IPO-bound Swiggy likely to double platform fee

While internet sector analysts said companies will test a higher amount, the food delivery market is not matured enough for customers to pay Rs 9-10 as an additional platform fee.

Food and grocery delivery platform Swiggy may double the platform fee on food orders from Rs 5 to Rs 10 in the coming month, as it looks to trim losses ahead of its plans for a public listing later this year.

The Bengaluru-based firm has begun teasing the new fee on its app for select customers, the screenshots viewed by Moneycontrol show. Moneycontrol was also the first to report in April 2023 that the food tech major had begun to levy a platform fee . At that time, Swiggy was testing waters and only charged an additional Rs 2 as platform fee on some food orders irrespective of the cart size.

A few weeks after Swiggy saw that an additional fee did not drag down the volume of food orders, it began collecting a platform fee from all customers. While the company has steadily pushed up the amount and now charges Rs 5, a percentage of customers still pay Rs 3 as platform fee. The company did not explain its rationale on the tiering of the fee.

Like Swiggy, even Zomato has pushed up the platform fee from Rs 2 to Rs 5 in some cases, as reported by Moneycontrol.

An additional fee on every order improves the financial health of food delivery companies, considering each of these firms deliver around 1.5-2.5 million food orders per day.

Swiggy has not begun levying platform charge of Rs 10 yet but in the past, it has teased a higher amount, discounted a part of it for some time and then hiked the fee later. The company is likely to follow the same pattern if it sees desired results.

Swiggy said the platform fee of Rs 10 is one of the many experiments it keeps running. "Swiggy has not changed its platform fee, and has no plans for a significant increase in the near term. We're always running small experiments to better understand the consumer’s choices. This was one such experiment, and we may or may not scale it up in the future if it doesn't meet our goal of serving our users in the best way possible,” a company spokesperson said in response to Moneycontrol's queries.

Screenshot of Swiggy teasing Rs 10 as platform fee.

Swiggy's move comes at a time when the food-delivery market is growing at a slower pace than before, Swiggy's co-founder and group CEO Sriharsha Majety told Moneycontrol in Davos.

He said Swiggy Instamart, the quick-commerce arm, will be the company’s growth driver in the years to come. However, to ensure even food delivery keeps growing and more customers use its platform, Swiggy introduced food options at a lower price point.

“We're always looking for ways to make our platform more affordable, and our latest offering, Pockethero, is another example of that. Pockethero is designed for budget-conscious consumers, and we're expanding it across the country right now," the company spokesperson added.

The push to increase its user base and turn profitable comes ahead of Swiggy's plans to hit the market later this year. Majety told Moneycontrol that Swiggy's IPO plans were underway.

Competitive landscape

Swiggy is not the only food-delivery company levying an additional fee to lower costs.

On August 3, 2023, during a call with analysts Zomato’s chief financial officer (CFO) Akshant Goyal had said the company didn't plan to introduce a platform fee. But just two days later, Zomato treaded the same path as rival Swiggy and introduced a platform fee of Rs 2. Gurugram-based Zomato has also increased the platform fee after that.

In fact, Zomato for some time increased the platform fee to Rs 9 in certain markets to capitalise on the temporary spike in order volumes on New Year’s Eve.

On December 31, 2o23, food delivery companies recorded their highest ever order volumes as they delivered a total of 6.5 million orders on a single day, a growth of 18 percent when compared to the same period last year, said Abhijit Routray, Associate Partner at Redseer, a management consulting firm.

While order volumes hit a new high on December 31, customers also spent more than they otherwise do. Normally, the average order value (AOV) is in the Rs 400-450 range but on New Year’s Eve, the AOV jumped by over 30 percent to around Rs 520-585 as per Redseer’s Consumer Panel analysis, Routray said.

ALSO READ: Quick-commerce and food delivery companies end 2023 on a high

Analysts said customers were still price sensitive and not willing to pay a platform fee as high as Rs 10.

“Zomato hiking the platform fee hike to Rs 9 was because of an unprecedented surge, it was a one-off incident. Most customers were in a celebratory mood so they wouldn’t have noticed much. So, are we ready to make Rs 9-10 as the new permanent platform fee? No. The food delivery market hasn’t matured that much,” an internet sector analyst said.

“Both companies have seen that a nominal platform fee has worked for them. Most of the orders come from the top 5 percent of the country, companies will test a higher platform fee but no one knows where to draw the line. They will have to tread carefully because once customers revolt, their order frequency will drop and it will be difficult to come back from that."