 "Swiggy")
Food aggregator platform Swiggy is now charging users a ‘platform fee’ of Rs 2, regardless of the order size, as it looks to put a leash on its expenses. This fee is currently being levied on users from Bengaluru and Hyderabad and is likely to be extended to other regions soon.
Rolled out in phases over last week, the fee is applicable only on food delivery orders at the moment and not on orders on Instamart – the company’s quick commerce arm. It will also be levied on members of Swiggy One - the company’s subscription offering where subscribers do not have to pay delivery fee.
“The platform fee is a nominal flat fee, charged on food orders. This fee helps us operate and improve our platform and enhance app features to deliver a seamless app experience,” said a spokesperson of Swiggy.
On the contrary, Swiggy’s chief rival Zomato has not introduced any such fee. The firm does have an optional Rs 2 charge, where users can donate to its ‘Feeding India’ program, a non-profit initiative to combat malnutrition in India.
Sources close to the company, however, said that Zomato is keeping a close watch on the customer reception to Swiggy’s platform fee.
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The Bengaluru-based decacorn has reportedly advanced its timeline for achieving profitability on its food delivery and quick commerce businesses. The new platform fee is likely an avenue for the company to generate some additional cash corpus as it looks to rein in its expenses. A Decacorn is a company valued over $10 billion.
According to analysts at HSBC, Swiggy’s cash burn in financial year 2021-22 (FY22) stood at Rs 3,900 crore compared to its rival Zomato – whose cash burn amount was recorded at Rs 700 crore during the same period.
Zomato has gained around 13 per cent vis à vis market share since FY22 to reach a settled duopoly with Swiggy. As of the fourth quarter of financial year 2022-23 (Q4FY23), the Gurugram-based firm is now the top dog in the segment, with a 56 per cent market share, as opposed to Swiggy’s 44 per cent -- on the back of its new Zomato Gold loyalty program, HSBC said in a note last month.
Analysts expect this gap to widen further by the end of the next financial year, with Zomato’s market share hitting 57 per cent while they see Swiggy’s share dipping to 43 per cent.
Through this modest charge of Rs 2, Swiggy who delivers more than 1.5 million orders per day, stands to accumulate a sizeable amount which it aims to redirect to its core business.
This development comes at a time when the firm is undertaking retrenchments as it eyes a public listing. The food aggregator had laid off 380 employees from its workforce of 6000 in January, citing challenging macroeconomic conditions and a slowdown in the growth of its food delivery business.
Chief executive officer Sriharsha Majety, had, in an email to employees, stated that their food delivery business had grown slower compared to projections, forcing the company to “revisit our overall indirect costs to hit our profitability goals.”
Besides the layoffs the company had also shut down its meat marketplace as it failed to achieve a proper “product fit.” Two months later, in March, Swiggy also sold its cloud kitchen business, Swiggy Access, to Kitchens@ in a share-swap deal, through which it rented out kitchen spaces to restaurants.
In its results for the previous financial year Swiggy had reported that its losses had widened 2.24 times to Rs 3,628.9 crore in FY22 from Rs 1,616.9 crore in FY21, fuelled by a 227 per cent rise in costs.
Expenses came in at Rs 9,748.7 crore in FY22, compared to Rs 4,292.8 crore the year before. This came even as Swiggy raked in a revenue of Rs 5,704.9 crore -- a little over the two-fold jump from the previous financial year.
During the same period, Zomato’s revenue came in at Rs 4,109 while its losses stood at Rs 1,098.
The food delivery industry, which analysts say, is currently at a nascent stage in India, has a long road to show growth. The industry is projected to grow at a compound annual growth rate of 19 per cent over financial year 2023-25 (FY23-25) – compared to growth slowing in other markets – fuelled by an increase in the number of transactions and frequency of orders.
