Zomato seeks higher commission from restaurants as food delivery business slows
- ByStartupStory | February 27, 2023
Kabir Suri, President of the National Restaurant Association of India (NRAI), with over 500,000 members, has stated that the association will address the issue with Zomato on behalf of restaurant partners. Suri is also a co-founder of Azure Hospitality, which runs the Mamagoto and Foxtrot restaurant brands. In response to queries by ET, a Zomato spokesperson stated that they periodically reassess their commissions to ensure that they remain competitive and sustainable for both restaurant partners and Zomato.
According to reports, Zomato has contacted various restaurant chains to request a commission increase of 2-6% due to increasing losses, profitability pressures, and a decline in delivery numbers within its food delivery business.
Despite Zomato’s request for a commission increase, restaurant operators have declined to comply, resulting in a new conflict between the two parties. An executive at a national restaurant chain, who wished to remain anonymous, stated that they have been threatened with potential consequences, such as being delisted, having their delivery radius reduced, or their platform visibility reduced if they do not comply with Zomato’s demand. These discussions have been ongoing for a week.
Zomato has been charging a commission between 18-25% per order for deliveries, depending on their arrangement with restaurant partners, for the past two years. According to a restaurant industry executive, Zomato wants to be at par with other aggregators like Swiggy, who charge higher commissions in many cases. Karan Tanna, Founder and CEO of food tech company Ghost Kitchens, expressed concerns about the impact of Zomato’s focus on unit-level profitability on restaurant unit economics.
According to Karan Tanna, CEO and Founder of Ghost Kitchens, a sudden 5-6% increase in commission (including GST) could create a disparity of commissions between Swiggy and Zomato. Tanna’s company operates over 1,200 internet restaurants that only offer delivery services and have no physical outlets. He suggests that a gradual increase would lead to a stable transition for restaurants rather than a sudden increase.
Zomato’s proposal to increase commissions to restaurant partners follows the company’s announcement of a net loss of Rs 347 crore in the October-December 2022 quarter, which was wider than the Rs 63.2 crore loss reported the previous year. However, the platform’s revenue increased by 75% from the previous year to Rs 1,948 crore.
Zomato has been approaching restaurant chains in multiple cities including Mumbai, Delhi, and Kolkata for commission increases, said Anurag Katriar, founder of Indigo Hospitality, which operates Indigo Deli and Neel restaurants. Katriar said that the approach has been selective so far, and that industry associations will be discussing the matter with the aggregator.
Zomato’s CEO Deepinder Goyal, in a post-earnings letter to shareholders, attributed the slowdown in the food delivery business to “a few temporary factors” and remained optimistic about the long-term prospects of the company. Meanwhile, there has been an ongoing conflict between Zomato and Swiggy with restaurant partners for more than three years. Restaurant operators claim that the aggregators provide deep discounts to gain more customers, which make their businesses unviable. They also allege that the platforms charge uneven commissions and conceal data.
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