Inspired By Swiggy, Zomato Introduces Platform Fees for Food Delivery Orders

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In a bid to control costs and improve profitability, Zomato has recently introduced a platform fee of Rs 2 per order for its food delivery service. This move comes after Swiggy, Zomato’s biggest rival, implemented a similar fee earlier. The platform fee is applicable to all food orders and is independent of the cart value. While this fee may seem insignificant, given Zomato’s massive order volume, it has the potential to generate a substantial corpus for the company to reinvest in its business.

Zomato’s Platform Fee Strategy

Zomato’s decision to implement a platform fee is aimed at reducing its cash burn and achieving profitability. With Swiggy reporting a platform fee of Rs 2 per order, Zomato saw an opportunity to follow suit and potentially improve its financial performance. The fee is currently being tested on select users and has not been introduced on Blinkit, Zomato’s quick-commerce platform.

In a pop-up notification accompanying the fee, Zomato explains that the small charge helps cover operational expenses and keep the platform running smoothly. While the fee is currently in the experimental phase, the company may choose to scale it up based on the results and feedback.

Reasons Behind the Platform Fee

The introduction of the platform fee is driven by several factors. Firstly, Zomato aims to reduce its cash burn, which has been significantly higher than Swiggy’s. In the fiscal year 2022, Zomato reported a cash burn of Rs 3,900 crore, while Swiggy’s burn stood at Rs 700 crore. Despite Swiggy’s lower cash burn, Zomato still lags behind in terms of market share, with Swiggy capturing 56% compared to Zomato’s 44% in FY23.

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Additionally, Zomato’s revenue of over Rs 4,100 crore surpasses Swiggy’s, which stands at around Rs 5,700 crore. However, Zomato aims to control costs and enhance its platform’s performance and features by introducing the platform fee. This move aligns with the company’s objective of improving the overall app experience for its users.

Comparison with Swiggy’s Approach

While Zomato has taken inspiration from Swiggy in implementing a platform fee, there are notable differences between the two companies’ strategies. Swiggy’s fee is only applicable to food orders, while Zomato has extended the fee to both regular users and those enrolled in Zomato Gold, its loyalty program. This distinction may impact how users perceive the fee and its potential impact on their overall experience.

Furthermore, Swiggy’s platform fee has been rolled out nationwide, whereas Zomato is currently testing the fee on a smaller scale. This approach allows Zomato to gather feedback and evaluate the fee’s effectiveness before expanding its implementation.

Impact on Users and Restaurants

The platform fee of Rs 2 per order may appear trivial to individual users, considering it represents only 0.5% of Zomato’s average order value (AOV) of approximately Rs 415. However, given Zomato’s substantial order volume, which amounts to roughly 20 lakh orders per day, the fee can generate significant value for the company.

For restaurants, this fee comes as a relief, as they typically pay Zomato and Swiggy a commission ranging from 22% to 28% on food orders. With the introduction of the platform fee, Zomato aims to balance its revenue sources and reduce its reliance on commissions from partner restaurants. However, it remains to be seen how restaurants will react to this change and if they will accept additional charges.

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Zomato’s Path to Profitability

Zomato’s decision to introduce the platform fee aligns with its broader goal of achieving profitability. The company recently reported its first-ever quarterly profit in Q1Fy24, with a net profit of Rs 2 crore. This positive financial performance, coupled with improved metrics such as gross order value, revenue growth, and a larger transacting user base, suggests a promising future for Zomato.

By implementing the platform fee, Zomato aims to demonstrate profitability to its stakeholders and build a sustainable business model. While the fee may not significantly impact individual users, its collective impact across millions of orders can contribute to Zomato’s financial stability and growth.

Future Outlook and Conclusion

As Zomato continues to test the platform fee and gather user feedback, the company will evaluate its effectiveness and make informed decisions on scaling it up. The fee’s success will largely depend on how users perceive and accept the additional charge, as well as the response from partner restaurants.

With Swiggy already implementing a platform fee and Zomato following suit, it is evident that food delivery platforms are exploring alternative revenue streams to reduce cash burn and drive profitability. The introduction of the platform fee aligns with Zomato’s efforts to control costs, enhance its platform’s performance, and improve the overall user experience.

In conclusion, Zomato’s decision to introduce a platform fee reflects the evolving landscape of the food delivery industry. By implementing this fee, the company aims to strike a balance between user satisfaction and financial sustainability. As the platform fee becomes more widespread, it will be interesting to see how users and restaurants adapt to this change and its impact on Zomato’s overall growth and profitability.

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Additional Information

  • It is essential for Zomato to demonstrate profitability to its stakeholders and build a sustainable business model.
  • Zomato’s decision to introduce the platform fee comes after Swiggy’s implementation of a similar fee.
  • The platform fee is currently being tested on select users and is not applicable to Blinkit, Zomato’s quick-commerce platform.
  • Zomato’s revenue of over Rs 4,100 crore surpasses Swiggy’s, but Swiggy has a higher market share.
  • Restaurants typically pay Zomato and Swiggy a commission of 22% to 28% on food orders.
  • Zomato’s decision to introduce the platform fee aims to reduce its cash burn and improve overall profitability.
  • The fee’s impact on individual users may be minimal, but its collective effect can contribute significantly to Zomato’s financial stability.
  • Zomato’s recent quarterly profit in Q1Fy24 indicates a positive financial trajectory for the company.
  • Zomato’s platform fee is part of its broader strategy to control costs, enhance platform performance, and improve the user experience.
  • The success of the platform fee will depend on user acceptance and the response from partner restaurants.

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