One in Three Restaurants Seeks to Leave Delivery Apps, According to Report
Nearly one-third of restaurants utilizing food delivery platforms are considering discontinuing their services due to escalating commission fees and diminishing profits. A recent report from the National Council of Applied Economic Research (NCAER) and investment firm Prosus highlights that the average commission charged per order has surged from 9.6% in 2019 to 24.6% in 2023. The findings reveal that while larger restaurant chains can negotiate lower commissions, smaller establishments are feeling the financial strain and are increasingly dissatisfied with the current commission structure.
Rising Commission Rates Prompt Restaurant Concerns
The report indicates that 30% of surveyed restaurants are advocating for a reduction in commission fees. As the average commission continues to rise, many smaller restaurants, particularly those in Tier-3 cities, are finding it increasingly difficult to sustain their operations. The study reveals that the share of revenue from food delivery platforms for restaurants has increased from 22.1% to 28.8%. This shift underscores the growing reliance on these platforms, despite the financial challenges they pose. A significant 35.4% of restaurants expressed a willingness to cease using food delivery services, citing high commissions, inadequate customer service, and insufficient profits as primary reasons for their discontent.
Comparative Costs of Delivery Options
The report also sheds light on the cost implications for consumers. It found that meals delivered directly by restaurants tend to be the most expensive option, with an average bill of Rs 332. In contrast, orders placed through food delivery platforms average Rs 302, while dine-in meals are the least expensive at approximately Rs 260. This pricing structure raises questions about the value proposition of food delivery services for both consumers and restaurants. As restaurants grapple with rising costs, many continue to rely on platforms like Swiggy and Zomato for visibility and access to a broader customer base, despite the challenges they face.
Customer Information Sharing and Its Implications
In an effort to address some of the concerns raised by restaurants, Zomato recently announced plans to share customer information with restaurants, contingent upon user consent. This move aims to alleviate privacy concerns while providing restaurants with more valuable customer insights. Currently, 67% of restaurants report that platforms only share basic customer information, such as names, limiting their ability to engage effectively with their clientele. The report suggests that changes in policy by one platform could encourage others to follow suit, potentially leading to a more favorable environment for restaurants.
Growth of the Food Delivery Sector
Despite the challenges highlighted in the report, the food delivery sector has experienced significant growth. A separate NCAER report indicates that the gross value of output in this sector nearly doubled, rising from approximately Rs 61,000 crore in 2021-22 to around Rs 1.2 lakh crore in 2023-24. While this growth is notable, the sector still represents a small fraction of the overall economy. As the landscape of food delivery continues to evolve, the balance between profitability for restaurants and the operational viability of delivery platforms remains a critical issue for stakeholders in the industry.
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