How the Platform Fee Led the Zomato Founder To Become A Billionare

Deepinder Goyal, the founder and CEO of Zomato, recently joined the coveted billionaire club thanks to a sharp rally in the company's stock. Zomato's stock surged over 300% from its low of ₹73 in July 2023. As of now, Zomato's market capitalization exceeds ₹1.8 trillion, making Goyal India's wealthiest professional manager with a net worth exceeding ₹8,300 crore. He holds 36.95 crore shares, representing a 4.24% stake in Zomato.

Interestingly, this milestone occurred shortly after Zomato and Swiggy increased their platform fees to ₹6 per order in key markets like Bengaluru and Delhi-NCR. The company's stock price reached a new peak of ₹232, contributing to its market cap crossing ₹2 trillion. Zomato's remarkable rise is attributed to the promising performance of its quick commerce division, Blinkit, which is expected to achieve EBITDA break-even by the first quarter of FY25. Goyal's journey from a middle-class background to leading a global food delivery brand is truly inspiring.

Zomato's impressive stock performance has been largely driven by Blinkit and the multiple increments in its platform fee.

Series of Events

Zomato reportedly raised its platform fee to ₹6 per order in metro cities. Interestingly, the Investors responded positively to this platform fee increase, reflecting "confidence in Zomato's business model" and growth prospects. The stock climbed 4% to reach an all-time high of ₹232 on the BSE. This made Zomato's market cap crossed ₹2 lakh crore ($2.394 billion) for the first time, and its shares hit a 52-week high (up 4% from the previous closing price) on the BSE.

Zomato had gradually increased its platform fee from ₹2 to ₹6 per order in select cities. Ironically, the investors feel that — the consistent adjustments signaled the company's commitment to revenue optimization.

Deepinder Goyal's Net Worth: With 36.95 crore shares of Zomato (around 4.24% holding), Deepinder Goyal's net worth has risen to more than ₹8,424 crore, which is approximately US $1.01 billion, making him a billionaire at the age of 41.

Notably, Zomato processes an impressive number of orders daily, and to give an idea about how an increase of platform fee can churn out revenue vis-a-vis profits for Zomato like a tap of a button,  the Goyal promoted platform delivered a staggering 647 million orders across 800 cities in India, in the financial year 2022-2023 (FY23). That translates to over 1,200 orders delivered every minute! These orders served approximately 58 million customers, with a total value of ₹263 billion. Quite a feast, isn't it?

Overall, Zomato's strategic fee adjustments, market sentiment, and growth projections collectively drove its share price upward.

Analysts anticipate strong revenue growth for Zomato in the June quarter. Factors such as continued expansion in food delivery and quick commerce (qCommerce) businesses contribute to this positive outlook.

Before this recent increase, Zomato had gradually raised its platform fee from ₹2 in August 2023 to ₹5 per order in April 2024. The company suspended its inter-city food delivery service, 'Intercity Legends,' during this period.

Zomato's impressive growth and strategic decisions have propelled it into the billionaire league, reflecting the impact of platform fees and market dynamics.

With Zomato frequently increasing the platform fees, this has sparked mixed reactions among its customers. One Bengaluru user, Sumukh Rao, expressed frustration on social media. He mentioned that the reduced free delivery range (now 7 km) and the increased platform fee (₹6 per order) prompted him to stop using the app altogether. Another user, Jay Prashanth, echoed the sentiment, emphasizing that it's not just about the money but the feeling of being price-gouged. Zomato's goal is to enhance profitability, but it remains to be seen how users adapt to this change.

Apart from the platform fee, Zomato also charges for delivery, GST, and restaurant fees. Additionally, there's a packing charge that restaurants/ shopkeepers typically don't impose.

As per few media outlets, Zomato apparently plans to evaluate the results of this trial and gather user feedback before making long-term decisions about the fee structure. Balancing revenue generation with maintaining a positive user experience remains crucial.

Zomato Hikes Platform Fee Again by 25% to Rs 5, Suspends Intercity Delivery Service

Zomato has again increased its platform fee by 25% to Rs 5 per order. This hike comes alongside the suspension of their intercity delivery service, Intercity Legends. The changes are part of Zomato's ongoing adjustments in their business model and pricing strategy.

It's worth noting that the platform fee was introduced in August 2023 at Rs 2 and has seen incremental increases since then.

The company has been focusing on improving profitability and adjusting to tax demands and penalties. To recall, Zomato has recently received a tax demand notice. The online food delivery platform has been issued a tax demand and penalty order of ₹11.82 crore. This is related to the Goods and Services Tax (GST) on export services provided to its subsidiaries outside India from July 2017 to March 2021. The order was passed by the Additional Commissioner, Central Goods and Services Tax, Gurugram.

Zomato believes they have a strong case on merits and will be filing an appeal against the order. The company had responded to the show cause notice with clarifications and supporting documents, which they feel were not appreciated by the authorities while passing the order.

Zomato has hiked its platform fee multiple times since its introduction.

1. August 2023: Zomato introduced a flat platform fee of Rs 2.
2. October 2023: The fee was increased to Rs 3.
3. January 2024: Another hike brought the fee to Rs 4.
4. April 2024: The most recent hike has taken the fee to Rs 5.

So, Zomato has hiked its platform fee a total of three times since its introduction.

The decision by Zomato to increase its platform fee could be seen as a strategic move to address its financial challenges. While some may view this as a way to distribute the burden of losses among customers and partner restaurants, companies often argue that such measures are necessary to sustain and improve the services they offer.

It's important to note that businesses regularly reassess their pricing strategies to reflect changes in the market, operational costs, and regulatory environment. The introduction or increase of fees like Zomato's platform fee can be part of these adjustments. The company might also consider it a step towards achieving long-term profitability and ensuring the quality of service.

However, it's also essential for businesses to maintain a balance to ensure that the additional costs do not significantly impact customer loyalty or the viability of partner restaurants. The reaction of customers and partners to such changes can vary, and companies typically monitor these responses closely to make further strategic decisions.

In a conclusion, while the increase in platform fees can be seen as a way to offset losses, it's also a common business practice aimed at financial sustainability and service enhancement. The success of such a strategy depends on how well it is received by the stakeholders involved.