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Business News/ Companies / Start-ups/  Restaurants  jack up  prices  on  Swiggy,  Zomato  by  an average 10%,  citing  costs
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Restaurants  jack up  prices  on  Swiggy,  Zomato  by  an average 10%,  citing  costs

An estimated 80% of the restaurants in the survey followed differential pricing that was higher for online orders

Aggregators earn revenue from restaurant commission rates, ad-sales and customer delivery charges.  (Photo: HT)Premium
Aggregators earn revenue from restaurant commission rates, ad-sales and customer delivery charges.  (Photo: HT)

NEW DELHI : Citing higher costs from commissions and promotions, restaurants have begun charging consumers an average of around 10% more—the highest was a 60% premium—on food delivery apps Zomato and Swiggy than the prices listed on menus in their stores, according to a report by Jefferies.

“Profitability focus has pushed food-tech companies such as Zomato and Swiggy to raise take rates (take-out charges), which in turn has prompted restaurants on differential pricing—packing and delivery charges remain over and above," Jefferies said in a note on Wednesday.

The brokerage surveyed 80 restaurants across the top eight cities, comparing their online and offline prices. In all, it created 240 orders ranging from 120-2,800 per order and selected a mix of quick service restaurants (QSRs), full service, cafes, ice-cream parlours, etc.

An estimated 80% of restaurants it surveyed followed differential pricing that was higher for online orders.

“On food delivery platforms, 80% of the restaurants we looked at have menu pricing that is higher than the printed menu price for dine-in. More than half of these restaurants charge a premium that is less than 10%, with median at 10-11%. However, nearly 20% of them charge a premium that is in excess of 30% to the printed (online) menu pricing; we also saw a few instances of premium being over 40% (highest at over 60%)," they said.

However, such pricing strategy was followed largely on selected items and not the entire menu. “Industry interactions indicate some larger restaurants toying with the idea of different products for aggregators to enable differential pricing (e.g. one plate of idli has two pieces in delivery versus three in dine-in)," analysts said. The premium charged by branded QSRs is as follows: Subway 10-15%, KFC 10%, Pizza Hut 5-6% and Dominos 4%.

To be sure, some outlets, especially ice cream parlours, price products lower than dine-in, they said.

Aggregators earn revenue from restaurant commission rates, ad-sales and customer delivery charges. Costs include discounts and other variables.

Take-out charges are the commissions that restaurants pay aggregators such as Swiggy and Zomato for enabling delivery orders through their online ordering service. Aggregators work with a variable commission rate for restaurants.

However, there has been pressure on aggregators to ensure healthy profitability. In its June quarter earnings, Zomato’s top management said it is targeting to reach adjusted Ebitda breakeven by Q4 of this fiscal year.

Nearly half the restaurants also levy packing charges, which amount to 4-5% of the bill. In addition, the platforms also charge a delivery fee to customers, which again takes up the overall cost by an estimated 13%. “Put together, the cost of a delivery order before discounts is, on average, some 27-28% higher versus menu price," the analysts said.

“While platforms cannot influence the premium charged by a restaurant, a significant mark-up may result in customer dissatisfaction and even open up an opportunity for a hyper-local delivery platform to enable own-deliveries by restaurants, although this seems like a remote possibility at this stage given the strong brand recall for the two incumbents," they said.

Jefferies suggest platforms offer average discounts of 11%. “This brings down net premium vs menu pricing to 17%—of course, as discounts recede, with increasing profitability focus, the gap is likely to shrink."

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 26 Aug 2022, 01:00 AM IST
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