Stock - Gheed El Makkaoui (Careem)
Gheed El Makkaoui, Head of Food at Careem, "There are many learnings we take from the ride-hailing space that we’ve leveraged to evolve our food and grocery operations." Image Credit: Virendra Saklani/Gulf News

Dubai: Flexibility on payments – that was another lesson individuals and businesses learnt well from the pandemic year. Whether it was more time to pay off a bank loan or rent, or credit owed to suppliers, 2020 was about making some sort of adjustments.

Some of that has filtered into the local F&B space, with restaurant operators given more flexibility from order-and-delivery platforms on commissions. Which is much better than the flat 25-30 per cent commissions that F&B businesses had to shell out on each order received and delivered last year, and which became such a sticky issue for the trade.

Some of the credit for altering the status quo goes to Careem, the ride-hailing company that later ventured into the food delivery space as well. It was Careem that, among the major service providers, dropped the commission structure for a more freewheeling arrangement with F&B businesses from February last.

“Careem was taking a commission of any sale of around 25 per cent,” said Gheed El Makkaoui, who heads the food operations at the company. “The industry benchmark is somewhere between 25-30 per cent. Careem stopped taking a percentage commission and introduced a zero-commission model.”

In with the new

The new version gives restaurants the option to choose between a fixed monthly fee, a fee for the processing of all digital payments, or the actual cost of delivery minus what the customer has already paid is charged to the restaurant.

We have seen several players in the market move towards more flexible commission models for restaurants

- Gheed El Makkaoui of Careem

Savings in real terms

But what did all these options mean for a restaurant in terms of savings on delivery commissions? “For small-value orders, restaurants will keep about 5 per cent more of the value,” said El Makkaoui. “For larger orders, the difference grows dramatically with restaurants keeping over 17 per cent more by switching.

“Depending on the size of the business and the volume of orders, the merchant can choose from 4 bundles that suit their business needs. That way the partner pays a fixed monthly fee that doesn’t change with the increment of orders, giving restaurants more control and the ability to do better financial planning.”

Food delivery guy stock
Just an order away - the food 'aggregator' business in the UAE rocketed to unprecedented growth numbers during 2020. That hot streak continues... Image Credit: Supplied

Pressure on other ‘food aggregators’

According to F&B businesses, since Careem – and noon – brought in changes to their commissions, other order-and-delivery service providers – or ‘food aggregators’ in industry lingo – have gone on the same route.

“We cannot comment about other aggregator strategies - however, we have seen several players move towards more flexible commission models,” said El Makkaoui. “Such changes are great for the industry as a whole. The food delivery space is just at its early stages and witnessed impressive progress over the past two years.”

As in online shopping, food orders routed through apps and online portals was the big winner in 2020, as residents re-set their lives amidst the COVID-19 safety rules. “Throughout the pandemic-related lockdown, we saw a significant increase in demand for delivery - and these changed buying habits have stayed ever since,” said Jonathan Melia, Vice-President of Digital & Marketing at the Hospitality Division of Kuwait’s Alshaya Group.

“Today, with more customers aware of what is on offer, our food delivery orders are roughly double what they were 18 months ago, and still expanding.”

We always aim to adopt business models that provide a ‘win-win’ for both customers and ourselves. The zero-commission model represents exactly that - for our big brands with high-volume orders, fees have significantly decreased

- Jonathan Melia of Alshaya Group, which operates the PF Chang’s and Shake Shack franchises among other F&B brands.

Need for change

While orders poured in, restaurants found that shelling out up to 35 per cent on orders was not helping them much – since they were starved of in-dining patrons and relying exclusively on orders. According to the Careem official, the move to rework the commission arrangement has paid off for the company. “The new model drove extremely positive sentiment among our restaurant network and encouraged a wide scale of merchants to join the online delivery space.” (Careem has since rolled it out in Saudi Arabia and Qatar.)

And even help with exclusive deals with restaurant partners, such as the one with Regulus. “When Careem presented the new zero-commission structure for its food partners, we ran the numbers, and they worked to aid us much more than the commission model did,” said Dave Luis, Head of Marketing at Regulus. “We put the new structure into place and found our costs for Careem had a decrease from around 25 per cent the cost of sale to around 8.8 per cent on average per month.”

If more F&B businesses can vouch for that sort of savings, a 35 per cent commission can be consigned to the dustbin. Restaurants, consumers and delivery companies will be the winners.