Nearly one-third of restaurants using food delivery platforms are considering discontinuing their services due to rising commission fees and decreasing profits. A recent report from the National Council of Applied Economic Research (NCAER) and investment firm Prosus highlights that the average commission per order has increased from 9.6% in 2019 to 24.6% in 2023. The findings indicate that while larger restaurant chains can negotiate lower commissions, smaller establishments are feeling the financial pressure and are increasingly dissatisfied with the current commission structure.
Rising Commission Rates Prompt Restaurant Concerns
The report indicates that 30% of surveyed restaurants are advocating for a reduction in commission fees. As average commissions continue to rise, many smaller restaurants, particularly in Tier-3 cities, are struggling to sustain operations. The study reveals that the share of revenue from food delivery platforms for restaurants has increased from 22.1% to 28.8%. This shift signifies a growing dependency on these platforms despite the financial challenges involved. A notable 35.4% of restaurants expressed a willingness to stop using food delivery services, citing high commissions, inadequate customer service, and insufficient profits as primary reasons for their dissatisfaction.
Comparative Costs of Delivery Options
The report also highlights cost implications for consumers. Meals delivered directly by restaurants tend to be the most expensive option, with an average bill of Rs 332. In comparison, orders placed through food delivery platforms average Rs 302, while dine-in meals are the least expensive at approximately Rs 260. This pricing structure raises questions about the value proposition of food delivery services for both consumers and restaurants. Despite rising costs, many restaurants continue to rely on platforms like Swiggy and Zomato for visibility and access to a wider customer base, even amid ongoing challenges.
Customer Information Sharing and Its Implications
In response to some of the concerns raised by restaurants, Zomato recently announced plans to share customer information with restaurants, contingent upon user consent. This move intends to address privacy concerns while providing restaurants with more valuable customer insights. Currently, 67% of restaurants report that platforms only share basic customer information, such as names, limiting their ability to engage effectively with their clientele. The report suggests that policy changes by one platform could encourage others to follow suit, potentially leading to a more favorable environment for restaurants.
Growth of the Food Delivery Sector
Despite the challenges highlighted in the report, the food delivery sector has seen significant growth. A separate NCAER report indicates that the gross value of output in this sector nearly doubled, rising from approximately Rs 61,000 crore in 2021-22 to around Rs 1.2 lakh crore in 2023-24. While this growth is remarkable, the sector still constitutes a small fraction of the overall economy. As the food delivery landscape continues to evolve, the balance between profitability for restaurants and the operational viability of delivery platforms remains a critical issue for industry stakeholders.
Digihunt is not a financial advisor and this is not investment advice.