Zomato Increases Platform Fee Amid Festive Rush

As India heads into its festive season, food delivery giant Zomato has increased the platform fee it charges users to Rs 10 per order, up from Rs 7 previously. This fee was first introduced by the company in 2023 as a Rs 2 per order levy and has since seen multiple hikes. According to a notification on Zomato's app, the increment is necessary to cover the rising costs associated with operating during the high-demand festive season.

“This fee helps us pay our bills to keep Zomato running. To maintain services during festive rush, it has increased slightly,” the app’s notification read. Zomato, headquartered in Gurgaon, is a major player in India's competitive food delivery sector.

The platform fee is an additional charge imposed on customers for each food order placed via the Zomato app. It is applied separately from restaurant charges, delivery fees, and goods and services tax (GST). The latest hike comes during a period when consumption patterns surge, with more customers ordering food online during festivals and holidays.

Breakdown of the New Fee

While the new platform fee is set at Rs 10 per order, this does not include GST of 18%. Consequently, Zomato customers will effectively pay Rs 11.80 on every order as a total platform fee inclusive of tax.

For customers, the platform fee adds an extra layer of cost, but industry analysts suggest that the marginal increase is unlikely to deter consumer behavior. With millions of users relying on food delivery services during the festive period, this nominal increase could generate substantial additional revenue for Zomato.

Platform Fee History and Industry Trends

Zomato initially introduced the platform fee as a flat Rs 2 levy per order in 2023. Over time, the company has steadily raised this charge to support its growing operational needs. Zomato’s main rival in the food delivery space, Bengaluru-based Swiggy, was the first to introduce such a fee and has also increased its platform charge over time, currently at Rs 7 per order.

According to experts tracking the sector, platform fees are now a standard practice for most food delivery platforms, helping them offset operational costs. This fee, while relatively small on individual orders, scales significantly when applied to millions of daily transactions.

Zomato and Swiggy together process around 2.0-2.5 million orders daily, meaning any increase in platform fees has a direct and positive impact on the company's revenue. A Zomato spokesperson, responding to queries about the recent hike, said, "These are business calls which we take basis various factors from time to time."

Zomato's September Quarter Financial Performance

The platform fee hike comes on the heels of Zomato's September-quarter results, which were released earlier this week. The company, led by Deepinder Goyal, reported impressive growth, with its operating revenue increasing by 68% year-on-year to Rs 4,799 crore. This substantial growth was primarily driven by Zomato’s quick-commerce business, which has been expanding rapidly.

However, despite the strong performance in the quick-commerce segment, Zomato's food-delivery business, which remains its largest revenue driver, also saw a 21% year-on-year growth in gross order value (GOV), totaling Rs 9,690 crore for the quarter.

Take Rate Declines in Food-Delivery Segment

Despite the overall positive growth, Zomato’s take rate—the percentage of revenue the company earns from its GOV—experienced a minor decline during the quarter. The take rate dropped by 20 basis points to 24.1%, which was attributed to the fact that July-September is typically a seasonally weak quarter for the food-delivery business. A company’s take rate is an important metric as it reflects the revenue efficiency of the platform.

Nevertheless, the increase in the platform fee is expected to help cushion the impact of the lower take rate, providing a new revenue stream that can help maintain profitability even during slower periods.

Zomato's Platform Fee Revenue

Zomato’s annual report for fiscal 2024 revealed that the company made Rs 83 crore from platform fees during the year, underscoring the growing importance of this revenue stream. The fee has emerged as a critical factor in helping Zomato balance its operational costs, especially as the company scales up its quick-commerce and food-delivery businesses.

The additional Rs 3 per order now being levied during the festive season could result in a significant revenue bump, considering the surge in order volumes that typically accompany this time of year.

Industry Outlook: Festive Season Impact on Food Delivery

The festive season in India, spanning from October to January, is considered a high-demand period for online food delivery and grocery platforms. During this time, there is a noticeable spike in consumer spending, and companies like Zomato and Swiggy see an increase in the number of daily orders processed.

Analysts suggest that the increase in platform fees will have minimal impact on customer behavior, given the convenience and quick turnaround times offered by these platforms. For most consumers, the ease of ordering food during the busy festive period outweighs the slight increase in cost.

Zomato’s platform fee hike is a reflection of the growing competitive pressures and the need to maintain profitability while managing increased operational demands. As the company continues to expand its presence in India, the platform fee will likely remain a key component of its pricing strategy.

Conclusion: Zomato’s Strategic Move to Boost Revenue

The recent hike in platform fees by Zomato signals a strategic decision to maximize revenue during the festive season while keeping operational efficiency at the forefront. With the company posting strong financial results and expanding its quick-commerce operations, the platform fee allows it to sustain growth without directly increasing food prices for consumers.

As Zomato and Swiggy continue to compete for market share, platform fees will remain a vital aspect of their business models, contributing to their long-term sustainability in the fast-growing online food delivery space.

Overall, Zomato's increased platform fee comes at a time when the company is experiencing both rapid growth and seasonal demand, ensuring it can continue delivering high-quality services to its users while maintaining a healthy revenue stream.

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