Is the Indian online consumer evolving? A relatively new fee seems to suggest so

It’s not just Myntra that charges a platform fee, or what IRCTC and Bookmyshow call a convenience fee for allowing customers to book tickets online. Nykaa Fashion charges ₹29 per order, while Swiggy and Zomato levy a ₹3-4 platform fee in addition to their delivery charges for food. Quick-delivery platform Zepto introduced a ₹2 platform fee in March.

Most of these fees were rolled out over the past year. Amazon, Flipkart and Reliance’s Ajio do not charge platform fees at the moment.

The quiet acceptance of something like a platform fee reveals a significant maturing of the Indian online consumer, emblematic of a shift from discount hunter to discerning shopper. For the e-commerce sector that has had to rely on freebies and offers to lure people to shop online, this transformation marks an ability to now focus on metrics such as unit economics—the expense incurred in selling a unit of product or service—and profitability.

Those two metrics gained prominence over business growth and rabid customer acquisition as funding dried up for Indian e-commerce companies, forcing them to focus on making their business sustainable on their own.

For online food-delivery platforms, a ₹1 platform fee, for instance, could potentially improve ebitda by about 5% in absolute terms, said Karan Taurani, senior vice president at investment bank Elara Capital. Ebitda, or earnings before interest, tax, depreciation, and amortisation, is a key measure of operational performance.

“This is a really significant boost because currently the food business platform fee is around ₹2-4, which can potentially even go to ₹10," said Taurani. “This can boost ebitda and profitability in a very big manner and help recoup the negative impact of zero-delivery charges because of the loyalty programs that (food-delivery platforms) have."

Myntra, Zomato and Swiggy were all loss-making in FY23, the latest period for which full-year financials are available.

While Myntra’s revenue improved from ₹3,501 crore in FY22 to ₹4,375 crore in FY23, its loss widened from ₹598 crore to ₹782 crore. Swiggy’s revenue jumped 45% but its loss widened from ₹3,629 crore to ₹4,179 crore. Zomato, though, managed to narrow its losses, from ₹1,222 crore in FY22 to ₹971 crore in FY23, on a nearly 70% surge in revenue.

Optimising for growth

Zomato in its earnings report for the latest October-December period—when it reported a profit for the third straight quarter—said the introduction of a platform fee for all customers in July last year had helped improve its margin.

In fact, average monthly transacting customers for Zomato increased from 18.4 million in the July-August quarter, when it introduced the platform fee, to 18.8 million over the next three months. Zomato hasn’t yet announced its financials for the fourth quarter of FY24.

Zomato’s grocery delivery platform Blinkit charges a handling fee of ₹4 in addition to a delivery charge, as well as a ‘small cart charge’ for small orders.

“We will continue to tactically use levers like these to optimise both growth and margin expansion," Rakesh Ranjan, chief executive officer of Zomato’s food-ordering and delivery business, said during the quarterly earnings, adding that the company was testing the waters to figure out what charges would make sense from a long-term perspective.

Swiggy had started with a ₹2 platform fee in April last year, followed by Zomato a few months later. Myntra had started with a ₹10 platform fee in June last year, increasing it to ₹15 towards the end of 2023. The company had as early as 2020 also experimented with a so-called platform handling fee, charging ₹49-149 from people shopping low-value items. Myntra has since discontinued this.

Myntra, Zomato and Swiggy did not reply to emailed queries.

That “Myntra has increased the fee shows that they have not seen a decline in the number of visitors per order… they see that customers are more disciplined," said Satish Meena, an independent e-commerce analyst and adviser at Datum Intelligence. “In 2006 or 2007, the number of customers was small. For such a small amount of money, you wouldn’t want to create push-back from users. But now you have a large pool of customers placing orders, so the volume itself is very high."

Companies will still need to tread carefully, Meena cautioned. “The fee can be somewhere around 3-5% of the average order value. You can’t go beyond that," he said. “After that it will start pinching the customers."

Maturing competition

As for food-delivery companies, there’s room to gradually increase the platform fee to ₹8-10 per order, said Taurani of Elara Capital.

“Whatever is going to happen in terms of platform fee is going to be in a selective manner. It’s going to be higher for urban markets, where AOV (average order value) is high and frequency is high, and lower for the non-urban or the non-top 10 or top-8 metro city markets," he added.

The platform fee and other similar charges, levied either on buyers or sellers, signal a maturing of the market and stabilising growth in food-delivery and ecommerce, said Ankur Bisen, senior partner and head-consumer, food and retail, at retail consultancy Technopak Advisors.

“For a long time telecom players were not raising their fees, but now they are. There is a broad-based consensus among the players that if I have to make profit, I have to have a certain fee… Same thing is happening here," he said, referring to the ecommerce and food-delivery space.

About companies like Swiggy, Zomato and Myntra, Bisen said these firms have created near monopolies in their respective categories, allowing them to experiment with such charges. 

“Those players now realise it’s not as if they are there to kill each other. The unit economics now is such that (these) players are going to the drawing board and saying what is the minimum fee needed to grow… to sustain yourself," said Bisen. “The ‘I will not raise the fee and I will get more customers’ era is gone. Now it is about mature competition."