Zomato doubles down on increasing revenue and achieving profitability in 2023

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Over the last 12 months, food delivery volumes have declined significantly around the world, and the trend is no different in the Indian market. Post-pandemic, consumers in an increasing number have opted for restaurant dining. This, coupled with the slowdown in discretionary spending due to rising inflation, has affected the revenue growth of food delivery platforms in India. As part of their strategy to drive revenue growth, food delivery platforms are adopting different strategic measures.

• Zomato, one of the leading food delivery operators in India, is seeking higher commissions from restaurant partners, several of which have received notices from the firm asking for a 5% to 6% increase in commission in Q1 2023. The revised commission fee is part of the firm’s strategy to achieve profitability, by increasing its food delivery and dining revenues.

Zomato is typically charging 15% to 22% commission per order to restaurant partners. This commission is exclusive of the payment gateway charges and GST. Swiggy, another leading food delivery platform, charges 9% to 22% per order based on the average order value. The commission charged by Swiggy is based on the order value. Higher the order value lower is the commission for restaurant partners. This puts Zomato at a disadvantage, who is charging a flat commission fee to its restaurant partners, regardless of the order value.

Although Zomato is seeking a higher commission, PayNXT360 expects restaurant partners to not accept the changes easily. This might potentially lead to an intense battle between Zomato and its restaurant partners over the next few months in India. In addition to this, Zomato is also nudging its restaurant partners to increase their ad spend on the platform and bear the cost of refunds, in the wake of slowing growth in the food delivery business in India.

Alongside the change in commission rates and refund policies, Zomato is also seeking to boost its presence in other industry verticals to drive its revenue growth from the short to medium-term perspective.

• In March 2023, Blinkit, a Zomato-owned quick commerce platform, announced that the firm is foraying into the home services business vertical. The expansion into the home services segment is part of the firm's strategy to diversify its revenue stream amid the slowdown in the food ordering segment.

The foray into the home services segment will put Blinkit in direct competition with Urban Company, which is backed by Tiger Global. Like its grocery business, Blinkit is expected to adopt the quick commerce model for offering home services to its customers across India. Notably, the firm has not made it clear when it plans to launch the services and whether they will be integrated into the Blinkit app.

Over the next three to four years, Zomato is expected to foray into more business verticals, as part of its strategy to diversify the revenue streams. While Zomato is in the process of renegotiation restaurant commission fees and entering into new business verticals, Swiggy has adopted a different strategy to drive revenue growth in India. Notably, the firm is selling out unprofitable business verticals.

• In March 2023, Swiggy announced that the firm has sold its cloud kitchen business to Kitchens@ in an all-equity transaction. With this share swap deal, Swiggy now holds the majority share in Kitchens@. The move to sell its cloud kitchen business comes at a time when the industry is struggling to keep up with rising costs and unsustainable economics.

Swiggy also closed its meal delivery marketplace in January 2023, after failing to achieve the product market fit. Furthermore, it also reduced the headcount as part of its cost-saving efforts.

While both Zomato and Swiggy have adopted different strategies, these initiatives are focused on achieving profitability in 2023. Over the next 12 months, consumer spending on discretionary purchases is projected to remain subdued in the Indian market, owing to higher inflation and an interest-rate environment. Consequently, PayNXT360 expects Zomato and Swiggy to adopt more measures that are aimed at reducing operational expenses and driving revenue growth from the short to medium-term perspective.

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