Recently Zomato, the food delivery app, came under the direct line of fire, when one of its users took to social media to highlight the higher rates of restaurant food on its app.
Rahul Kabra, a LinkedIn user, posted an image of a Zomato order bill and an offline bill of the same order from the same restaurant, The Momo Factory, in Mumbai. The difference in the amount of the two bills was glaringly obvious. His caption read - “I am doing an apple to apple comparison to online vs offline order.
Here is what I noticed – Cost for offline order – INR 512. Cost for Zomato order – INR 690 (after applied discount of INR 75). Cost escalation 34.76% per order at INR 178 = (690-512)/512.”
Furthering his grievance, Kabra added, "Assuming Zomato brings visibility and more orders to the food service provider, should it charge such a high price? I think there is a need to cap this cost escalation which should be implemented by the government so as to make this a win-win for all stakeholders."
Rahul’s LinkedIn feed became viral in a short span of time, drawing various reactions from people. Some have come out in support of his observation, stating that food delivery apps take undue advantage of the time constraints of their customers. Others have categorically asked Rahul Kabra to compare the notional cost of time and money were he to go and pick up these orders himself.
The attention that his feed drew also prompted Zomato to respond. "Hi Rahul, Zomato being an intermediary platform between a customer and a restaurant, does not have any control over the prices implemented by the restaurant partners on our platform. That said, we have conveyed your feedback to the restaurant partner and have requested them to look into this."
It remains true that food ordered through delivery apps costs higher than the same food ordered through restaurants directly. Let's look at how much food delivery apps like Zomato and Swiggy charge and their impact on restaurants.
A Short Brief About Food Delivery Apps
Food delivery apps came into existence a little over a decade ago. Their aim? To bridge the gap between the restaurants and customers who wished to order instead of physically visiting the restaurant.
Most restaurants, a decade ago, did not have their own delivery options available. Food delivery apps not only filled this gap but also increased the restaurant’s area of service and added a level of sophistication, professional vibe and expediency to a delivery service.
Their main advantages were –
- Increased convenience to customers and merchants.
- Ease of use for customers as no waiting time for ordering.
- Wide variety of choices for restaurants and food.
- Digital Payment options.
- Increased level of sanitization – e.g., delivery executive wearing gloves and masks.
- Easy exposure to new customers.
- Better customer data.
- Greater reach for restaurants.
- Contactless delivery – especially in the post pandemic world.
Over time, as the food business has evolved, so have the delivery apps. Now various delivery apps have a special category offering healthy meal options.
How Much Do the Food Delivery Apps Charge?
The menu pricing of any restaurant covers its own cost plus a certain percentage of profits. What it does not cover are the costs incurred when partnering with delivery apps.
Currently, Indian Laws do not have any provision which puts a cap on what the food delivery app can charge its partner restaurant. What this essentially means, is that Food delivery apps can charge whatever commission they want under the guise of business costs.
At present, according to various available data and verbal confirmations from restaurateurs, food delivery apps in India are charging anywhere between 25%-30% commission for every order that a restaurant receives. It also charges a certain percentage to the end customer as a delivery fee.
Of course, the food delivery apps are essentially a business model with a bottom line need for turning profitable. There is a cost involved in running such a business.
- Running and maintaining an office.
- Salaries of all employees
- Time and labour cost of ground delivery staff.
- Fuel costs
- Cost incurred maintaining a round the clock customer support staff.
- Recurring costs of maintaining the apps and many more.
The food delivery app model works by charging a partnership fee from the restaurant as well as charging a delivery fee from the customer. In addition, its revenue model also includes paid listings and sponsored advertisements.
Impact of Food Delivery App Charges on Restaurants
With the level of commission that these apps charge, restaurants are left with little choice but to increase the food cost on their app menu to cover costs.
Additionally, food apps also, sometimes, coerce their partner restaurants to offer large discounts which put pressure on their bottom line. Currently, most of this heat is felt by small restaurant operators.
The food delivery app business had already been growing quickly before the COVID-19 Pandemic. The post-pandemic world has seen it growing in demand every day as more and more people prefer to order online rather than visiting the restaurant of choice.
This has caused a level of disruption to small food business operators, who do not have their own delivery service. With the high fees charged by these delivery apps, the basic question that arises for these businesses is that of profitability.
Future of Food Delivery Apps
The food industry is the same as all the others – ease, quality, speed, efficiency and price rule customer decisions. Even before the pandemic, restaurants realized the need and benefits of a food delivery app.
Since its inception, the food delivery business has grown by leaps and bounds and the post-pandemic world has contributed to its exponential growth.
The food delivery business in India is set to double by 2025, estimated to an approximate valuation of USD 13 billion. The chief reason for this is the largely underpenetrated Indian market compared to other countries like the USA.
As always, there are two sides to any story. And this particular dilemma is not immune to it. As much as restaurateurs realize the importance and need of food delivery business models, if the current pressure and constraint of fees and commissions continue, they might be forced to look at other options. Concurrently, the bigger brand restaurants are capable of setting up their own delivery options, which might put further pressure on the existing food delivery businesses and their profitability.
It might be time to amend laws and introduce a ceiling to the commissions and fees that the food delivery businesses can charge their partners. This will not only bring stability to the business itself but will also allow restaurateurs room to reduce their online menu costs while upholding profitability.
How much do Zomato and Swiggy charge to restaurants?
Zomato and Swiggy usually charge around 18 to 25% commission to restaurants on every order.
How is the delivery charge calculated by food delivery apps?
The labour costs, total distance and vehicle costs are some of the costs that are calculated by food delivery apps.