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Food Aggregators face cut fee demand

Ishleen August 15, 2020 3 min read
Currently, restaurants have an uneven income graph and hence, they have started a negotiation with various food aggregators to cut down the commission rates. The various food aggregators like Zomato, Swiggy, UberEats charge 25-25% commission on the order amount in order to generate income for themselves.

Food aggregators like Zomato, Swiggy, UberEats, and many others usually charge 25-35% commission on order amounts in order to generate income. Over the last few months, the two players controlling the market, Zomato and Swiggy, increased delivery cost, and cut discounts. These, along with some other factors, led to a decrease in the number of orders. 

Food aggregators like Zomato and Swiggy have become the new backbone for all functioning restaurants. The rates of the commission also vary. But as the lockdown situation is continuing the restaurants are coming to realize that all their sales are backed up by these food aggregators. And hence, in order to lower the commission rates, they initiated a conversation with the food aggregators quite recently. 

Need for decreasing the commission rates 

In the pre-COVID scenario, the restaurants initially made an effort to lower the commission rates. But this effort didn’t pull through. During that time the restaurants had more undisturbed sources of income through the orders by dine-in customers. But in the post-COVID scenario, they are becoming increasingly aware that all sales are made through these food-tech firms. This realization stems from their need for lower commission rates.

The COVID situation already crippled profits the profits of restaurants. Furthermore, if the restaurants want to stay open they would either have to spike their menu rates or negotiate with the aggregators to reduce the commission. Spiking menu rates would be a suicide option because in the current scenario everyone’s pockets are on the strain. So negotiating with the aggregators seems to be the only feasible survival option here. 

“Online food aggregators should reduce commissions for businesses to become viable for the long-term. Otherwise, nothing will happen and restaurants will shut down. They have become more important now. All our business is largely based on delivery, while previously, it was all about dine-in and the delivery component was small,” said Rohit Aggarwal, Director, Lite Bite Foods Pvt. Ltd.

“Several restaurants are in talks to lower commissions”, said Thomas Fenn, owner of Mahabelly restaurant and is a member of the managing committee of the National Restaurant Association of India (NRAI).

Response from the Food Aggregators

This straining situation continues with no positive responses for the request. And so, the industry body is expected to make a formal recommendation to online food ordering platforms as restaurants try and preserve cash during this time of uncertainty. 

“On a multiple outlet level, it is something all restaurants are asking for right now. However, the needle hasn’t moved at all as the market was down,” said Fenn.

Replying to this issue, a Zomato spokesperson said they believe that commissions are in line with the value it delivers and the cost its incurs. It has been working closely with restaurant partners to implement initiatives such as Zomato Gold Support Fund. These initiatives actually improve cash flows and help them in these difficult times, the spokesperson said.

Online food platforms Zomato and Swiggy even launched advertising campaigns along with some offers. These aimed at convincing customers to start ordering again. In fact, the order volume decreased by 60-70% during the lockdown period. In an attempt to increase the order volume again, restaurants now negotiating with the Food Aggregators to cut down order amounts. This will further encourage people to order again. Apart from this, Zomato is also working towards promoting food safety through TV ads. It even partnered with ITC Hotels for promoting food hygiene. 

Read more: Zomato and Swiggy renegotiating Exclusivity Contracts  

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