Zomato says reducing commission fees would 'compromise' its survival

Delivery app says it is facing its own financial challenges amid Covid-19

Zomato, which serves more than 70 million users across 24 countries every month, had initially come under fire for charging restaurants nearly AED1,000 for a hygiene audit amid the pandemic.

Food discovery and delivery app Zomato has defended its stance against waiving or reducing restaurant commission fees, claiming it would compromise its own business survival amid the current coronavirus pandemic.

F&B outlets have had to shut down their dine-in service for nearly a month as part of government measures to tackle the spread of Covid-19, leaving them relying heavily on delivery apps such as Zomato.

The government announced on Friday that restaurants will now be able to open, but with a 30 percent capacity for dine-in service.

Zomato has broken its silence over its decision, stating that it is also experiencing financial challenges in terms of cash flow and revenue as a result of reduced dining.

“As one of the world’s largest restaurant discovery and food delivery platforms, we are also in a very financially challenging situation… While we have heard a call for Zomato, and other food delivery platforms, to take an additional step by removing or reducing our commission fees further, we are unable to do so (even on a temporary basis) without compromising our own survival,” it said in a statement, pointing out that its staff have taken salary cuts.

“Like every other business, we have to cover the costs that it takes to be developed, maintained, and operated. We have worked tirelessly to bring down our infrastructure costs. Our employees, our biggest asset, have also helped by taking voluntary salary cuts in these difficult times.”

The bulk of revenue from each restaurant order made on Zomato goes towards supporting last mile delivery costs, the app said, while the rest of the revenue, including commission fees, is spent on operational and marketing costs.

“This includes paying for staff salaries – riders and non-rider employees alike – maintenance costs (including fuel, vehicle, device, internet connectivity costs), payment gateway fees, marketing campaigns, and administrative costs such as rent, sales, legal, finance, logistics, and customer care support,” the statement said.

Zomato, which serves more than 70 million users across 24 countries every month, had initially come under fire for charging restaurants nearly AED1,000 for a hygiene audit amid the pandemic.

However it then announced that 100 percent of Zomato Gold revenue would go towards a relief fund to help restaurant workers.

It has also offered interest-free loans for small-and medium-sized restaurant partners and delivery partners, and increased delivery radius to 9km for its restaurant partners.

Food and grocery delivery platform Talabat in early April announced a plan to support partner restaurants with commission deferrals and fee waivers amid the pandemic. It would see Talabat support the cash flow of 4,500 SME restaurants.

While other apps like Uber Eats has waived delivery fees for consumers, Deliveroo has not announced any changes to its charges.

Some restaurants came to the defense of delivery apps, claiming it is “unfair” to blame them for woes during the pandemic and use them as “scapegoats” for wider industry problems, at least according to Le Petite Maison Restaurant and Bar global operations manager Nicolas Budzynski.

“Nobody is forcing restaurants to use them. Restaurants can organise delivery themselves. They can hire employees and rent bikes to do the deliveries,” he said. “They can do the math themselves and decide whether to pay commission or do delivery themselves.”

But independent food blogger Food Sheikh told Arabian Business in late March that delivery companies are not offering support, and are being insensitive with their offers of promotions.

“The F&B industry as a whole runs on pretty low profit margins anyway so if you’re giving 30 percent to aggregators then giving off 50 percent discount on food as well, you’re not making any money; in fact you’re paying money to give that order to the customer…” he said.

Together with Dubai software company Chat Food, he launched a temporary solution: a commission-free platform called Deliver DXB that encourages consumers to order directly from restaurants and help them retain 100 percent of their revenue to cover costs, including staff salaries. In its first few days, it had attracted 500 restaurants.​

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JetBlue Reducing Capacity, Implementing Other Cost-Cutting Measures

JetBlue has announced it will reduce capacity by 40 percent for April and May amid a “stunning shift” in revenue caused by a decline in new bookings, lower fares and a cancellation rate more than 10 times higher than normal stemming from the coronavirus (COVID-19) outbreak.

“As it relates to our business, we are not going to sugarcoat it. Demand continues to worsen, and the writing is on the wall that travel will not bounce back quickly,” JetBlue CEO Robin Hayes and President and COO Joanna Geraghty said in a message to the carrier’s 23,000 crew members on Wednesday.

“Last year on a typical day in March we took in about $22 million from bookings and ancillary fees. Throughout this March, our sales have fallen sharply and in the last several days we have taken in an average of less than $4 million per day while also issuing over $20 million per day of credits to customers for canceled bookings,” the executives added.

Like its competitors, the airline has implemented several cost-cutting measures to navigate the uncharted territory, including grounding some aircraft, pay cuts for VPs and above and increasing cash reserves.

“We also expect substantial cuts in June and July, and given the unpredictability of this event, we will ground some of our aircraft,” said Hayes and Geraghty. “We know this is not an easy move—it will impact hours for many frontline crew members, but it is also essential that we reduce capacity in the face of dramatically falling demand.”

JetBlue is also calling for government intervention as travel bans and restrictions have compounded the industry’s struggles.

“When this pandemic passes—and it will—air travel will play a major role in getting life back to normal and supporting economic recovery. We are going to need significant government help to do that,” the message stated.

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United Airlines Reducing Capacity, Cutting Salaries

United Airlines is reducing capacity for April and May by 50 percent and cutting corporate officers’ salaries in half amid the global impact of the coronavirus (COVID-19) outbreak.

The airline’s CEO Oscar Munoz and President Scott Kirby shared the alarming numbers in a message to United’s nearly 100,000 employees late Sunday.

“As you know, March is typically our busiest month of the year. But this year, in just the first two weeks of March, we have welcomed more than one million fewer customers on board our aircraft than the same period last year,” the executives said. “We’re also currently projecting that revenue in March will be $1.5 billion lower than last March.”

“The bad news is that it’s getting worse. We expect both the number of customers and revenue to decline sharply in the days and weeks ahead.”

Last week, United announced that Munoz and Kirby would forgo their base salaries through June 30 following a dramatic decline in bookings.

Despite these efforts, the United brass also told employees that it anticipates the deep cuts to extend into the peak summer travel period. “We’re expecting load factors to drop into the 20-30 percent range—and that’s if things don’t get worse,” added Munoz and Kirby.

United’s decreased capacity and pay cuts are quickly becoming the new norm for the airline industry as governments impose travel bans and restrictions on the advice of medical experts.

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