Zomato, the Indian food delivery company, has reportedly approached several restaurant chains seeking to raise commissions by 2-6% for certain restaurants listed on its platform. This decision has come as the company aims to become profitable and improve its financial performance. The CEO of Zomato, Deepinder Goyal, has been vocal about the company’s plans to become profitable, suggesting that it could earn $1 billion in profits within the next 7-8 years.
Despite the company’s operating profit figures, it has yet to generate sustainable positive cash flow. Zomato’s acquisition of Blinkit, which operates in the quick commerce space, has proven to be a high cash-burn space, further emphasizing the importance of profitability for the company.
In an attempt to improve profitability in its food delivery business, Zomato has reintroduced Zomato Gold and reconsidered the commissions charged.
Zomato Gold had previously been unsustainable due to the discounts and freebies offered to customers, according to some restaurants. Zomato then launched Pro, which was also withdrawn, and finally introduced a different version of Zomato Gold in January 2023. However, reports suggest that restaurants are still considering launching their own individual or combined loyalty programs.
Zomato’s decision to raise commissions could ultimately affect customers who order on the platform. Aggregators usually charge between 18-25% commission on orders from restaurants, leading some restaurants to resort to other means to make up for the lost commissions.
For example, prices may be higher than the actual direct order prices, or there may be smaller “aggregator portion sizes” than the normal portion size of food. Many restaurants also encourage customers to order directly from the restaurant by slipping in pamphlets offering low prices and high discounts.
Zomato is reportedly looking to raise rates for restaurants that pay a higher commission to its rival platform, Swiggy. Zomato is looking for parity in commissions for both platforms, but restaurant owners appear to be unhappy about the move, as higher commissions could mean lower profits or price increases for customers. Higher prices for end users could also lead to lower volumes of orders, which would not be beneficial for the restaurant.
Zomato’s decision to raise commissions may be an attempt to compete with Swiggy, which reportedly charges higher commissions for some restaurants. However, the move could backfire and result in lower order volumes from customers. As a listed company, Zomato may face greater scrutiny from shareholders, who may be less forgiving than patient investors in the past. Therefore, it is important for the company to achieve sustainable positive cash flow and profitability in order to satisfy investors and maintain its position in the market.
