There has been a commotion in the meal delivery market due to recent adjustments in platform fees by Zomato and Swiggy. The platform fees of both companies were raised from ₹5 to ₹6, a 20% rise. Restaurants predict that this tax will increase even more to ₹10–15, which will have a big effect on their business operations and patrons’ experiences. The possible effects of these increases on a range of stakeholders—restaurants, patrons, and the food delivery platforms themselves—are examined in this study.
Credits: Hindustan Times
Impact on Restaurants
Increased Operational Costs
The main worry for restaurants is the greater operating costs that come with higher platform fees. The exorbitant commission rates that meal delivery platforms charge—which may be anywhere from 20% to 30% of the order value—are already a problem for many businesses. These expenses are made worse by the added platform fee, which makes it extremely harder for eateries to keep their profit margins stable.
Pressure to Adjust Menu Prices
Due to the increased fees, restaurants may feel compelled to inflate menu prices on food delivery platforms further. This strategy, while necessary to offset costs, risks alienating price-sensitive customers who might choose to order directly from the restaurant or seek alternative dining options. The discrepancy between in-restaurant prices and delivery platform prices could widen, affecting customer loyalty and satisfaction.
Call for Lower Commissions
In light of the fee hikes, restaurants are increasingly calling for a reduction in the commissions charged by food delivery platforms. Many argue that the current commission rates are unsustainable and place undue financial strain on their businesses. A reduction in commissions could help balance the financial burden and allow restaurants to offer more competitive pricing to their customers.
Impact on Customers
Higher Cost of Delivery
The direct consequence for customers is the increased cost of food delivery. The platform fee, which is essentially an added cost for using the service, makes ordering food online more expensive. With potential future hikes raising the fee to ₹10-15, customers might reconsider the convenience of food delivery, especially for smaller orders where the fee represents a significant portion of the total cost.
Impact on Food Delivery Platforms
Improved Margins and Unit Economics
The increase in platform fees is a calculated move by Swiggy and Zomato to boost their margins and unit economics. These platforms can immediately increase their revenue by raising the fee, which will assist in offsetting rising labor, technological, and logistical costs. For these businesses, increased margins are essential, especially since they want to turn a profit in a cutthroat and expensive sector.
Balancing User Experience and Profitability
However, the challenge for Swiggy and Zomato lies in balancing profitability with user experience. Excessive fee hikes could deter customers and restaurants from using their platforms, potentially leading to a loss of market share. To mitigate this risk, delivery platforms may need to enhance their value propositions, such as offering loyalty programs, better service quality, or exclusive deals to retain their user base.
Long-term Implications
Market Dynamics and Competition
In the long run, the platform fee hikes could influence the competitive landscape of the food delivery market. Smaller or new entrants might capitalize on the dissatisfaction among restaurants and customers by offering lower fees or more favorable terms. This could spur innovation and competition, leading to a more diverse and dynamic market.
Potential Regulatory Scrutiny
As platform fees and commissions become a contentious issue, there is a possibility of increased regulatory scrutiny. Authorities might intervene to ensure fair practices and prevent monopolistic behavior. Regulatory actions could include capping fees or mandating greater transparency in pricing structures, which would impact how food delivery platforms operate.
Conclusion
There has been a notable change in the food delivery industry with the recent increase in platform fees by Swiggy and Zomato. Although it seeks to increase platform profitability, it presents significant obstacles for patrons and eateries. The future of food delivery services in India will be shaped by the constant modifications and reactions from all stakeholders, striking a balance between price, convenience, and competitive dynamics.
