Zomatohas been subjected to a lot of criticism after a social media user pointed out that the same food when ordered online from a restaurant cost much more than when it was ordered offline.
- A Linkedin user shared photos of two bills of the same restaurant — one generated for an offline order and the other for an online order placed from Zomato.
- It is a common practice for restaurants to increase their prices on Zomato and
Swiggyto ensure that they are not paying for the commissions.
Zomato has come under a lot of fire after a social media user pointed out that the same food, when ordered online from a restaurant, cost much higher than when it was ordered offline. The restaurant aggregator and food delivery company has clarified that it has nothing to do with the prices offered by restaurants.
Zomato says its job is limited to presenting the restaurant as an option to order from and enabling delivery. The additional price being charged by the restaurant was for the convenience of a warm meal delivered at the customer’s doorstep.
Here’s 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 from Zomato. The same dishes were priced differently on both the bills. While the offline purchase cost ₹512 including all taxes, the online food cost the customer ₹689, after a ₹75 discount.
The food was 35% more expensive online.
Why the difference in the bills?
Food delivery businesses like Zomato and Swiggy charge a certain commission — usually ranging between 24%-28% of the order value — from the restaurants that are receiving the orders. This is just the commission for generating business for the restaurant partner, and excludes charges for enabling delivery.
Zomato and Swiggy charge the restaurants extra for allocating their own delivery partners to fulfill the order, although the delivery charges are also paid by the customers. While some restaurants opt for their own delivery partners, others choose to go with the option provided by the third-party app.
It is a common practice for restaurants to increase their prices on third-party apps like Zomato and Swiggy to ensure they do not pay for the commission. Over the last two years, several restaurants have started accepting orders through their own apps and websites to save on these commissions and provide better offers to their customers.
The food delivery companies also charge a certain premium from restaurants for discoverability of their restaurants, placement on the app and other promotional activities. This advertising cost is different for each restaurant based on their negotiated terms with Zomato and Swiggy. Such advertisement charges are also common on other e-commerce platforms like Amazon and Flipkart, to promote certain sellers.
“We charge our restaurant partner commissions based on an agreed-upon rate. We remit to the restaurant partner a net amount equal to the cost of food ordered and packaging charges, less the commission and any restaurant-funded discounts. Separately, the restaurant partner may pay us for any food delivery- related advertisement on the platform,” Zomato had said in its red herring prospectus, before going public last year.
The issue of discounts
Zomato has shared the nitty-gritties 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 has taken the order from the customer while the platform-funded discounts are offered by Zomato. Swiggy works on similar lines.
Both these platforms faced a lot of criticism from restaurant partners back in 2019 for their deep discounting practices, which forced these companies to decrease their discounts to an extent.
“Once we have been able to establish a robust brand presence and achieve a high share of satisfied customers in a particular market, we are typically in a position to decrease marketing expenses on a per-order basis… As a percentage of total income, our advertisement and sales promotion expenses decreased from 88.43% in fiscal 2019 to 24.88% in fiscal 2021,” Zomato noted.
And thus, as these discounts reduce, the food ordered online gets more expensive.
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