Indian food-tech giant Swiggy, in a bold move, might increase the commission it charges to restaurants at a time when Amazon has marked its entry in India’s soon-to-be USD 17.02 billion food-delivery-market by offering the lowest commission to restaurants.
After years of unfettered growth, the Indian food-tech unicorn is setting things in motion to move towards profitability which has so far eluded the majority of startups in the country.
According to a report by local media Economic Times, Swiggy is planning to charge a higher commission from restaurants in regions where its service has almost matured. It also seeks to increase the food delivery fee it charges to its customers. This would mean making more money from both sides—the restaurant partners as well as customers—thus cutting down on losses per delivery.
The company typically engages restaurants on a 12- or 18-month contract and increases commissions when these contracts come up for renewal, the ET report said, adding the company has raised its commissions ranging from 18% to 23% of the total order value, from the earlier range of 12% to 18%.
The company has also increased its delivery fee to USD 0.5 (INR 35) in select regions for orders below USD 1.37 (INR 98) and USD 0.3 (INR 25) for orders above that limit, the report added.
“This is nothing but business as usual in a marketplace such as ours,” Swiggy told ET. “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.”
The Bengaluru-based company will also focus on advertising on its platform as an additional revenue channel. According to the report, Swiggy has already started charging restaurants on a pay-per-click model for ads they run on its platform, rather than its earlier model of a fixed fee.
Swiggy, which reportedly clocks 1.4 to 1.6 million orders a day at present has been burning cash in discount offers and promotions for the last few years. In fact, according to industry estimates, Swiggy loses USD 0.1 to 0.4 (INR10 to 30) per order. Consequently, the company saw its losses spike six times to USD 333.1 million in the financial year ended March 2019, over a year-ago period, while operating revenues went up 2.5x to USD 159 million in the same time period.
Amidst the high cash-guzzling business of food delivery, Swiggy has been exploring new revenue channels such as its cloud kitchen service, Swiggy Access, and hyper-local delivery services, Swiggy Go and Swiggy Stores. With its decision to hike the commission for eateries and delivery charges, the five-year-old food tech unicorn seems to be taking a leap towards profitability, which its investors are so dearly seeking.
However, given the cut-throat competition in the industry, the move may cost Swiggy dearly, which claims to have a 60% market share. Amazon is reportedly gearing towards launching its own food delivery app to compete with Swiggy, Zomato, and UberEats. According to media reports, Amazon is going to ask restaurants for a commission as low as 6% to 7% compared to 18% to 25% that Swiggy and Zomato charge for their services.
The Indian food tech industry—projected to reach USD 17.02 billion by 2023 from USD 2 billion in 2018—is moving towards consolidation, industry experts believe. In December 2019, ET reported potential merger talks between Zomato and UberEats India, the Indian food delivery arm of American ride-hailing service Uber, with latter making about a USD 100 million investment in exchange for a buyout in the Gurugram-based food tech startup.
At the end of the day, even with Swiggy’s course correction initiatives and increasing focus on being profitable, 2020 may have many more challenges in store for the company.