Food delivery platform Zomato increased platform fee to Rs 10, from Rs 7, ahead of the festive season on October 23. Hours later, its rival Swiggy also followed suit and also hiked the fee by the same amount and came on par with its competitor.
Platform fee is an additional charge that both food delivery giants levy over and above other line items like delivery fee, GST and others. Both Swiggy and Zomato collect a platform fee from customers enrolled under their respective loyalty programmes.
The fee, first introduced around April 2023, has gone up sharply from Rs 2 per order to Rs 10 now, Moneycontrol first reported. While the amount may seem nominal, Zomato delivers over 20 lakh (2 million) orders each day which helps the company improve their profit profile.
Zomato for instance said it has collected Rs 83 crore in platform fee till March.
“This fee helps us pay our bills to keep Zomato running. To maintain services during festive season, it has increased slightly,” stated a notification on the Zomato app.
In August 2023, Zomato introduced a Rs 2 platform fee back when it looked to boost its margins and become profitable. The company subsequently increased the fee to Rs 3 before raising it again on January 1 to Rs 4. It had temporarily hiked the platform fee to Rs 9 on December 31.
Zomato had an order volume of 64.7 crore in financial year 2023. A Re 1 hike to its hike structure would mean an additional Rs 65 crore to its topline per annum.
Zomato reported a smaller-than-expected rise in profit for the second quarter on October 22 as margins took a hit from investments on growing "dark stores" used to fulfill online orders on its Blinkit quick commerce platform.
At 11:15 am on October 23, Zomato's shares on BSE were trading 1.7% higher at Rs 260.7 apiece.
Platform fee is an additional charge applied to each food order, apart from goods and services tax, restaurant charges, and delivery fee.
Its consolidated net profit rose nearly five-fold to Rs 176 crore for the quarter ended Sept. 30.
The company approved a fundraise of up to Rs 8,500 crore via a qualified institutional placement, to boost its cash balance after the recent acquisition of the movie and events ticketing businesses of digital payments firm.
Competition in India's online food and grocery delivery sector is heating up, with companies looking to raise funds to expand operations and gain market share.
Zomato's main rival Swiggy offered shares worth $448 million in its initial public offering, while Zepto raised $340 million in August, and is set to list its shares next year, according to media reports.
To combat rising competition, Zomato added 152 new "dark stores" - or distribution centres - during the quarter, the most it has ever added in any quarter, taking the total count to 791 stores.
However, the contribution margin - or the revenue generated from each additional order as a percentage of the gross order value - for Blinkit fell to 3.8% from 4% in the previous quarter.
"Since new stores and warehouses take a few months to ramp-up, they end up being margin dilutive in the short term," Zomato CFO Akshant Goyal said.
Zomato's revenue rose nearly 69% to about Rs 4,800 crore.
With inputs from Reuters
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