Careem CEO explains the mannequin of delivering groceries with a fee of 0%

The restaurants were at a disadvantage as delivery volumes increased during the pandemic, said the CEO of Careem, a Dubai-based company that provides grocery delivery services.

“It really helped us survive the pandemic, but as I mentioned, the restaurants really have reached the short end of the bar,” said Mudassir Sheikha.

High commission rates per order made it difficult for restaurants to survive and the restaurants did not have good terms with delivery aggregators, he told CNBC’s Capital Connection on Thursday.

“We are realizing that the industry is not in a good place and we are completely changing the business model,” he said.

Careem, which is owned by Uber, announced this week that it is charging restaurants a fixed monthly fee that is listed on their app, rather than a percentage commission.

What we can lose in margins, we will make up in large quantities over time.

Mudassir Sheikha

Careem CEO

In the region, grocery companies charge up to 30% of the value of each order, Sheikha said. This is pushing the restaurant’s profit margins on deliveries, which is “much of their business” as a result of the pandemic.

“We have seen 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 be reduced to 6% or 7%, Sheikha said.

“When the order value goes up, it goes down even more,” he said. “This model will help restaurants keep more of their revenue, improve their offerings and ultimately deliver a better customer service experience.”

Sheikha said this would be a win-win solution.

“If we think long-term … in this business, in this industry, there is a lot of room to keep growing,” he said. “What we can lose in margins, we will make up for volume over time.”

In addition, Careem will benefit from a compelling and competitive grocery delivery service in its app, he said. “That gives people more reason to come to the super app and hopefully do other things in the super app as well.”

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