Zomato Hikes Platform Fees: How Does Zomato’s Path of Profitability Look Like?

Zomato is an online food delivery platform which provides services like food delivery, loyalty programs and dine-out. They also launched their first international subsidiary in Dubai in 2012 and are now spread across 24 countries, some direct and others indirect. The company in the past 3 years has shown a good revenue growth of 26.30%.

Path to Profitability

Platform fees are considered a fundamental component of the company’s strategies to increase profitability and yet, sustain its business model. The usage can vary based on various factors such as competition, market conditions and evolving needs of consumers and businesses. A platform fee is imposed on top of the delivery charges, even premium membership does not discount it. Additionally, to focus on profitability going ahead, Zomato has closed down its inter-city services called Zomato-intercity Legends and has introduced an all-electric “large order fleet” catering to large orders for up to 50 people in one go.

Surge in Platform fee 

Starting from 20th April, Zomato has hiked its platform fees to Rs.5, around 25% which was Rs.2 till August 2023 and Rs.3 till January 2024 and Rs.4 thereafter. So, we can see that the platform fee has more than doubled in the past few months. After the fee structure started changing last year, its quarterly profits showed significant growth of Rs.36 crore in the September quarter to Rs.138 crore in the October-December period. Moreover,  the company’s operating revenue jumped to Rs.3,288 Cr in Q3 FY24 from Rs.2,848 Cr in Q2 FY24. The market sentiment looks positive for the investors after the news broke as the Zomato shares opened at Rs.193.00, representing a 2% increase from the previous day’s closing price of Rs.189.20. 

Conclusion: Zomato’s decision to increase the platform fee in key markets like  Bengaluru, Delhi, Mumbai, Lucknow and Hyderabad indicates a strategic move aimed at boosting its earnings. With a reported daily order volume of 2.0-2.2 million, even a modest increase of Rs.1 per order can potentially add to revenue. With the increase in order volumes and expansion across several cities in the country and overseas, Zomato looks set to report another amazing quarter. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.