India's two major food delivery services, Zomato and Swiggy, have increased their platform fee to Rs 6 per order in key markets like Delhi and Bengaluru. The hike marks an increase of about 20 per cent, which customers will have to pay while purchasing food from these platforms. The markets received the news positively, as seen in how Zomato’s shares zoomed 4 per cent on Monday (July 15) to a new high of Rs 232. The firm earlier used to charge Rs 2 as a platform fee per order, and later increased it to Rs 5. What is the platform fee on Zomato and Swiggy, and how does it impact customers? The platform fee is akin to the cost of shopping on these platforms. It is among the few ways companies can directly make money from users. Each time a person orders a food item on Zomato or Swiggy, they are levied this charge. The companies have progressively raised their platform fees to improve their so-called ‘take rates’ – the amount of money they make on every order. It is one of the avenues in the supply chain which is directly under control of the companies, and is a major source of revenue for them. Other sources of revenue include advertising charges and commissions from restaurants. For customers, it simply means more out of pocket expense while delivering from these apps. Why is hiking platform fee important for them? The move comes as both the food delivery giants look to improve their unit economics further and give an overall boost to their revenues and profits. The platform fee also becomes an important tool for these companies, because there is a ceiling till which they can charge commissions from restaurants. Currently, the commission varies from between 25-35 per cent depending on the restaurant, and this has been a major point of contention between them and the food delivery companies. For restaurants, these apps have become a great way for discoverability, but many feel the visibility comes at a big cost. The unit economics of food services already has thin margins, and restaurants feel listing on Zomato and Swiggy could be a double-edged sword – if they are not on the apps, fewer people may purchase food for home delivery, but when they are on the app, they end up paying a large portion of their earnings to these delivery companies. To account for the delivery companies’ high commissions, restaurants, menu on their services often have inflated prices for the same food items, which is why things appear more expensive on these apps than they would be if one were to visit a restaurant and purchase food there.
