The average ‘per order’ commission has increased from 9.6 per cent in 2019 to 24.6 per cent in 2023, a report shows
On account of high commissions and poor customer service, over one in every three restaurants listed on food delivery platforms are planning to stop using the service, according to a report by economic policy think tank NCAER and investment firm Prosus.
The report revealed that the these platform restaurants also noted that the food delivery platforms are not giving enough profits, orders and customers. Atleast 30 per cent of platform restaurants wanted lower commissions. The average ‘per order’ commission has increased from 9.6 per cent in 2019 to 24.6 per cent in 2023.
“The evidence on restaurants’ negotiating power over commissions and understanding of the structure of the commissions is mixed. However, ‘medium & large’ restaurants had relatively greater negotiating power. 30 per cent of platform restaurants requested a reduction in per order commissions,” the report by the National Council of Applied Economic Research (NCAER) and Prosus noted.
On being asked about what was their peak hour/time operations on the platforms, 32.3 per cent of platform restaurants responded that their peak hour demand for dine-in/self-home delivery were the same as peak hour for delivery via platforms. However, 67.7 per cent of restaurants responded that they were different.
Negotiating Power
Restaurants want lower per-order commissions but do they have negotiating power over this? The report revealed that 44.9 per cent of the platform restaurants disagreed with the statement that they can negotiate ‘per-order’ commission with the platform. The share of restaurants that disagreed in tier 1, 2 and 3 cities were 46 per cent, 49 per cent and 34.7 per cent, respectively.
28.8 per cent of tier 1 city respondents strongly disagreed with the statement that they could negotiate ‘per-order’ commission with the platform. In contrast to the micro and small restaurants, 40 per cent of ‘medium’ to ‘large’ restaurants agreed and 8.6 per cent strongly agreed that they could negotiate the ‘per-order’ commission. Larger restaurants had relatively greater negotiating power than small and micro restaurants, the report added.
The report revealed that 47.1 per cent of restaurants perceived that food delivery platforms practices were neither fair nor unfair and 35 per cent perceived them to be either fair or completely fair. 49.6 per cent of platform restaurants found the grievance redressal mechanism of food delivery platforms either helpful or very helpful.
Falling Revenue Share For Non-metros
Platforms provide a growing revenue stream to restaurants. The average share of revenue from usage of food delivery platform has gone up from 22.1 per cent in 2019 to 28.8 per cent 2023. However, restaurants located in tier 3 cities show a reverse trend of falling share of revenues from platforms.
The report noted that the share peaked during the pandemic. This was also true of restaurants located in tier 3 cities. In tier 3 cities, the average share of revenue from usage of food delivery platforms came down from 35.4 per cent in 2022 to 29.7 per cent in 2023.
The interesting point to note is that the share of revenue of ‘medium and large’ restaurants was far lower than the average between 2019 and 22 and only reached the average in 2023. A third of the revenue of small restaurants were coming from food delivery platforms in 2023.
The average onboarding fee was Rs 1,841.8 for all India. However, it varied a lot between the type of city. Medium to large restaurants with more than 50 workers paid the lowest average on-boarding fee of Rs 722. The average onboarding fee paid by restaurants in tier 3 cities was Rs 591. In medium and large restaurants, 16.5 per cent of restaurants said that they paid a single fee for all services, 10.5 per cent said that they paid a separate fee for each service and 73.3 per cent did not respond to this question.
Raising concerns around awareness, the report revealed that when restaurants were probed about the information in the contract that they sign with platforms, 20.8 per cent of respondents were not aware about the information in the contract. In tier 3 cities, 34 per cent of platform restaurants responded that they were not aware about the information contained in the contract.
The Case Of Mandatory Discounts
On being asked if it was mandatory to offer discounts on food delivery platforms during special campaigns, only a quarter responded that it was mandatory. However, the report revealed that in tier 3 cities, 44.2 per cent of restaurants perceived that it was mandatory. Of all the platform restaurants that reported that it was mandatory to offer discounts on food delivery platforms during special campaigns, 94.4 per cent actually advertised on food delivery platforms.
Only 24.3 per cent of platform restaurants participated in special campaigns on platforms. 28.3 per cent of platform restaurants that were part of special campaigns responded that they had to bear more than 80 per cent of the cost of discounts, the report pointed out.
As far as the impact of participating in special campaigns is concerned, 74.6 per cent of restaurants experienced increased revenue, 4.4 per cent responded that the revenue remained the same and 17.4 per cent responded that revenue declined. 74.6 per cent of restaurants experienced increased order volume, 7.3 per cent responded that the order volume remained the same and 14.5 per cent responded that order volume declined.
“Restaurants were asked about the cost-benefit analysis of participating in special campaigns. 21.7 per cent of platform restaurants that participated in special campaigns said that the costs always outweighed the benefits. 9.4 per cent responded ‘no loss, no benefit’, 40.6 per cent responded that the benefits sometimes outweighed the costs,” the report added.
Rs 1.2 Trillion In Gross Output
The food delivery platform sector generated Rs 1.2 trillion in gross output in 2023–24 and has been expanding at a rate faster that of the overall economy. The report noted that the sector directly employed 1.37 million workers in 2023–24, up from 1.08 million in 2021–22.
Showcasing meaningful gains for restaurants on platforms, the restaurant impact study indicated that 59 per cent restaurant owners reported expanded reach to new customers. Similarly, 50.4 per cent witnessed an increase in customers. The report added that each platform-linked job supports 2.7 additional jobs across the wider economy, making it one of the highest employment multipliers in India’s services sector.
“The sector’s contribution to output, employment and indirect taxes is not only measurable but growing at a pace far exceeding that of the broader economy. At the restaurant level, the evidence of expanded market access, higher compliance and improved operational capabilities points to a structural shift in how food services businesses participate in the economy,” stated Bornali Bhandari, Professor, NCAER.
Food delivery platforms have expanded market access, boosted output and emerged as a major employment generator. However, rising commissions, limited negotiating power and uneven benefits across city tiers are straining restaurant economics, particularly for small operators. As platforms continue to scale faster than the broader economy, the need for greater transparency, fairer commercial terms and more balanced value-sharing to ensure the sustainability of India’s rapidly evolving food services ecosystem becomes crucial.
