After Swiggy, Zomato begins testing platform fee on food orders

Zomato Introduces Platform Fee to Bolster Profitability and Sustainability

In a strategic move mirroring its competitor Swiggy, leading food delivery platform Zomato has initiated the rollout of a nominal “platform fee” of Rs 2 per order, signaling a shift in its revenue model. This development comes on the heels of Zomato’s maiden quarterly profit announcement in Q1Fy24, underscoring the company’s commitment to sustaining profitability while adapting to evolving market dynamics.

Currently, the platform fee has been selectively implemented for specific users and remains absent from Blinkit, Zomato’s swift-commerce platform. In an explanatory pop-up, Zomato describes the fee as a “small charge that contributes to covering operational expenses and maintaining Zomato’s operational continuity.”

A Zomato spokesperson elucidated the purpose behind this move in a statement to Moneycontrol, noting that it is currently in the experimental phase and may or may not be scaled up in the future. “This is in an experiment phase right now, and we may or may not scale.”

This platform fee introduction follows Moneycontrol’s earlier report four months ago, which detailed Swiggy’s analogous imposition of a Rs 2 platform fee on all food orders.

Although a Rs 2 platform fee might appear inconsequential, constituting a mere 0.5% of Zomato’s average order value (AOV) of approximately Rs 415, the cumulative impact is substantial due to Zomato’s extensive order volume. According to a note by JP Morgan, Zomato handled approximately 17.6 crore orders in the June quarter, equating to roughly 20 lakh orders per day.

An industry expert familiar with the situation elaborated, “While many customers may overlook the nominal increase of Rs 2 in their final bill, the aggregate value generated by this fee, given Zomato’s large-scale operations, holds significant potential for the company. To ensure profitability and satisfy stakeholders, Zomato must explore avenues to generate additional revenue, which inevitably places the onus on either the customers or the restaurants. However, restaurants have shown reluctance towards any additional fees, prompting Zomato to shift the financial onus to customers.”

Traditionally, food delivery platforms like Zomato and Swiggy levy a commission ranging from 22% to 28% on food orders from restaurants. Aligning with Swiggy’s approach, Zomato has opted to impose the platform fee across its user base, including regular users and those subscribed to Zomato Gold, its loyalty program.

Observing Swiggy’s successful implementation of a platform fee, Zomato seems to have taken a page from its competitor’s playbook. “Zomato recognizes that Swiggy’s introduction of a platform fee did not significantly impact its order volumes. Companies often make independent decisions or emulate competitors based on observed positive outcomes,” the industry expert added.

However, Zomato’s stance appeared slightly different during its post-results analyst call on August 3. When questioned about plans for a platform fee rollout and its testing in specific micro markets, Zomato’s CFO Akshant Goyal stated, “It’s a business call. We’re aware about that [peers charging a platform fee] and we’ll take a call if we think it’s the right thing for the business. At this point, we haven’t done that. There’s no platform fee on our platform.”

Zomato’s recent announcement of a net profit of Rs 2 crore for the quarter ending in June, buoyed by a tax-related reversal, underscores a positive trajectory for the company. Improved financial metrics, encompassing Gross Order Value (GOV), revenues, user engagement, and delivery efficiency, paint a promising picture for Zomato’s future and its commitment to optimizing value for both its customers and shareholders.

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