Swiggy seeks higher commissions from restaurants in certain regions

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Bengaluru: Swiggy is progressively raising its commissions from restaurants in regions where its service is nearing maturity, while aggressively pushing partners to advertise on its platform, as the company shifts focus to monetising its core food ordering business, restaurateurs and others with knowledge of the matter said.

The Bengaluru-based company has also increased delivery fees it charges the customer, to control its losses on a per delivery level, the people told ET.

This comes in at a time when the food delivery industry is moving towards consolidation with Zomato in talks to buy UberEats. In December, ET reported that Uber was likely to invest at least $100 million in Zomato in exchange for the latter buying out the firm’s India food delivery operations.

Swiggy chief executive Sriharsha Majety had claimed the company leadership in the food delivery market with a 60% share. ET could not independently verify this number.

“On streets where there is already a high density of restaurants, they (Swiggy) have started charging higher commission from new and even some existing restaurants,” said a fast-food chain owner that lists exclusively on Swiggy. “In upcoming cities and areas where they don’t have too many restaurants on their platform, they continue to charge lower fees.”

The move also ties in with the company’s focus on getting restaurants to fund a larger chunk of promotions and explore other value added B2B services.

The company typically engages restaurants on a 11-month contract and has been seen as increasing commissions when these contracts come up for renewal.

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It has raised its charges to 18-23% of the total order value, up from 12-18% it used to charge earlier, people told ET.

“This is nothing but business as usual in a marketplace such as ours,” Swiggy said in a statement to ET, while denying any unusual increase in commissions for any specific restaurant partner base.
“Commissions at Swiggy are not based on the category or market maturity/geography. It is worked upon at an individual restaurant level and is in line with factors like average order value, delivery costs and other costs that are incurred,” a Swiggy spokesperson said.

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Another person said the commissions Swiggy charged from restaurants in new regions were far higher than what it did when the company was growing its service in the major metros.

“There is an increased focus on monetisation, cutting burn rates, profitability, unit economics by companies across the consumer Internet space,” said Ankur Pahwa, who leads EY India’s ecommerce and consumer Internet practice. “Food tech companies have created an ecosystem from scratch in the past five years which has significantly benefited the suppliers these platform work with. An increased commission structure addresses the value they are creating.”

Swiggy has already started charging restaurants on a pay-per-click model for ads they run on its platform, rather than a fixed fee like earlier, people in the know said. It has also made visible moves to improve monetisation in the past few months by increasing its delivery fee to ₹35 in select regions for orders below ₹98 and ₹25 for orders above that limit.

Rival Zomato has more than halved its burn to under $20 million a month, from $45 million in March. Investors in Swiggy said the cash burn on its food delivery business continued to be about $30 million a month and that there was an intent to progressively get it down by the first quarter of 2020.

“The two companies have very different growth paths which will become clearer in the coming year. However, unit economics focus in the core food delivery business is very real in the overall sector,” said an investor in the space.

[“source=economictimes”]