Restaurants raise their pricing on Swiggy and Zomato by 10% on average, claiming cost increases
- ByStartupStory | August 26, 2022
According to a Jefferies analysis, eateries have begun charging consumers an average of 10% more—the largest was a 60% premium—on food delivery apps like Swiggy and Zomato than the prices posted on menus in their stores, citing additional costs from commissions and promotions. “Profitability concerns have encouraged food-tech companies like Zomato and Swiggy to hike take rates (take-out prices”),” Jefferies wrote in a report on Wednesday. “Packing and delivery charges remain over and above.”
The firm polled 80 eateries in the top eight cities, comparing online and offline prices. It generated 240 orders ranging from $120 to $2,800 each order and chose a variety of quick service restaurants (QSRs), full-service restaurants, cafes, ice cream parlors, and so on. It was estimated that 80% of the restaurants questioned used differential pricing that was greater for online orders. “We found that 80% of the restaurants we looked at on meal delivery services have menu pricing that is higher than that of the printed menu price for dine-in. More than half of these establishments charge a premium of less than 10%, with the median being 10-11%.
However, this pricing technique was mostly applied to certain items rather than the entire menu. “Industry discussions imply that some larger restaurants are experimenting with alternative items for aggregators to enable differential pricing (for example, one plate of idli has two pieces in delivery versus three in dine-in),” analysts added. Branded QSRs charge the following premiums: Subway 10-15%, KFC 10%, Pizza Hut 5-6%, and Dominos 4%. To be sure, certain establishments, particularly ice cream parlors, charge lower prices than restaurants, they claim.
Restaurant commission rates, ad-sales, and client delivery charges provide revenue for aggregators. Discounts and other variables are included in the cost. Take-out costs are commissions paid by restaurants to aggregators like Swiggy and Zomato in exchange for allowing delivery orders through their online ordering service. For restaurants, aggregators use a variable commission rate. However, aggregators have been under pressure to maintain robust profitability. Zomato’s top management stated in its June quarter report that it expects to attain adjusted Ebitda breakeven by the fourth quarter of the current fiscal year.
Almost half of the eateries additionally charge packing fees, which range from 4-5% of the bill. Furthermore, the platforms charge a delivery fee to customers, which raises the whole cost by an estimated 13%. “When all costs are considered, the cost of a delivery order before reductions is, on average, about 27-28% more than the menu price.”
“While platforms cannot affect the premium charged by a restaurant, a substantial mark-up may result in customer dissatisfaction or even open up an opportunity for such a hyper-local delivery platform to enable own-delivery by restaurants, though this appears to be a remote possibility at this stage given the two incumbents’ strong brand recall.” “They stated.” According to Jefferies, platforms offer an average discount of 11%. “This reduces the net premium over menu pricing to 17%—of course, as discounts fade and profitability becomes more important, the gap is likely to close.”
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