Careem says restaurants got the ‘short end of the stick,’ cuts commission for food delivery
Eateries have been at a disadvantage as delivery volumes increased during the pandemic, said the CEO of Careem, a Dubai-based ride-hailing firm that provides food delivery services.
“It really helped us survive the pandemic but, as I mentioned, what happened was the restaurants really got the short end of the stick,” Mudassir Sheikha said.
High commission rates per order were making it difficult for restaurants to survive, and eateries were not on good terms with delivery aggregators, he told CNBC’s “Capital Connection” on Thursday.
“We recognize that the industry is not in a good place, and we are changing the business model completely,” he said.
Careem, which is owned by Uber, this week announced that it will be charging eateries a fixed monthly fee to be listed on their app, instead of a percentage-based commission.
What we may lose in margins, we will make it up in volumes over time.
Mudassir Sheikha
Careem CEO
In the region, food delivery firms charge up to 30% of the value of each order, Sheikha said. That squeezes the restaurant’s profit margins for deliveries, which accounts for “a lot of their business” as a result of the pandemic.
“We saw many restaurants go under, and even the restaurants that survived are struggling to survive,” he said.
New business model
Under Careem’s fixed fee model, the effective commission can come down to 6% or 7%, Sheikha said.
“If the order value goes up, it comes down even more,” he said. “This model will help the restaurants keep more of their earnings, improve their offerings, and eventually end up with better service experience for customers.”
Sheikha said this would be a win-win solution.
“If we take a long-term view … on this business, on this industry, there’s a lot of room to keep on growing,” he said. “What we may lose in margins, we will make it up in volumes over time.”
Additionally, Careem will benefit from having a compelling and competitive food delivery service on its app, he said. “That gives people more reason to come to the Super App and hopefully, do other things on the Super App as well.”
