BHUBANESWAR: With online food delivery platforms aggressively scaling up their delivery fleet to cater to the explosion of online orders and their expansion to new cities, traditional quick serve restaurant (QSR) players such as Domino’s and McDonald’s are having a hard time managing delivery costs.
The cost of delivery has been rising across the board — food tech apps, traditional QSRs. To address the concerns around mounting delivery costs, players such as Zomato and Swiggy have resorted to various measures such as engaging female delivery personnel, hiring from Tier-II and III cities, promoting the pick-up option and weighing drone deliveries. These companies are also trying to woo employees with higher wages and other benefits. On the other hand, slow-moving traditional QSRs are battling rising salaries and attrition.
At its latest earnings call, Jubilant FoodWorks said that the company was faced with mounting pay rates and retention issues. It also announced that it would terminate contracts with third-party aggregators in order to take full control of the end-to-end pizza delivery experience for its customers. While the company claims it has pulled out of food delivery platforms, Zomato and Swiggy continue to show Domino’s outlets in their search results. “We believe this move would put Jubilant’s margins under pressure in the near term pushing up costs,” said Abneesh Roy, senior vice-president at Edelweiss Financial Services, in a note.
Similarly, the delivery costs for Westlife Development (McDonald’s) are also likely to inch up further as competition for delivery manpower heats up. Roy believes that these companies will have to think of new tactics, while maintaining appropriate incentives for delivery personnel to keep costs in check and the business sustainable. Employee costs make up 15-20 per cent of QSRs’ sales and the delivery personnel in some of the food aggregators earn up to `35,000 per month.
Recently, Swiggy has raised $1 billion, which would largely be employed to boost its delivery operations. It announced that it would add about 2,000 female delivery personnel by March 2019. Zomato has recently acquired a drone delivery start-up TechEagle as it explores drone deliveries in India.