Swiggy, one of India’s leading food delivery platforms, has introduced a “platform fee” of Rs 2 per order for all users, regardless of cart value. The move is an attempt to control costs amid a slowdown in the food delivery business.
Swiggy delivers over 1.5 million orders daily, and analysts believe that the small fee will create a substantial corpus for the company to reinvest back into the business. The fee has been introduced in phases over the past week and is currently only being levied on food orders in select cities.
The Reason Behind Swiggy’s Move
Swiggy CEO and co-founder, Sriharsha Majety, said that the growth rate for food delivery had slowed down versus the company’s projections, along with many other peer companies globally. The email mentioned that the company had to slash 380 jobs due to the slowdown.
Swiggy’s rival, Zomato, has also acknowledged the industry-wide slowdown, which hit after Diwali, around October. This trend has been seen across the country but more so in the top eight cities, according to Zomato’s CFO, Akshant Goyal.
Benefits of the Platform Fee
Despite Swiggy’s larger revenues of around Rs 5,700 crore compared to Zomato’s over Rs 4,100 crore, Swiggy had burned around Rs 3,900 crore in FY22 compared to Zomato’s cash burn of Rs 700 crore. By introducing a nominal flat fee on food orders, Swiggy can lower its cash burn, which is currently a lot more than what Zomato is burning.
HSBC analysts note that the introduction of additional fees will likely help Swiggy secure its long-term position and fast-track its profitability timelines. Zomato has not introduced any platform fees yet.
Swiggy’s Future Market Share
Swiggy’s market share has reduced from 57% to 44% since FY20, with Zomato gaining 13% in market share from Swiggy during the same period, according to HSBC analysts. By the end of Q4FY23, Zomato’s market share had reached 56%, while Swiggy’s market share stood at 44%, thanks to Zomato’s loyalty program, Gold.
The analysts predict that by the end of the current fiscal, Zomato’s market share will increase to 57%, while Swiggy’s will reduce to 43%. However, the market share oscillates between the two players, who control about 95% of the food delivery market.
Swiggy’s Response
According to a spokesperson for Swiggy, the platform fee is a nominal flat fee charged on food orders to help the company operate and improve its platform and enhance app features to deliver a seamless app experience. The additional charges are likely to be extended to other regions soon.
In conclusion, Swiggy’s introduction of a platform fee is a cost-cutting measure amid a slowdown in the food delivery business. The nominal flat fee of Rs 2 per order will create a substantial corpus for the company to reinvest back into its business.
Swiggy’s market share has reduced from 57% to 44% since FY20, with Zomato gaining 13% in market share during the same period. However, the market share oscillates between the two players, who control about 95% of the food delivery market.
The introduction of additional fees will likely help Swiggy secure its long-term position and fast-track its profitability timelines.
