No change in advertiser appetite, despite Swiggy-Zomato platform fee hike?
These platforms are unlikely to see a drop in customer base as they have altered user behaviour permanently. Hence, advertiser loss is also unlikely, say experts
Food delivery platforms Zomato and Swiggy recently hiked their platform fees by 20% for orders across Delhi, Mumbai and Bangalore. The platform fee increased from Rs 5 to Rs 6 for users ordering from these platforms. For some orders in Mumbai, Swiggy even increased it from Rs 5 to Rs 7.
This fee applies to all food orders and is separate from the delivery charges and other additional charges. The move comes at the back of both platforms planning on improving their unit economics, thus giving a boost to the revenue and profits. One source of revenue for both Zomato and Swiggy is the commission they get from restaurants. However, there exists a ceiling to that charge which as of now is around 25-35% as per sources.
Another source of revenue becomes advertising, which as of now comes majorly from the quick commerce arms of both the platforms – Blinkit and Instamart. Thus for the food delivery business, the platform fee plays a crucial role.
However, this move managed to push users to raise larger concerns about the platforms’ increasing charges.
While Zomato’s shares jumped 4 per cent on Monday (July 15) to a new high of Rs 232, some netizens seemed to have perceived this as an opportunity to express their concerns about the ever rising costs on these platforms. For instance, one of them wrote on X, “Massively reduced ordering from Swiggy/Zomato, down to just once maybe on a weekend, like today and noticed their "platform" charge is now Rs 6. Happy that I weaned myself off the daily ordering. They also take 30% from restaurants, btw.”
Another user wrote, “30% is only for orders. They now take much more because now they pit ads (sponsored listings) and promotions etc which also cost the restaurants or they lose out on a lot of orders.”
Amidst some level of user discontent, one might wonder about the impact on advertisers’ interest. This becomes more of a crucial point when players like Tata Neu recently entered the food delivery space via ONDC, which is a much cheaper alternative. Experts believe that while there might be a short term impact on user as well as advertiser interests, the platforms will bounce back soon.
Lloyd Mathias, Business Strategist and Angel Investor feels that after having established themselves as primary food delivery platforms over the years, it was rather expected for Swiggy and Zomato to raise their charges a bit. “There might be some short-term impact, people would examine options, but I don’t think there would be a drastic change. Especially until ONDC becomes a very viable option,” he said.
Advertisers, experts add, will watch the space closely but might not take any major decisions around this as of now. “These are platforms that advertisers have been using at the periphery, they are primarily still on the digital platforms like Google and Meta, in the short term, I don’t expect a big change from advertisers,” Mathias added.
Communications consultant Karthik Srinivasan also believes that the discontent from users' side would at best be temporary. “After a few weeks, people will forget the hike in the 'convenience fee' and go back to normal ordering .If at all there's a tangible benefit, it may be for the loyalty programs of these platforms, like Zomato Gold which may waive the convenience fee for members. This is similar to Amazon Prime, one of the biggest money-spinners for the e-commerce giant,” he added.
Given this, Srinivasan further explained, the advertiser interest wouldn't wane either. According to him, these platforms are here to stay and so are their quick-commerce extensions. “Both have shifted user behaviour so permanently that small hikes in terms of platform fee won't make impactful dents in the business.”
According to Digital & New Media Advisor Sanjay Trehan as well, if at all there is any impact on advertisers’ interest, it will be for a short term only. “Pragmatically speaking, I am supportive of this moderate fee hike as it would help them to boost their profitability and the money can be ploughed back to fine-tune their services and add more relevant services. Also, it augurs well for shareholder returns,” he said.
Additionally, Trehan mentioned that since he doesn’t expect a drop in their customer base, it is unlikely that there will be a loss of advertisers’ interest. “If at all there is something, it will be limited,” he said.
However, he agrees that alternatives like Tata Neu leveraging ONDC will heat up the food delivery ecosystem, though it is early days for both Tata Neu and ONDC in terms of user base and reach. “In the long term what matters is healthy business economics, good customer value proposition and service, innovation and sustainable growth that generates shareholder returns,” Trehan added.
