The following is a conversation between two consumers. A lives in a Unicorn Reality with utopian expectations. B is more of a realist, has a clue about how businesses and money work, and is generally not very fun at parties due to her habit of gaslighting people with the truth.
A: What the hell are these new platform charges on Swiggy?! Why are they so desperate to make more money?
B: What did you expect? Customers will finally have to bear the cost of convenience, no? None of these delivery businesses are going to survive without making the customer pay for the convenience they're getting. Up until now, customers were indirectly enjoying the fruits of venture capital.
A: But wait a second. They make margins with the commissions they charge to restaurants directly. It isn't like restaurants use Swiggy for free. They pay like 10% of the price as commission for being able to list. Also, what else is the premium subscription for, then?
B: Not enough margins. It's that simple.
A: Commission plus delivery charges aren't enough?
B: Not just commission and delivery charge, the menu prices themselves are quite inflated. But I'm guessing the restaurants themselves hike the prices to make up for the loss in commission. And yet, still not enough margins. Also, if you have a premium subscription, there are no delivery charges.
And there's no way even that ₹799 premium membership is making up for all those delivery charges. I order like 30+ times a month.
A: But for a power user like you, there's another user who is using it once or twice in a month. They'll recover!
B: Okay, first of all, people who only order once or twice a month aren't likely to buy a premium membership. The premium membership is good for upfront cash flow, but it hardly pays the bills I'm guessing, considering people who get it more than make up for it in the delivery charges saved. In short, nahi ho paa raha. Tough to establish margins with such high fixed costs of delivery.
A: That makes sense. But now Swiggy is even pulling cheap tricks by reducing the free delivery distance limit on the premium subscription from 10km to 7km!
B: Yes, I agree with you on that. They've always pulled off such cheap tricks which I don't like. But ultimately, prices are gonna go up one way or another. Having said that, I would appreciate it more if they communicated this to the customers honestly instead of resorting to cheap manipulative tricks. This goes not just for Swiggy, but for many other startups who resort to the same deception.
A: Plus why do they charge an exorbitant ₹100-₹150 when the place is beyond 10 km? 13 km should be treated like 3 km ‘cause a premium user has already paid for free delivery within 10 km.
B: Book a Rapido bike for a 13 KM journey. See how much it costs.
A: Yeahhh, but it doesn't make sense. I'm on a premium membership which promises that if I order above ₹199, I get free delivery within a 10 km radius. If I'm ordering from a restaurant that's 13 km away, they gotta cover for the 10 km is what I'm saying. I should only pay for delivery charges for 3 km!
B: Ignore what they're promising. Do the real-world math.
A: Yeah, I'm doing the opposite 🤣
B: The math for a 10 km ride comes to 100 bucks at least. Just the fuel cost is around ₹40-₹50. Add to that the cost of labour, maintenance, many other things. You can't fight physics. Especially with low ticket sizes, it becomes increasingly hard to make a profit on the delivery.
This was always going to happen. Initially, with all the venture capital, they got consumers into a bad habit of ordering by making it unnaturally cheap to order. Now, they're trying to milk that bad habit by increasing prices gradually. This was the strategy all along. The delivery business involves some real operational costs. You can't magically wave them away. Someone has to foot the bill. And it has to be the customer.
But I would find it way better if they would communicate this to the customer honestly instead of applying manipulative pricing tactics. I also understand that it's a major communication challenge that comes at a risk of customer uproar and outrage.
I remember Zomato's “Pay Rs. X to get your order in 52 minutes or free.” It also was also something akin to gambling, where the house always wins. Zomato introduced this new feature to get your order within the stipulated time or get a refund. Not sure if they still have it or don't as I've stopped using it.
But basically, a customer would think, “Okay it's just Rs. 9. What if I get the order late? I would get the whole meal for free.”
But the reality was that Zomato had smartly inflated the promised delivery time before taking that bet. If the actual conservative estimate for the time it took to deliver was 25 minutes, they would promise you delivery within 50 minutes or something. You would never win that bet unless, god forbid, the delivery person met an accident or some rare calamity happened.
Also, the system was designed in a way that it was only shown for the restaurants that had delivery executives right there at the restaurant, and the bet was always offered during non-rush hours. So you were simply paying extra for no reason. You would've been better off paying that as a tip to the delivery executive.
But for those who get business, this isn't hard to understand. Why will a business that is already making a huge loss go on making bad bets?
On the other hand, I see Swiggy Instamart smartly incentivizing the customer to place larger orders gradually to get that ₹100 coupon they dangle in front of you as a carrot. When I started using it initially, I could get a coupon on a minimum order size of ₹399, if I remember correctly. Then, as I kept using the service, they started offering me a coupon for a minimum order size of ₹799. Today, that number stands at ₹1499.
I would consider that to be a much more honest bait to incentivize the customer to place larger orders. It doesn't feel manipulative. And it is a much better way to increase ticket size per order, and thus, margins per order.
A: Makes sense, but I would've loved it if my expectations around the costs of convenience had been set from the initial days.
B: Sweaty, if they charged you the real costs involved in delivery on Day 1, you would never have gotten into the habit of ordering so much. Ultimately, it is you, the customer who is to blame. The business does whatever helps it grow and survive.
You enjoyed the fruits of free delivery hinging on venture money all this while and now you're quick to complain about how Swiggy and Zomato are hiking prices. On the one hand, I see you complaining about how little the delivery executives are being paid, and on the other, I find you also complaining about these businesses offloading that cost on the customer. That doesn't sound fair. Resources don't appear out of thin air. They cost money.
A: Yes, I understand. But you could be a little less rude about it.
B: I agree with you. But it's just something about hypocrisy that gets on my nerves. People don't understand how business works. They expect everything for free. Nothing is free. Everything has a cost.
The only question is,
“Who is footing the bill?”
Sometimes, it's the seller. Sometimes it's the platform. Sometimes it's the customer. And sometimes — in the case of Buy Now Pay Later products — it's the future self of the customer.
A: Interesting. But I'm not sure I fully understand this. Why don't you help me understand how money works, right from the very basics? The first principles, or whatever you call it.
B: I appreciate your willingness to understand. Let me write a series on how wealth works, from first principles.
A: Awesome. I'd be happy to read it.
B: And I'd be happy to write it!