Zomato is currently testing a new initiative in specific markets, wherein select users will be charged a flat INR 2 platform fee on its food delivery app. This experimental approach aims to enhance profitability, and if successful, it is likely to be extended to all users, benefiting the company as a whole.
“This is in an experiment phase right now, and we may or may not scale,” a spokesperson for the Gurgaon-based food delivery company conveyed in response to a query.
This follows a similar move taken by its arch-rival Swiggy, which started levying a platform fee back in April. As a result, both Zomato and Swiggy are exploring these strategies to enhance their revenue streams and optimize profitability in the fiercely competitive food delivery market.
Read More: Swiggy implements ‘platform fee’ on all orders, users to bear the cost
On Thursday, Zomato announced its inaugural quarterly profit of INR 2 crore for the June quarter. The company’s leadership expressed confidence in maintaining this profitability trend in the upcoming quarters.
Read More: Zomato turns profitable in Q1 FY24, reports INR 2 Cr consolidated PAT
Also Read: Zomato’s profitable quarter ignites bullish outlook; brokerages raise target prices
Significantly, the implementation of the platform fee comes shortly after Zomato’s chief financial officer, Akshant Goyal, informed analysts during the post-earnings call that the company had not yet made a decision regarding such a charge.
“So, it’s a business call…we are aware about that and I think we’ll take a call when we think it’s right for business. At this point, we haven’t done that…there is no platform fee on our platform,” Goyal had said.
He was addressing an inquiry about whether Zomato had intentions to introduce a platform fee, or if it had experimented with such a fee in specific smaller markets, taking into account its competitor’s actions.
Currently, the company is conducting an experimental phase of levying the platform fee, including on users of its loyalty program, Zomato Gold. Upon full implementation, this move is anticipated to increase the company’s take rate significantly.
The development was first reported by online news portal Moneycontrol.
Although Zomato’s INR 2-crore profit for the June quarter was unexpected and surpassed the company’s projections, the potential expansion of the INR 2 platform fee to a broader user base presents an opportunity for the company to enhance its margins even further.
According to analysts, it is challenging for food delivery platforms like Zomato and Swiggy to persuade restaurants to accept higher take rates. This difficulty arises due to the limited willingness of restaurants to share their revenues with these platforms beyond a certain threshold, making it difficult to push for further increases.
During the April-June timeframe, as reported by brokerage firm Jefferies, Zomato’s food delivery segment experienced an average order value of INR 421. This figure marked a 7% increase compared to the previous year’s value of INR 395. The same brokerage firm estimated Zomato’s overall take rate to be around 23.8%, with 18.7% originating from restaurants and the remaining 5.1% contributed by customers.
In February, Zomato had reached out to several restaurant chains, requesting a commission increase ranging from 2% to 6%. This move sparked a new conflict between the platform and restaurant operators.
As per a research note by Nomura in response to Zomato’s results, the company recorded an approximate total of 177 million food delivery orders during the April-June period.
During the three-month period, the gross order value (GOV) for food delivery witnessed an 11% sequential growth, primarily driven by an increase in the number of orders and the average order value.