A Look at the Growing Trend of Platform Fees in Delivery Apps

🔍Insights

Nitin Konde, Apoorva Bajj

Mar 18, 2024 — 4 min read

Growing Trend of Platform Fees in Delivery Apps

At the beginning of the new year, the two most prominent participants in the food delivery industry raised the platform fees by INR 1, which is equivalent to a 33 percent increase from INR 3 to INR 4. According to the predictions made by the media, the prices of consumer services would increase. This prediction was pretty much spot on thanks to Zomato and Swiggy, and it started on New Year's Eve, which is the busiest day of the year for both of these companies.

Platform fees are not restricted to food delivery apps; Myntra, the top fashion eCommerce platform in India, is presently charging a platform fee of ₹20 for each order that is placed on its app. These fees are a component of the methods that the corporations employ to enhance their profitability and maintain their business models. The implementation of such fees, on the other hand, might vary, and some businesses may experiment with greater prices in the future or alter them based on the demand for specific services.

The Current Structure of Platform Fees
Zepto Joins the Bandwagon
Aiming for Financial Gain

The Current Structure of Platform Fees

The most dedicated Zomato and Swiggy customers had to make some choices at the start of the new year. Should they decide to reduce their reliance on these platforms or keep paying ever-increasing platform fees to stay on top of them?

Starting on January 1, Zomato raised the platform fee from INR 3 to INR 4 per order in select areas. Unverified rumors circulated that on New Year's Eve, Zomato briefly increased their platform fees to as much as INR 9 per order in several countries.

The price increases were justified by Zomato as "business calls" made after considering several variables. Coincidentally, Zomato's order volume shot up to higher than the volume over the last six years combined, and the platform fees surged the day after New Year's Eve.

Zepto Joins the Bandwagon

The innovative approach and unwavering commitment to satisfying customers' demands have contributed to Zepto's steady rise to prominence, positioning it as the third-largest rival in the fast commerce space. Zepto is challenging industry heavyweights such as Swiggy Instamart and Blinkit, which is owned by Zomato, with a reputation for itself and a market share of over 20%. During its rise to prominence, Zepto has been known for its thoughtful approach to implementing platform fees, as well as its focus on user experience and operational performance.

In an attempt to boost income and operational efficiency, Zepto has decided to implement platform fees for a small number of users, which is different from the fee-free grocery order strategy of competitors Blinkit and Swiggy Instamart. Zepto's plan, which starts at Rs 2 per order, follows the same model as established industries like eCommerce and restaurant delivery. Zepto emphasizes in its strategy introduction its commitment to sustainable growth and profitability over the long term and its willingness to try new things to stay ahead of the competition.

Size of the Online Food Delivery Market Across India From 2020 to 2023, With Estimates Until 2026

Aiming for Financial Gain

In addition to Zomato and Swiggy, other popular food delivery services like Uber, BigBasket, Myntra, and Dunzo impose extra charges (convenience charges, handling fees, and more) on top of the real delivery prices, which are typically discounted. Ola Prime Plus and Namma Yatri's subscription plans for driver-partners are examples of new models that have emerged as a result of the revenue drive.

The fashion eCommerce behemoth Myntra, which is owned by Flipkart, started charging a fee for returns, which is one of its main selling points. The goal here is to correct unit economics.

According to Prosus, Swiggy's principal investor, the company's loss increased to $545 million in 2022 from $300 million the previous year, while Swiggy has not yet disclosed its financial results for FY23.

Platform fees are opening the way for the company to show a clear path to profitability in the next few months, which is necessary for its 2024 IPO. Platforms like Swiggy and Zomato will compensate to some degree by charging customers directly, even if discounts will still be around.

How much these fees are, how open they are, and how much value they give to everyone involved in the delivery process will determine if they are ethical.

The openness of these fees is also very important. Any fees and their purpose should be made plain to both customers and eateries. In an ethical system, food delivery fees would be reasonable, helping to sustain the industry while not unfairly harming any one participant.