The Profitability of Delivery Apps: Insights from Swiggy, Uber Eats, and Zomato

Delivery apps like Swiggy, Uber Eats, and Zomato have revolutionized the way we consume food. However, their ability to sustain in the market and earn profits despite offering generous discounts is a topic of intense scrutiny. In this article, we will explore the business strategies, challenges, and financial models of these apps, and analyze the impact on both customers and small food businesses.

Introduction to Delivery Apps

Swiggy, Uber Eats, and Zomato have disrupted traditional restaurant dining experiences by offering convenient and efficient delivery services to customers. While these apps provide low-intensity browsing, high-intensity buying, they have also sparked a new era of competition and innovation in the food service industry.

Investment in Discounts and Consumer Behavior

These apps are aggressive in their promotional strategies, often giving substantial discounts to attract new customers. The primary goal is to build a customer base that will eventually continue to use their services without discounts. The strategy relies on the concept of price elasticity, where a reduction in price may lead to an increase in customer demand, which can also translate into increased profits.

However, the profitability of these apps is not just about discounts. Swiggy and Uber Eats, for instance, charge significant commissions on each order. For a restaurant ordering worth Rs. 500, the apps can earn approximately Rs. 110 to Rs. 150 in commission, depending on the merchant. This income stream provides a substantial financial cushion, even when discounts are offered.

Another cost that online food delivery apps impose is delivery fees, which vary based on the distance covered by the delivery person. Additionally, these apps often charge merchants for advertisements to ensure their restaurants remain visible on the platform.

Impact on Restaurant Owners and Consumers

Small restaurant owners face the dual burden of high commissions and discounts. For instance, when a restaurant is featured on Zomato, the bulk of the financial burden is placed on the restaurant owners. Zomato, which claims not to pay much from its pocket, has shifted the financial burden onto the restaurants, especially those with lower performance rates. This results in substantial discounts that the restaurants suffer from.

For example, a 40% discount offered by Zomato results in the restaurant paying 30% of the total cost, while Zomato pays 10%. For restaurants with poor performance, Zomato suggests a 50% discount where restaurants bear 35% and Zomato pays 15%. Add to this the hefty commissions on each order, convenience fees, and even taxes on the commission paid, and the costs mount up. This puts restaurants in a difficult position, forcing them to either increase their base prices or decrease quality.

For customers, the scenario is a mixed bag. On one hand, they can enjoy considerable savings and convenience. On the other hand, the quality of food and service may suffer. Restaurant owners are often forced to use cheaper ingredients or reduce portion sizes to maintain profitability, affecting the overall dining experience.

Case Study: Customer Experience and Quality Issues

A personal anecdote highlights the challenges faced by customers and restaurant owners. An order of boiled eggs and snacks from a nearby posh restaurant, placed online, turned out to be unsatisfactory. The boiled egg was described as too salty. When the customer contacted the restaurant, the staff's response indicated that the eggs were two days old and improperly packaged. This interplay of issues, including miscommunication and quality control, reflects a broader systemic problem within the food delivery ecosystem.

Conclusion

In conclusion, while delivery apps like Swiggy, Uber Eats, and Zomato have transformed the way we dine, their business models are intricate and often challenging for small businesses to navigate. The assumption that these apps will eventually become profitable without the need for discounts is a misleading one. Instead, they rely on a delicate balance of high commissions and promotional expenses to sustain their operations. Understanding these dynamics is crucial for both consumers and businesses operating in the modern food delivery landscape.

References

Mritunjoy Singh's Post

Further Reading

Read more about the impact of online food delivery apps on the restaurant industry and consumer behavior in the following articles:

Impact on Restaurants and Cuisines Consumer Behavior and Delivery Apps