Online food delivery app Swiggy is now charging more commission from restaurants in selected regions where its service is nearing maturity and pushing partners to advertise more on its platforms.
Next time when you order something from Swiggy make sure you notice delivery fees they charge. Swiggy is said to raise commissions in order to cover up their losses with an aim to reduce their cash burn.
However, in upcoming cities and areas where they don’t have too many restaurants, they continue to charge lower fees from restaurants as well as from customers.
While Zomato is in talks to buy UberEats, the online food delivery market gets even more competitive for Swiggy. In fact, UberEats is planning to invest $100 million in Zomato in exchange for later buying out the firm’s India food delivery operations.
Swiggy deals with restaurants on an 11-month contract and when the contract is about to lapse, they increase commissions. Swiggy now charges somewhere between 18-23% of total order value while previously it was charging somewhere between 12-18%.
When the case was highlighted in media, Swiggy’s officials commented that commissions are not based on category or market maturity/geography. Commissions are based on individual hotel level, average order value, and delivery cost.
As of now, Swiggy generated approx. 60% of its total revenue from online food delivery business but they are planning to generate 30% of its overall revenue from other sources.
To achieve this figure, Swiggy asked restaurants to advertise more on its platforms and charge them on a pay-per-click basis. They are also entering into other verticals to make sure that they generate revenue from other verticals.
Swiggy’s close competitor Zomato was able to reduce its cash burn more than half, from $45 million to $20 million a month. To improve their monetization and reduce cash burn Swiggy has increased its delivery fee to INR 35/- in selected regions for orders below INR 98/- and INR 25/- for orders below than that.
As the business gets competitive, everyone wants to generate more cash and burn at least of it. Swiggy’s move to increase commissions seems natural. Now that they have nation-wide presence and customer base, they are ready to experiment by charging more fees (than what they were charging previously).
It’s not only with Swiggy or online food delivery business. In almost every market we have observed that once a new entrant is well established with a good customer base, they tend to increase their prices.
All we have to see is how customers welcome this new price hike by Swiggy. Whether they are comfortable paying more fees or they switch to other apps.
Let’s just hope that Swiggy’s aim to reduce cash burn by charging more fees from its customers does not backfire them and their market share is not eaten by its competitors.