Home / Companies / Start-ups /  Swiggy tries out surge pricing model

Bengaluru: Following in the footsteps of ride-hailing services Ola and Uber, food delivery start-up Swiggy is experimenting with surge pricing.

The food delivery firm is testing a new model in Bengaluru and Hyderabad, charging a delivery fee of 20 for orders placed on holidays, festivals and rainy days when fewer delivery staff are available. The fee will be passed on to the delivery staff, providing them an incentive to work on such days.

However, surge prices for ride-hailing services vary depending on supply and demand, while Swiggy charges a flat fee. Customers using the services of Uber Inc. and Ola (ANI Technologies Pvt. Ltd) have to pay multiples of the basic fare when demand for cabs outstrips supply in a certain area.

Swiggy said the practice will soon be extended to all cities it operates in: Delhi, Gurgaon, Mumbai, Pune, Kolkata, Chennai, Bengaluru and Hyderabad.

“It (surge) would be applicable on selective occasions like select national holidays, festivals and during days of excessive rains to incentivise the delivery executives. The surge fee received is passed on to the delivery executives," a company spokesperson said in an email response to queries.

This is not the first time that Swiggy is levying a delivery fee on consumers who are used to free delivery. In October last year, the company increased the minimum order value for free delivery from 150 to 250, with a delivery fee of 30 in a bid to cut losses and build a viable business model.

To be sure, Swiggy’s peers in the US such as Postmates and DoorDash charge a fee of $3-7 for each delivery. According to industry experts, the average order value in the US is around $20, significantly more than the average 300 in India. Consequently, delivery companies in India, which charge clients a commission of 10-20% of the order value, end up losing money on every delivery that costs upwards of 50.

An additional delivery fee, which is the norm in the US, will consequently help firms cover the delivery cost as well as add to the their bottom line, at a time when investors have slowed down investments, compelling start-ups to shift their focus from splurging on customer acquisition to unit economics and profitability.

Swiggy, however, maintained that the additional fee is passed on to the delivery personnel and does not add to the company’s revenue. “This is not a source of revenue for Swiggy. Surge will not add to the Swiggy bottom line. It acts as mechanism for enabling additional deliveries. Additionally, this is an incentive for the delivery executives," the spokesperson added.

Swiggy, owned by Bundl Technologies Pvt. Ltd, has so far raised at least 340 crore from Accel Partners, SAIF Partners and Norwest Venture Partners, among others.

The company competes with Zomato Media Pvt. Ltd, which entered the food delivery business in April last year. In an interview with Mint in December, Zomato co-founder Deepinder Goyal said it will invest $40 million in food-ordering over the next six months to capture a dominant share of the market in India and the UAE.

With Foodpanda India being forced to cut spending on discounts and advertising by its parent company and Tinyowl Technology Pvt. Ltd struggling to raise fresh capital, Swiggy and Zomato have pulled away from the rest of the pack.

A Foodpanda spokesperson said in an email response that it does not levy a surge fee, but charges a regular delivery fee for orders fulfilled through its own logistics fleet. An email sent to Zomato did not elicit a response.

Swiggy is also planning to set up kitchens jointly with restaurants as it looks for higher revenues. These kitchens will function as production units without dine-in facilities and cater to demand generated on Swiggy from surrounding localities, Mint reported on 2 December.

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