Zomato seeks higher commission from restaurants as food delivery business slows
Zomato's battle with restaurant partners is likely to intensify over the next few months as the company doubles down on achieving profitability and increasing food delivery and dining revenues.
Food delivery firmis asking restaurant partners to pay higher commissions as the company navigates a slowdown in the food delivery business and focusses on profitability.
Several restaurant partners across major cities including Mumbai, Delhi, Bengaluru, and Kolkata have received notices from Zomato asking for a 5%-6% increase in commissions over the past week, according to two people aware of the development.
"The company is arm-twisting restaurants saying if they don't accept the higher commission rates it will result in a reduction of delivery radius to under 3 kilometres. Some have also been warned of a compromise in visibility on the platform," said one of the persons quoted above.
Zomato typically charges a 15%-22% commission per order exclusive of payment gateway charges and GST. Swiggy's charges, on the other hand, range between 9%-22% per order depending on the average order value (AOV) with a higher AOV attracting lower commission. Swiggy's structure to command a price depending on the value of the order puts Zomato at a disadvantage, said the source.
"We keep reconsidering our commissions to make sure they are competitive and sustainable for restaurant partners as well as Zomato," a Zomato spokesperson said in response to YourStory's query.
The Economic Times was the first to report on the development.
Pranav Rungta, Mumbai chapter head at the National Restaurants Association of India (NRAI), said that Zomato's move to seek upward revision in commission rates citing rationalisation with other aggregator platforms is "unacceptable" and "irrational".
Zomato's battle with restaurant partners will likely intensify over the next few months as the company doubles down on profitability and increases revenue through food delivery and dining divisions.
"These sort of unilateral increases is unfair trade practices and NRAI vehemently opposes it. However, if Zomato is keen to resolve this impasse and reaches out to us, NRAI will be happy to discuss this with Zomato leadership team," said NRAI's spokesperson.
The National Restaurant Association of India (NRAI), an apex body that represents over five lakh restaurants in India, has been at loggerheads with aggregators including Zomato and Swiggy, challenging the deep discounting practices and masking of data. The body also filed a complaint against the food delivery platforms with the Competition Commission of India (CCI) stating anti-competitive practices.
Last year, YourStory reported that hundreds of restaurants logged out of Swiggy Dineout days after the NRAI voiced concerns about Swiggy's deep discounting tactics.
Zomato is struggling to contain the degrowth in food delivery volumes, with adjusted revenue declining 1.0% in Q3 from the preceding quarter.
“We have seen an industry-wide slowdown in the food delivery business since late October (post the festival of Diwali). This trend has been seen across the country but more so in the top 8 cities,” CFO Akshant Goyal said in its earnings statement.
Edited by Affirunisa Kankudti