In a significant move, Zomato, a leading online food delivery platform, has announced an increase in its platform fee, raising it to ₹4 per order across key markets. This change, effective from January 1, 2024, represents a 33% hike from the previous fee of ₹3. The decision follows a series of fee adjustments that began in August 2023, when Zomato first introduced a standardised flat platform fee of ₹2 per order.
The hike in the platform fee coincides with a record number of food orders and bookings experienced by Zomato on New Year’s Eve. CEO Deepinder Goyal highlighted this surge in orders, noting that the volume on New Year’s Eve 2023 matched the combined total of the past six years (from 2015 to 2020). This exceptional demand even led to a temporary increase in the platform fee to ₹9 per order in select markets during the New Year’s Eve rush.
This step towards increasing the platform fee is part of Zomato’s broader strategy to enhance profitability. Apart from ad revenue and delivery charges, the platform fee serves as an additional revenue stream for the company. Analysts estimate that this increase could positively impact Zomato’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by approximately ₹85-90 crore annually.
However, there are concerns that the constant rise in delivery and platform fees might impact the growth rates of order volumes. Monitoring the potential effects of these increases on consumer behavior and order frequency will be crucial.
The implementation of the platform fee is also a part of Zomato’s financial strategy, as indicated in their quarterly results. For the quarter ending in September 2023, Zomato reported a profit after tax of ₹36 crore, with a significant revenue surge, thanks in part to the introduction of the platform fee. The company has also seen improvements in its ‘take rate’ – the percentage of revenue generated per food delivery order.
Despite these financial positives, Zomato faces challenges, including notices from tax authorities in Delhi and Karnataka over alleged short payment of goods and services tax amounting to ₹4.2 crore. Zomato has expressed intentions to appeal against these tax demand notices.
In summary, Zomato’s decision to hike the platform fee reflects its ongoing efforts to solidify its financial footing and capitalize on its market presence. However, the company must balance these objectives with maintaining customer loyalty and addressing regulatory challenges.