Zomato, a leading online food delivery platform, has recently announced significant adjustments to its operational framework, including a notable increase in its platform fee and the discontinuation of a specific service. These modifications are part of Zomato’s strategic initiatives aimed at improving profitability and optimizing its service offerings.
Rise in Platform Fee
Zomato initially introduced a nominal platform fee of INR 2 per order in August 2023 as part of its efforts to bolster profitability. Since then, the platform fee has undergone incremental revisions, gradually increasing to INR 3, then INR 4 in January, and temporarily reaching INR 9 on December 31st.
The latest adjustment sets the platform fee at a standardized rate of INR 5 per order. This move is strategically designed to stabilize revenue streams and better manage operational expenses, ensuring sustainable growth in the long term.
Financial Implications
Given Zomato’s substantial order volume, estimated at 85 to 90 crore orders annually, the recent fee hike is poised to significantly augment the company’s earnings potential. Analysts predict that the increase could add an additional INR 85 to 90 crore to Zomato’s revenue, thereby enhancing its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by approximately 5%.
However, it’s important to note that the revised fees have been implemented selectively across specific cities at present.
Discontinuation of Intercity Legends Service
In addition to the fee adjustments, Zomato has decided to discontinue its Intercity Legends service, which facilitated food delivery from top restaurants in major cities to other locations utilizing Zomato’s extensive delivery network. This strategic move underscores Zomato’s commitment to optimizing core operations and potentially reallocating resources to more lucrative segments of its business.
Market Response and Financial Performance
The market has responded positively to these strategic changes, evident in the significant surge in Zomato’s stock prices following the announcement. Investor confidence in the company’s revised pricing strategy and operational realignments has been robust.
In its latest financial report for the December quarter, Zomato reported a notable 30% increase in revenue, reaching INR 2,025 crore. Moreover, revenue from Blinkit, Zomato’s quick-commerce service, witnessed a twofold increase, totaling INR 644 crore. These figures underscore Zomato’s resilience and strategic prowess in navigating the dynamic landscape of the online food delivery industry.
