Swiggy and Zomato Hike Platform Fees Ahead of Festive Rush
Swiggy and Zomato Hike Platform Fees Ahead of Festive Rush
Swiggy bumps its per-order fee to ₹15, with Zomato following with a 20% rise to ₹12, potentially adding crores daily during peak season. The shift aims at margins, while shoppers and partners brace for higher costs.
Platform fee increases are being used by food delivery services to increase profits during the holiday season. Swiggy has increased its fee to ₹15 per order, which is the steepest increase in recent memory. Zomato has also increased its fee by 20% to ₹12.
Swiggy made the change today after briefly rising to ₹14 on Independence Day and then falling back to ₹12. The new rate could bring in up to ₹3 crore every day, given that the current order volumes are estimated to be over 2 million per day. If maintained, that equates to an additional ₹54 crore per quarter, or ₹216 crore annually.
Usually, both businesses test out higher fees during periods of high demand before implementing them in other markets.
Since last year, the practice of increasing platform fees before the holiday season and keeping the higher rate afterward has been followed. Karan Taurani, senior vice-president at Elara Securities, stated,
"It helps shore up margins without touching customer discounts or delivery partner payouts."
Swiggy's earlier price increase was followed by Zomato's increase to ₹12 per order. The charge has increased sixfold since it was first introduced, with the most recent increase occurring in 2023, when the company raised fees from ₹6 to ₹10. Taurani claims that "Zomato sees a 22 basis point positive impact on take rates for every rupee of platform fee, and approximately ₹1,100 crore in adjusted EBITDA gains on a five- to six-year basis." However, the short-term gain will be minimal because the fee is first being tested in 40% of markets.
The two players' margins are still different. Zomato's food delivery EBITDA margin was 4.2% as of Q1, 180 basis points higher than Swiggy's. Elara anticipates that these fee increases will help Zomato's adjusted margins grow by 120 basis points to 5.1% between FY25 and FY28. After FY28, margins may surpass 5% if take rates continue to rise.
"We maintain a Buy rating on Zomato with a target price of ₹340, while Swiggy is rated Accumulate with a target of ₹450 per share," Taurani continued.
The two competitors are using fee increases as a tool to increase profitability as order volumes are expected to soar during the holiday season. This may indicate that higher customer fees are here to stay.
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