Are Delivery Apps A Boon Or A Curse?
Are Delivery Apps a Boon or a Curse?
The online food delivery business was valued at ₹581.86 billion in 2022, and it's said it will reach ₹3059.25 billion by 2028. In this, food delivery apps have two business models. One is aggregating all restaurants and sending orders to the respective establishments for them to deliver. The other is receiving orders and delivering them through their own company personnel. The second type is the major business today.
Food delivery was once done only by pizza shops. They placed ads in newspapers, showered offers, and through flashy video ads on TV, they reached people, making pizza transcend its image as a rich, luxurious food and turning its consumption into a culture. Their target was families who wouldn't go out to dine. Deciding to easily reach wealthy youth, they delivered hot pizzas directly worldwide, and here too, they conditioned us with promises like "the entire pizza is free if not delivered within 40 minutes." Slowly, it's safe to say there's no group today that doesn't eat pizza.
As the delivery business slowly started to enter department stores with the promise that items would come to your door if you just ordered, older brothers (annachis) also began to follow suit. Nearly fifteen years ago, I started and ran for over a year a business where I would get a monthly grocery list from my cable TV customers and deliver it to their homes within a couple of days. Despite knowing it was a profitable business, we couldn't sustain it due to the nuances of the grocery trade, profit-loss margins, and mainly logistical problems related to timely delivery. I must say it was due to our own lack of skill.
Major hotels like Saravana Bhavan used to deliver food using their own staff until these delivery apps arrived. From what I recall, I think Food Panda was the company that commercially established itself on a large scale in India's food delivery business around 2012. Ola later acquired it around 2017. Nevertheless, it's safe to say Swiggy and Zomato are the kings of today's food delivery world.
In the early days, to capture business, they started by charging a mere 2% commission. They even started with some major restaurant chains with no transaction fees at all. But the current situation is not like that. In cities like Chennai, there are virtually no restaurants that don't depend on them. In fact, look at how many popular restaurants have set up separate counters just for their delivery orders—that's how much this food delivery sector has grown.
Forget their growth; what is the benefit for the shopkeepers? During the Corona period, many new restaurants, operating solely as "cloud kitchens" without physical spaces, began to occupy major cities in Tamil Nadu. While these greatly helped meet the food needs of people working from home, in a situation where you could only give and receive through food delivery, many restaurants say they slowly became dependent on these apps to run their business.
Selling food through these delivery apps during Corona, when serving in restaurants wasn't possible, helped many survive the post-Corona impact. At the same time, it's also the reason many branches of popular restaurants have closed down today. The growth of cloud kitchens is another reason for the decline of traditional restaurants. When people who used to pay ₹200 for biryani are content paying ₹150 for a biryani made in a cloud kitchen advertised as "good home-made food," business will naturally be good. But slowly, the integration with these restaurant companies is not as straightforward as before. App companies started taking more time to onboard these restaurants.
As the demand for them increased, the time taken for integration and their commission percentage also kept increasing. Those who started at just 2% slowly went to 6%, 8%, and today they take 27%. All the shopkeepers who initially sold at their shop price started slowly increasing their prices to include the rising commission. That is, if a biryani was ₹100, they set it at ₹130 to sell. While they thought they were just passing on the commission cost, those who ran and then closed cloud kitchens say that when they finally did the accounts, all they were left with was a loss. The calculation I got when I asked how that loss happens was astounding.
For example, a friend running a multi-cuisine restaurant in Cuddalore gave this detailed account: The shop price of a chicken biryani is ₹150. If sold to a delivery app customer, the commission demanded by the app companies is 23% (This is the commission for Cuddalore; in Chennai, it goes up to 27%). So, including that, the price shown to the customer on the restaurant's app list for a chicken biryani is ₹185.
*
From this ₹185, 5% GST (₹9.25) is deducted, leaving ₹175.75.
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The food delivery companies' commission is 23% of ₹185, which is ₹42.55.
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On this commission amount, 18% GST (₹7.65) and TCS/TDS of around ₹3.70
are also deducted from the ₹175.75.
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After all these deductions, the shopkeeper gets only about ₹121.85 for a
biryani priced at ₹150, even after increasing the price to include the
commission—a drop of nearly 35%.
Okay, why calculate per piece? The food business is all about volume, right? Armchair experts will say profit will come if more food items are sold. These people are mostly those who haven't run a restaurant. Let's assume a total of ₹30,000 worth of food is sold via apps per day.
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5% GST (₹1500) is deducted, so the shopkeeper's receipt is only ₹28,500.
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The 23% commission on ₹30,000 is ₹6900.
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The 18% GST on that commission is ₹1242.
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After deducting TDS/TCS of another ₹600 or so, the amount they receive
is only about ₹19,758—again, nearly a 36% reduction. So how can a cloud kitchen
run profitably? In the initial periods, the volume, star ratings, and reviews
will be exciting. Only when the amounts start coming in will they realise they
are running a business at a loss.
Is this the only problem? There's a demon called "Offers" that attacks these shopkeepers unpredictably. Without their knowledge, offers from 20% to 50% are applied. They can only stop it by constantly watching their dashboard and telling their area PSA. If they miss it, they have to sell at a loss. If they don't want to sell that way, but the order has already come, and they cancel it from their restaurant end, they deduct 20% of the food item's price from the weekly payment.
If a shopkeeper decides not to give offers and sticks to their price, they won't get orders. Even if a customer searches for the shop and orders, it might show that pickup personnel are not available at your restaurant. Restaurant owners are forced to give offers. Why are they forced? It's said the customers of these delivery apps can be divided into three types:
1.
Customers who only buy if there's an offer** (Nearly 60% of people).
2.
Very choosy customers** who will buy without any offer for tasty,
quality, delicious food (Only about 10%).
3.
The remaining 30% are customers who lean towards both offers and
quality.
This is why the app favours those who give more offers. They make money only by delivering to lots of people.
Apart from this, if a customer gives a star rating or comments, will the shop be shown without search? They say no. There's a fee to push your shop forward. Another fee to feature your biryani on the first page. That is, they have to pay up to ₹10 even for a click (CPC). An advance amount must be deposited for advertising. Otherwise, your shop will be invisible. Since the majority are offer-seeking customers, shops that don't advertise or give offers remain unseen. When you add this cost, they say nearly 40% of the income is gone.
Besides this, packaging materials. They've now started charging up to ₹5 separately for that. Shopkeepers have to pay for the stickers bearing the names of companies like Zomato and Swiggy. These days, many biryani shops only give onion raita. If you want gravy or a side dish like cabbage, you are forced to pay an extra ₹30. If you sit and eat at the shop, even half a litre of gravy is free, and the price is lower. To eat from home, we end up paying about 40% more on the food price itself. Considering delivery and taxes, for a ₹150 meal, you end up spending about ₹100 extra.
Not only that, but these app companies themselves are starting their own cloud kitchens. They show more offers and feature them prominently in ads to directly capture customers. For them, it's just "Chettinad Chicken" or "Butter Paneer." And since an ad shows a ₹200 meal for ₹150, orders come instantly. In the future, it wouldn't be surprising if these aggregator apps set up a cloud kitchen in every area because the profit is higher.
Although there are problems on one side, my friend Prakash says these apps are the reason he could start a shop after Corona and grow to three branches today. He started one branch as a simple gravy shop and now runs three. Apart from his regular local customers, most of his business comes through these apps. "So what if I sell a ₹100 meal for ₹150? Sometimes, if there's leftover food, I'll put it on an offer and sell it. It's food, sir... In profit and loss, the waste shouldn't go in thousands," he says.
Personally, I can't stand eating some items via parcel. How do people eat dosa once it's gone soft? How does one have the heart to eat a vadai that arrived soft after seeing an ad promising a crisp, hot one? A culture is growing where we will eat anything as long as it comes to our home. We can't criticise that. Even today, people with good taste who seek good food still search for food in person. There's a lot to discuss within this—the salary, commission, and other incentives given to delivery personnel.
This is just one side of this business. The other side is labour exploitation. While one side talks revolution against unfair commissions, the technical backend, service, money paid to Google Maps, marketing, salaries, etc., for starting such apps also mean that while the profit is high, the expenses are also high. Without industry, there are no workers. Without profit, there is no investment in an industry. In an industry where investment is made to earn profit, exploitation and deceit will always exist. Because until the superior power that exploits them stops, this will continue endlessly.
Cable Sankar
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