First tryst with profitability

Find out if food aggregators have found a cure to their loss-making curse

- Asif Ali, Mithilesh Bhaumik and Swastik Sharma

The notoriety of food aggregators as cash guzzlers is well-earned. Many believed that the model itself was doomed to burn through wealth for years, dangling the prospects of profit in front of the business like a sadistic joke.

Food aggregators' primary revenue sources are two: advertising and commission. Restaurants, in hopes of getting higher traffic, list on aggregator apps and pay them advertising fees. The food aggregator takes care of the delivery and charges a cut in the profit per order as commission. Sounds simple enough.

But here's the conundrum. The restaurant business operates on wafer-thin margins. So the earnings from the commission per order are often barely enough to cover the fuel costs and the delivery personnel charges. Should aggregators attempt to raise these commissions, restaurants would opt out of their services. With no restaurants onboard, users would dwindle. Furthermore, in a fiercely competitive food delivery landscape, drawing users necessitates enticing them with discounts, further squeezing margins.

Initially, many focus on volume as the solution. Spend capital, expand rapidly, and profits should follow. However, with losses on every order, more orders don't necessarily help. The testament to this is what happened during Covid. Food aggregators globally witnessed a demand boom.

The topline shot up and yet profits remained elusive. In fact, most resorted to innovative techniques to conceal losses, such as the infamous adjusted EBITDA.