a company like Zomato to want a stake in not just national-level digital advertising but more targeted, localised ad networks such as billboards. Besides, billboards tend to be favoured by other hyperlocal businesses such as restaurants and local retailers, creating a clear fit for a company in the business of delivering goods neighbourhood-by-neighbourhood. 

Digital billboards aren’t just a means of advertising on their own. Brands reuse billboard campaigns for online advertising campaigns. Consider the number of viral posts featuring advertisements from New York City’s Times Square, or frequent social media references to ‘banter’ between brands via billboards (such as this recent one between Boldcare and Zepto). 

Yet, no major Indian retailer, except Zomato, has invested directly in the outdoor advertising business. 

“The challenge with ad networks, especially digital out-of-home advertising, is the problem of scale,” Kabir Kochhar, founder of media-focused fund Audacity VC, told The Impression. “If I’m a P&G or an HUL, I will want exposure across, say, the top eight cities of the country. DOOH needs a lot of capital expenditure to achieve scale.”

The majority of Indian billboards businesses continue to be independent family-owned ventures or run by large news and media conglomerates such as The Times Group and Jagran Prakashan.

Since the pandemic, these businesses are scaling up rapidly. Take market leader Times Group’s billboard business, housed in Times Innovative Media Ltd. In FY21, a pandemic year, the company made Rs 186.8 crore in revenue from operations with a slim net profit margin of just over Rs 1 crore. The next year, the company slipped into losses, although revenue from operations doubled. In FY23, the company doubled its revenue from operations again, along with nearly Rs 49 crore in net profit. 

Retailers in the US have understood how important it is to not just build their own ads network but also buy into someone else’s. In February this year, the US’ biggest retailer, Walmart, acquired smart TV maker Vizio for $2.3 billion. The deal’s value to Walmart isn’t in the sale of Vizio TVs but in the ads network that runs on these connected TVs. Walmart earned $3.4 billion globally from its ads business (pdf), up 28% year-on-year. In the December 2023 quarter alone, Walmart’s international advertising business (which includes Flipkart) grew 76% year-on-year. 

Connected TVs are still growing in India, led by manufacturers such as Samsung that have displaced Amazon’s Fire Stick business, but India still has only 35 million connected TVs in the country, per the EY report quoted above. 

Connected, digital billboards also offer a network for retailers to tap into. Two years after its investment, Zomato still holds the first mover advantage. 

But, while e-commerce companies and retailers need advertising revenue to keep the cash registers ringing, they also need smart strategic investments to effectively make money from what is not their core business. 

“It is highly complex to run an ad network,” Audacity’s Kochhar says. “It has taken companies like Flipkart nearly a decade to build their ads network and still, Amazon is the shining beacon in this business.”