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That’s why it costs more to order online on Zomato and Swiggy than to dine in

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  • Zomato has been subject to much criticism after a social media user pointed out that the same food when ordered online from a restaurant costs much more than when ordered offline.
  • A Linkedin user shared photos of two bills from the same restaurant – one generated for an offline order and the other for an online order placed with Zomato.
  • It is common practice for restaurants to increase their prices on Zomato and swiggy to make sure they don’t pay for the commissions.

Zomato has come under fire after a social media user pointed out that the same food, when ordered online from a restaurant, is much higher than when ordered offline. The restaurant aggregator and food delivery company has clarified that it has nothing to do with the prices restaurants offer.

Zomato says his job is limited to presenting the restaurant as an option to order and to facilitate delivery. The additional cost the restaurant charged was for the convenience of a hot meal delivered to the customer.

This is what happened:

A Linkedin user shared photos of two bills from the same restaurant – one generated for an offline order and the other for an online order placed with Zomato. The same dishes were priced differently on both bills. While the offline purchase cost 512 including all taxes, the online food cost the customer 689, after a discount of 75.

LinkedIn

The food was 35% more expensive online.

Why the difference in the bills?

Food delivery companies like Zomato and Swiggy charge a certain commission — usually between 24% and 28% of the order value — from the restaurants that receive the orders. This is only the revenue generated commission for the restaurant partner, excluding costs for enabling delivery.

Zomato and Swiggy charge the restaurants extra for assigning their own delivery partners to fulfill the order, although the delivery costs are also paid by the customers. While some restaurants opt for their own delivery partners, others opt for the option provided by the third-party app.

It’s common for restaurants to raise their prices for third-party apps like Zomato and Swiggy to make sure they don’t pay for the commission. In the past two years, several restaurants have started accepting orders through their own apps and websites in order to save on these commissions and offer their customers better offers.

The food deliverers also charge a certain premium from restaurants for the findability of their restaurants, placement on the app and other promotional activities. These advertising costs are different for each restaurant based on their negotiated terms with Zomato and Swiggy. Such advertising fees are also common on other e-commerce platforms such as Amazon and Flipkart, to promote certain sellers.

“We charge our restaurant partner commissions based on an agreed rate. We will pay the restaurant partner a net amount equal to the cost of the food ordered and the packaging costs, less the commission and any discounts financed by the restaurant. Separately, the restaurant partner can pay us for all advertisements on the platform related to food delivery,” Zomato said in his red herring prospectus, before going public last year.

The issue of discounts

Zomato has shared the details of its business model in its red herring prospectus. The company has two types of discounts: the platform-funded discounts and the restaurant-funded discounts.

The restaurant-funded ones, as the name suggests, are given by the restaurant that took the customer’s order, while the platform-funded discounts are offered by Zomato. Swiggy works on similar lines.

Both platforms received a lot of criticism from restaurant partners in 2019 for their deep discounting practices, forcing these companies to lower their discounts to some degree.

“Once we have been able to build a strong brand presence and reach a large number of satisfied customers in a given market, we are typically in a position to reduce the marketing cost per order… As a percentage of the total income, our advertising and sales promotion expenses decreased from 88.43% in fiscal 2019 to 24.88% in fiscal 2021,” noted Zomato.

And so, as these discounts decrease, the food ordered online becomes more expensive.


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