#AskGrab: Where does the merchant commission go?

Lately there have been many discussions about food delivery – whether it is helping or hurting F&B businesses. Some think the commission that merchants have to pay is too high, and we wanted to share where that money really goes.

Q. How much is GrabFood charging merchants?
Merchant commission ranges. On average, we charge merchants around 25%-30% commission on the order value. In Singapore, the average order value is around $15-$20, and this works out to be around $3.75-$6 in commission.

Q. Who gets the delivery fee?
100% of the delivery fee goes to our delivery partner. We also provide additional incentives that come from the merchant commission.

Q. Is 25%-30% commission too much? Where does the money go?
The commission rate  ensures our delivery partners are fairly paid and enables us to provide platform services for online food ordering and delivery. Here’s where the money goes:

EXAMPLE
(numbers used may vary based on factors shared, using the higher end of commission at 30%)

  • Total order: $18
  • Delivery fee: $3.40 (assuming 2.5-3km delivery distance; delivery fee is customarily based on distance, supply-demand and may vary)
  • 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 $8.00 (delivery fee $3.40 and Grab’s top up of delivery fee + incentive to ensure they earn enough $4.60)
  • To Grab: $1.00 (30% commission $5.40 – partner incentive $4.60 + platform fee $0.20)

In this example, out of the $18 order, the effective breakdown: 

The majority of our merchant commission goes towards paying our delivery-partners. We believe our delivery partners need this boost, to cover their time and efforts adequately.

The remainder, if any, is used to cover operating costs, which includes delivery partner insurance, cashless payment transaction costs (eg. credit card charges of around 1% to 3% of the transaction value), product and service improvements, and backend manpower like customer service.

Q. Why is delivery so expensive? In the above example, the delivery partner takes home $8.00 on average for one order.
For every delivery order, our delivery partners 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 consumers’ doorsteps. 

During this time, they continued to be on the roads delivering food so that our consumers can stay at home. 

Our delivery partners do the hard work for us, hence they take a part of the merchant commission. We hope you agree that it’s fair.

Q. Demand for GrabFood has increased, so you must be profiting. Why can’t you reduce merchant commissions, since people are staying home due to the circuit breaker and restaurants have less dine-in customers?
An increase in demand does not directly equate to profits for us. GrabFood is not profitable and  we don’t “earn” the full commission we receive. We use a large part of it to pay our delivery partners on top and above of the delivery fees they receive.

The F&B sector as a whole is hard hit by Covid-19. Restaurants can no longer provide dine-in services, and delivery has become their main source of income. Like restaurants with rent, utilities and labour to pay, there are costs involved for delivery services too. While we’re not financially able to cover restaurants’ dine-in losses and overheads, we are helping wherever we can. For instance, we’ve been offering zero commissions on all self-pickup orders to our merchants during this period and absorbing all transaction costs. 

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. 

We’ve also rapidly directed resources to quickly train and onboard more merchants and delivery partners, so that more people can use online platforms during this time.

Q. What has GrabFood done to help restaurants during this time of need?
As restaurants no longer have dine-in customers during this circuit breaker period, the most important problem we want to help them solve is customer demand. How can we help to make sure they still get orders, and hopefully more orders than before?

  • Free marketing for small F&B businesses: We’re providing targeted support for the F&B outlets who would need it most. Such as small local F&B outlets. We’re helping more people discover their store. With the “Local Heroes” icon on the GrabFood homepage, these local F&B outlets get additional visibility. We have also included some of these F&B outlets on Islandwide Delivery and have seen a significant increase in the total number of orders for them.
  • Islandwide Delivery: To help restaurants reach out to the widest pool of customers now. As our transport business has declined due to circuit breaker measures, some of our GrabCar drivers have now come on board to do delivery. They can travel further with a car. Islandwide delivery has helped some merchants get 30% more orders, and they’ve even hired more kitchen crew to meet the demand.
  • Zero commission for takeaway / self pick-up orders: Grab is absorbing costs such as cashless processing fees. This means for self pick-up orders, the cost for restaurants is 0. In the first week of April, we’ve seen takeaway orders increase by over 80%. We’re happy to support restaurants who are staying open for people to dabao food!
  • Online training for F&B outlets: They can digitalise and fully capitalise on the GrabFood Capability Development Pack. This will help them improve their online presence and boost sales for the long run.

Q. Did you increase any of your fees or commission?
No, we did not. We are aware of a Facebook post that highlighted an order with a service fee of $14.50 (which is more than the usual $3-$5 delivery fee). In this particular example, the service fee includes a delivery fee of $14.30 (this goes to our driver-partner in full) and a platform fee of $0.20 (this comes to Grab).

The delivery fee is higher than usual because the delivery distance is also much longer. This order is placed with a merchant who has signed up for “Islandwide Delivery” – a long-distance delivery service introduced during this circuit breaker period to provide restaurants, who can no longer serve their regular dine-in customers, the option to deliver to regulars no matter where they stay. Long-distance delivery above 7.5km is assigned to car drivers, and the delivery fee is usually higher in order to cover the higher fuel and vehicle costs.

Q. Some delivery partners have shared that their earnings have also taken a hit. Are you paying delivery partners less now?
No, we did not make any changes to their fares or reduce their incentives.

Delivery partners earn 100% of the delivery fee and tips. To ensure they are compensated adequately for their efforts, delivery partners also get an additional incentive from Grab.

We’re also introducing more product features that help make delivery easier for our partners. For example, batching helps them do more jobs in the same timeframe; another feature has significantly reduced the average distance travelled by our delivery partners by as much as 40%.

The shortfalls of food delivery
We understand that the current food delivery model is not perfect. The cost to serve each order is high. We have been working on optimising the business model even before COVID-19 hit Singapore. We believe that technology can create better efficiencies for us, our merchant-partners, and delivery-partners. This will help reduce the overall cost to serve each order so that it’s sustainable for all parties on our platform.

We will keep trying to maintain a balance that considers the interest of all stakeholders: consumers, merchants, delivery-partners, and Grab.

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