Zomato’s fee hike to boost margins, demand still intact : Jignanshu Gor

Zomato’s latest move to raise its platform fee has reignited debate over pricing power, profitability, and consumer behaviour in India’s fast-evolving food delivery and quick commerce market. While the hike nudges it ahead of Swiggy on effective charges, analysts believe the broader story remains one of improving margins rather than weakening demand—at least for now.

Breaking down the math, the revised platform fee of Rs 14.9, along with GST and additional charges, pushes the effective burden higher than its closest rival. Addressing this shift, Jignanshu Gor from Bernstein India said in an interview to ET Now, “Zomato’s hike now makes it higher than Swiggy.” He added that both players have historically moved in tandem on pricing, given the duopolistic nature of the market, and expects Swiggy could follow suit.

The increase—from Rs 12.5 earlier to Rs 14.9—marks nearly 19% growth, which Gor described as “significant growth to profitability.” With Zomato’s adjusted EBITDA per order hovering between Rs 20 and Rs 22, even a modest Rs 2.5 increase can meaningfully boost margins.

However, pricing power comes with its own set of risks. A key concern remains whether higher fees could impact customer behaviour over time. Gor acknowledged that platforms are still experimenting: “The platforms need to find a sweet spot… to ensure that it does not hurt demand elasticity.” At present, the fee accounts for roughly 3% of gross order value, a level he believes is sustainable without denting demand.

Interestingly, a large portion of these fees is not retained. Gor highlighted that “only around 40% of the fee is realised, the remaining is ploughed back as discounts.” This indicates that while headline fees are rising, net realisations remain moderated by competitive discounting strategies.

On the quick commerce front, competition has intensified, particularly since October. Yet, the pace of escalation appears to have stabilised. According to Gor, “the competition in discounting has intensified since October, but… it has largely been stable so far.” Instead of aggressive pricing, players like Flipkart, Amazon, and Zepto are focusing on expanding dark stores and product assortment to capture market share.
Despite concerns around rising costs—especially commercial LPG prices affecting restaurants—demand trends have remained resilient. Gor observed, “we are not seeing necessarily demand curtailment so far.” Even with menu reductions and operational challenges faced by some outlets, order volumes and app usage metrics continue to hold up. Delivery capacity, in fact, remains tight during peak hours, indicating sustained demand.From a market perspective, Zomato’s sharp stock correction from its highs has raised eyebrows. Yet, analysts see this as a function of valuation reset and ownership dynamics rather than a breakdown in fundamentals. Gor pointed out that “we do not think anything has broken in the promise… for the stock price correction to be warranted.”

Looking ahead, profitability in quick commerce could be a turning point. Gor expects that “the loss-making days… are largely behind them,” with EBITDA margins potentially turning positive in the coming quarters. This, along with steady food delivery growth, could help rebuild investor confidence.

That said, the road ahead is not without challenges. The biggest uncertainty, according to Gor, is the size of the addressable market. Slowing growth rates have triggered concerns reminiscent of the food delivery slowdown seen in 2023–24. “The TAM is a bigger problem… than competition,” he remarked, underscoring investor anxiety around long-term scalability.

Competition, however, remains a critical variable. The presence of players like Zepto, along with aggressive moves by Amazon and Flipkart, could influence pricing strategies and profitability trajectories in the near term.

Adding another layer of complexity is the potential impact of GLP-1 drugs on consumption patterns. Gor believes this could emerge as a meaningful factor in the second half of the year: “We expect it will become a part of the food delivery conversation… it will have some impact.” While reduced food intake could lower order frequency, higher average order values and a shift towards healthier offerings may offset some of the downside.

In the near term, Zomato’s fee hike appears less about stretching consumers and more about strengthening its financial backbone. The real test, however, will lie in balancing profitability with demand in an increasingly competitive and evolving market landscape.