New Delhi : Citing higher costs from commissions and promotions, restaurants have started charging consumers the highest 60% premium on food delivery apps Zomato and Swiggy – on average about 10% higher than the prices listed on menus in their stores, According to a report by Jefferies.
Jefferies said in a note, “Profitability focus has prompted food-tech companies such as Zomato and Swiggy to increase take-rate (take-out fee), which in turn has prompted restaurants on different pricing- Packing and delivery charges remain on the up and up.” on Wednesday.
The brokerage surveyed 80 restaurants in the top eight cities, comparing their prices online and offline. In total, it made 240 orders from 120-2,800 per order and selected a mix of quick service restaurants (QSR), full service, cafes, ice cream parlors etc.
An estimated 80% of the restaurants surveyed followed differential pricing which was higher for online orders.
“At food delivery platforms, in 80% of the restaurants we have set menu pricing which is higher than the printed menu price for dine-in. More than half of these restaurants charge a premium of less than 10%, with the average being 10-11%. However, about 20% of them charge a premium that exceeds 30% for printed (online) menu pricing; We also saw a few instances of premium being more than 40% (higher than 60%),” he said.
However, such a pricing strategy was largely followed on selected items and not the entire menu. Analysts said, “Industry interactions indicate that some of the larger restaurants are doing this to enable differentiated pricing for aggregators with a consideration of different products (for example delivery of a plate of idli). consists of two pieces and three in the dine-in).” The premiums charged by the branded QSR are as follows: Subway 10-15%, KFC 10%, Pizza Hut 5-6% and Domino’s 4%.
To be sure, some outlets, especially ice cream parlors, price products less than dine-in, he said.
Aggregator restaurants earn revenue from commission rates, ad-sales and customer delivery fees. The cost includes discounts and other variables.
Take-out charges are the commissions that restaurants pay to aggregators like Swiggy and Zomato to enable delivery orders through their online ordering service. Aggregators work for restaurants with a variable commission rate.
However, there has been pressure on aggregators to ensure healthy profitability. In its June quarter earnings, Zomato’s top management said that it is targeting to reach the adjusted Ebitda breakeven by the fourth quarter of this financial year.
About half of the restaurants also charge a packing fee, which is 4-5% of the bill. In addition, the platform also charges customers a delivery fee, which again takes an estimated 13% of the total cost. “Put together, delivery orders cost an average of 27-28% more before discounts,” analysts said.
“While platforms may not affect the premium charged by a restaurant, a significant mark-up can result in customer dissatisfaction and even restrict self-delivery by restaurants for hyper-local delivery platforms. The enabling opportunity may also open up, although it seems like a remote possibility given the strong brand recall for the two incumbents at this stage,” he said.
Jefferies suggests that the platforms offer an average discount of 11%. “This brings net premium versus menu pricing to 17% — certainly, as discounts decrease, with a focus on profitability, the gap is likely to narrow.”
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