Foodtech

Zomato and Swiggy Hike Platform Fee to Rs 10 Ahead of Festive Season

• ByStartupStory     |    October 23, 2024

In a strategic move ahead of the festive season, food delivery platform Zomato has increased its platform fee to Rs 10, up from Rs 7, on October 23. Within hours, its competitor Swiggy followed suit, raising its platform fee to the same amount, leveling the pricing structure between the two major players in the Indian food delivery industry.

Platform fee, introduced in April 2023, is an additional charge levied over and above other costs like delivery fees, GST, and restaurant charges. Both Zomato and Swiggy collect this fee even from customers enrolled in their respective loyalty programs. The platform fee, which started at Rs 2 per order, has now seen a sharp rise to Rs 10, as first reported by Moneycontrol.

While the fee may seem nominal, it holds significant value for the companies. Zomato processes more than 20 lakh (2 million) orders daily, allowing the platform fee to contribute substantially to its profit margin. The company stated that it collected Rs 83 crore in platform fees till March 2023.

“This fee helps us pay our bills to keep Zomato running. To maintain services during the festive season, it has increased slightly,” read a notification on the Zomato app.

In August 2023, Zomato introduced the Rs 2 platform fee, with the aim of boosting its margins and achieving profitability. This fee was gradually increased, reaching Rs 4 by January 2024, and temporarily spiking to Rs 9 on December 31, 2023, before settling at Rs 10 as of October 23.

Zomato’s financial year 2023 saw an order volume of 64.7 crore, and with each Re 1 increase in platform fee, the company stands to add approximately Rs 65 crore to its topline annually.

Zomato’s second-quarter results, announced on October 22, revealed a nearly five-fold increase in consolidated net profit to Rs 176 crore, despite margins taking a hit due to investments in expanding its Blinkit quick commerce platform. The company’s revenue surged by 69% to Rs 4,800 crore, aided by the growing number of orders and platform fees.

The hike in platform fees comes as competition intensifies in India’s online food and grocery delivery market. Rival Swiggy has offered shares worth $448 million through its initial public offering, while Zepto raised $340 million in August and is preparing for a stock market debut next year, according to media reports.

Zomato has also expanded its Blinkit “dark stores” network during the last quarter, adding 152 new stores, bringing the total number to 791. However, the contribution margin from Blinkit orders dropped slightly to 3.8%, down from 4% in the previous quarter.

“Since new stores and warehouses take a few months to ramp up, they end up being margin dilutive in the short term,” explained Zomato CFO Akshant Goyal.

At 11:15 am on October 23, Zomato’s shares were trading 1.7% higher at Rs 260.7 apiece on the BSE.

To further strengthen its financial position, Zomato has approved a fundraising plan of up to Rs 8,500 crore via a qualified institutional placement, following its acquisition of a movie and events ticketing business from a digital payments firm.

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