Amazon Food’s reduced commission rate may hurt Swiggy, Zomato’s growth

Sangeetha Chengappa Bengaluru | Updated on March 10, 2021

The logo of Amazon   -  REUTERS

The take rate of 10% is less than half of what the dominant food-delivery players charge their restaurant partners

Competition in the online food delivery space is all set to sizzle with the latest entrant Amazon Food charging a take rate (fees and commissions) of 10 per cent on order value from its restaurant partners. This is less than half of what dominant players such as Swiggy and Zomato charge their restaurant partners.

Swiggy and Zomato charge take rates of 22-25 per cent on order value from their restaurant partners, which has increased over the years. Amazon launched its much-awaited food delivery service in Bengaluru last May, with trials conducted in four pin codes, which has now been expanded to cover 62 pin codes in the city.

The increase in take rate has enabled incumbents to curtail their losses, a high priority for both players, said Mukul Garg and Heena Gada, of Motilal Oswal, in a note to investors.

With 1.8-2 million orders/day in January 2021, the online food delivery market is at 75 per cent recovery, compared to pre-Covid levels. However, it more than made up, as GMV in 2021 is back to pre-Covid levels, led by a 40 per cent increase in average order value from $4 to $5.5 as a result of a sharp increase in group orders, said Rohan Agarwal, Director at RedSeer Consulting.

Market share

Amazon’s initial rollout has primarily been with 2,500 restaurants in Bengaluru, compared to 15,000 restaurants for Zomato and 15,000 for Swiggy. Currently, Swiggy and Zomato hog the online food delivery space with nearly 90 per cent market share.

Amazon’s key focus in India remains its Prime membership. Besides early deliveries, exclusive deals and video/audio content, food delivery is another hook for the customer’s entry into the Prime ecosystem. To ensure this, Amazon is offering free delivery on all its food delivery orders to Prime members, while other customers can pay a nominal delivery fee of ₹19 for their orders from Amazon Food. The delivery fee charged by Amazon is way below the industry average of ₹45 per order. Delivery fees for Swiggy and Zomato range from ₹20-100 per order, depending on the time and distance.

Packaging fees

As a limited period offer, Amazon has waived off the packaging fees, which form a significant component of the total order value. For instance, for a ₹430 order of poori, pongal, idlis and vadas from an online food delivery brand, the additional amount the customer has to pay includes order packing charges of ₹52, delivery partner fee of ₹25 and ₹21 towards taxes, which amounts to an addition of ₹97, and the customer ends up paying ₹527 for that order.

Amazon will consistently keep take rates below the industry average as it gains an additional benefit for increasing Prime membership at the expense of losses in the Food Delivery vertical, said sources. Unlike Amazon, Swiggy and Zomato do not have a vested interest in lower commission rates. Increasing competition with Amazon’s entry can lead to another prolonged period of cash burn in the industry, much like what happened earlier when there were four players, including Zomato, Swiggy, Uber Eats and Foodpanda in the market.

Published on March 10, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like