Restaurants raise costs by 10% on Swiggy, Zomato; citing costs

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NEW DELHI: According to a survey by Jefferies, eateries have started charging customers an average of 10% more than the prices posted on menus in their physical locations—the greatest premium being a 60% premium—on food delivery apps Zomato and Swiggy.

“Due to a focus on profitability, food-tech businesses like Zomato and Swiggy have increased take rates (take-out charges), which has led eateries to implement differential pricing—packing and delivery costs are still in addition to take-out prices.,” on Wednesday, Jefferies stated in a note.

“80% of the establishments we looked at have menu pricing that is greater than the printed menu price for dine-in on meal delivery services. With a typical price of 10–11%, more than half of these restaurants impose a surcharge that is less than 10%. However, more than 20% of them add a premium of more than 30% to the printed (online) menu prices; in a few cases, the premium was over 40% (the highest was over 60%),” they said.

However, this pricing method was mostly used on a small number of menu items, not the full selection. According to industry exchanges, some larger restaurants are experimenting with offering various products to aggregators to permit differential pricing (for instance, one plate of idli has two pieces for delivery but three for dine-in), according to analysts. The following branded QSRs charge a premium: Subway 15%, KFC 10%, Pizza Hut 5%, and Dominos 4%.

Restaurant commission fees, ad sales, and customer delivery fees are the sources of income for aggregators. Discounts and other factors are included in costs.

Take-out fees are commissions that restaurants give to aggregators like Swiggy and Zomato in exchange for allowing delivery orders through their websites. Restaurant aggregators employ a flexible commission structure.

Aggregators have been under pressure to maintain a good profit margin, nevertheless. Zomato’s top management stated in its June quarter earnings that it aims to achieve adjusted Ebitda breakeven by Q4 of the current fiscal year.

Additionally, packing fees are charged by almost half of the eateries and range from 4 to 5% of the total. Customers are additionally charged a shipping fee by the platforms, which increases the whole cost by an additional 13%. Together, the price of a delivery order before reductions is, on average, about 27–28% more expensive than the menu pricing, according to the experts.

“While platforms cannot affect the premium a restaurant charges, a high markup may cause customers to become dissatisfied and even present a chance for a hyper-local delivery platform to enable restaurant own-deliveries, though this seems like a remote possibility at this time given the two incumbents’ strong brand recognition,” they said.

Platforms reportedly give 11% average discounts, according to Jefferies. “This reduces net premium vs. menu pricing to 17%—of course, as discounts dwindle and with a greater focus on profitability, the difference is likely to close.”

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