Zomato to stop charging from restaurants

Firm currently charges 10-15% commission per order

A week after breaking even in six markets across the globe, online restaurant search, rating and food ordering company Zomato wants to stop charging commission from restaurants covered by it, co-founder Pankaj Chaddah told Business Standard. This would apply to orders generated from the platform as well as for providing last-mile delivery services.

The move, Chaddah said, would help the firm wipe out the remaining competition once and for all. However, analysts and rivals, who did not want to be quoted, questioned the zero-commission model and wondered if Zomato could meet its operational profitability target for the year.

The firm currently charges 10-15 per cent commission per order. The commission is charged according to the rating of the restaurant. If the rating is high, the commission is less and vice-versa.

Explaining the logic behind bringing the percentage of commission charged to the 12,000-odd restaurants on the platform in India to zero, Chaddah said: "We have broken even in India and five other countries. Now we want to wipe out the competition. While others are pushing their merchants to increase the commission, we will do the opposite, which will eventually lead to all these restaurants abandoning other portals."

According to the firm, online order and delivery is only four per cent of its total revenue and the rest is from search, advertisements and its 'whitelabel platform' - a suite of technologies for restaurants to run their business on the internet.

He added while Zomato's competitors charged low commissions initially to add more restaurants to their portfolio, now with most of these companies bleeding, they are now demanding higher commission. In terms of value of orders, it claims to be the market leader, but not in volume terms. While Bengaluru-based Swiggy is giving competition to the firm now, Foodpanda has been a leading player in the space. According to reports, Rocket Internet-backed Foodpanda was on the block, but its CEO denied it recently.

Zomato had always been against deep discounting. "From asking for just five per cent commission and offering discounts on food, they (competition) are now asking for 15-20 per cent commission. We, on the other hand, never had any discounting schemes and always charged 10-15 per cent in commission," Chaddah added.

The zero commission scheme could kick off in March after a decision is taken by this month-end. However, the scheme would not be a permanent fixture but would run for some time. "This would hit our competitors badly."

Although Zomato would be losing money on logistics services provided and would have to pay its logistics partners Delhivery and Grab from its own pocket, sources said it has started making substantial advertisement revenue.

The company is learnt to be planning to raise $200 million in April from its old and new set of investors that includes Chinese web-services giant Baidu. When that happens, the company's valuation could be around $1.5 billion, up from $1 billion in September 2015.