Earlier this week, a Facebook post by Colin Chen, who runs a local F&B outlet called The Refinery, went viral.
The post highlighted the commission taken in by GrabFood and other delivery apps, revealing that these commissions sometimes may exceed the 30% service fee that companies claim to charge.
Following the viral post, there has been a huge outcry among netizens calling for delivery apps to lower their commission fees amidst the COVID-19 outbreak.
This is especially important in this period where restaurants are facing an unprecedented decline in businesses, and may soon be out of business following this retail pandemic.
To debunk some of the concerns of Singaporeans, Grab issued a response in its blog, detailing where these merchant commissions go towards.
Majority Of Fees Goes To The Rider
According to Grab, merchant commissions range between 25% and 30% on the order value.
In Singapore, the average order value is around $15 to $20, so this works out to be around $3.75 to $5.40 in commission.
This commission is to ensure that the riders who pick up the order and deliver them are properly compensated. Grab gave a further example of the cost breakdown:
- Total order: $18.00
- Delivery fee: $3.40
- Platform fee: $0.20
- Total paid by a consumer: $21.60
Where does the money go?
- To the restaurant: $12.60 (70% of order)
- To the delivery partner: Approximately $8 (delivery fee $3.40 and Grab’s top up of delivery fee + incentive to ensure they earn enough $4.60)
- To Grab: $1 (30% commission of $5.40 – partner incentive $4.60 + platform fee $0.20)
For A $21.60 Food Order, Grab Only Takes $1
From the calculation, most of the fees paid by the customers are split between the restaurant as well as the delivery rider, with Grab only taking a 5% platform fee.
What this means is that, for a $21.60 order, Grab only takes $1.
Grab also clarifies that the riders take home an average of $8 per order, as they will have to travel from where they are to the merchant outlet, wait for the specific food order to be ready, and send it from the merchant outlet to consumer’s doorsteps.
With COVID-19 driving up the demand for food delivery services, there are also misconceptions that Grab may be profiteering.
In response to that, Grab shared that an increase in demand does not directly equate to profits, and GrabFood as a business unit is not profitable.
It’s in our interest for F&B outlets to thrive. Our job is to make sure the delivery process is smooth — including providing merchants with data, marketing and service support, improving our app to make it easy for delivery partners.
Using the example above, the 5% (+/- a few percent for different size orders) of merchant commission that we keep is necessary for us to keep our operations running.– Grab spokesperson
No Changes In Merchant Fees And Riders’ Commission
In its announcement post, Grab further clarified that they did not increase their merchant fees before and after COVID-19. They also did not make any changes to riders’ fees or reduce riders’ incentives over the past few weeks.
Instead, what Grab has begun doing since the outbreak and circuit breaker measure is to introduce new campaigns that will help restaurants survive.
Some of these campaigns include the “Local Heroes” campaign to highlight small F&B businesses, islandwide delivery to help restaurants reach out to new customers, self pick-up orders, as well as online trainings for F&B outlets.
All of these cost marketing and development budget. Presumably this, along with the cost of customer service, comes from the $1 Grab takes from each $21.60 order.
It is sometimes easy to forget that Grab is also running a business, and as with all businesses, Grab may also be hit hard during this circuit breaker period.
Grab cars are probably idling on the streets as Singaporeans are urged to stay home.
With more than 1,500 employees in Singapore, Grab too has fixed business costs such as staff salaries, research and development, customer service and server maintenance, which would amount to millions of dollars every month.
As a business, Grab has successfully built a great platform that most Singaporeans can benefit from.
Thanks to them, we can now enjoy on-demand rides and food at the click of a button, something that used to be a luxury five years ago, but one that may be easily taken for granted now.
Featured Image Credit: Vulcan Post