The Economic Times reported that Zomato has asked several eatery chains for a 2–6% rise in commissions due to growing losses and declining profitability. Zomato has been charging 18–25% commission per transaction for deliveries for the past two years; this increase is thought to be an effort to catch up to Swiggy’s higher commission rates. Restaurant owners, however, have rejected the plan due to worries about how it will affect their unit economics.
It is encouraging to see Zomato’s emphasis on unit-level profitability, according to Karan Tanna, founder, and CEO of the food technology firm Ghost Kitchens. He issued a warning that the proposed increase might have a major effect on the monetary efficiency of restaurants. According to experts, food chains might find the transition simpler if commission rates were gradually raised.
The decision by Zomato comes as the food delivery sector is having difficulty remaining profitable as a result of intense rivalry and rising costs. Zomato’s expenses increased from INR 230 crore in the prior quarter to INR 360 crore for the quarter ending in September 2021. During the same time, the company’s revenue decreased by 11% as well. Zomato’s primary competitor Swiggy has also been dealing with these issues and announced losses of INR 1,160 crore for the fiscal year 2021.
The pandemic has had a severe impact on the restaurant sector, and many chains of restaurants have been forced to depend on delivery services like Zomato and Swiggy in order to remain in business. Chain restaurants have already been looking for methods to cut costs and increase their profitability, though these platforms are taking a sizable chunk of their revenue. Restaurant owners are unwilling to accept further decreases in their already thin profit margins, as evidenced by the denial of Zomato’s suggested commission increase.
In conclusion, restaurant chains have resisted Zomato’s effort to raise its commission rates. Experts caution that the move, while seen as a means to equal Swiggy’s higher rates, could upset the basic economics of food outlets. Finding a balance between generating revenue and upholding positive relationships with restaurant partners will be essential for the success of delivery platforms as the food service sector struggles to remain profitable.
