New Delhi: For a little under two years now, Rajat Rekhi has been doing brisk business selling West Asian cuisine from inside a tiny kitchen tucked away in south Delhi, which only delivers via online platforms. In December 2017, Rekhi soft-launched his kitchen selling meze platters and kebabs through Zomato, and later listed it on Swiggy. Buoyed by healthy demand for the food at upwards of ₹1,000 per order, Rekhi has been working on another cloud kitchen concept to sell burritos and wraps. However, a set of new rules put in place by food aggregator Zomato that now require restaurants to restrict food preparation time to 15 minutes has stumped Rekhi. “We make food from scratch and if you want food fresh-to-table… sorry, it cannot happen in such a short time,” he said.
Rekhi said he is now looking for alternatives beyond Zomato to list his new brand. While his business has benefited from the popularity of food delivery services, he said aggregators are increasingly dictating the terms of his business. “Simply put, they cannot tell me what food I will sell to my customers.”
Disgruntled restauranteurs like Rekhi are now at the forefront of a fight back against food aggregators. Over the weekend, a slew of restaurants across India began delisting from dine-in apps that offer membership-driven discounts—such as EazyDiner (Prime), Zomato Gold, and nearbuy—in a “#Logout” movement led by the National Restaurant Association of India (NRAI).
Five years ago, there were only a handful of online food aggregators. Today, the industry is a behemoth that ferries 80 million orders each month in over 500 cities. In all, food aggregators like Zomato, Swiggy, and Uber Eats deploy over 400,000 delivery boys and girls daily on the ground in the country. Ordering food online is convenient and restaurants gain from the extra visibility. But who is raking in the profits? Five years into the food delivery boom, many restaurants have now come to the conclusion that they are losing more than they gain. The biggest irritant is the steep discounting game which has started to hurt margins.
If that model sounds familiar, you just have to recall the relationship between taxi aggregators Uber and Ola with its drivers, and hotel aggregators Oyo and Booking with member hotels.
Profitability was a central concern for over 1,200 restaurants that launched the #Logout movement, since the number of customers opting for “one plus one” bargains on drinks and food on their in-restaurant bills is rising. Several other concerns have been simmering for a while, say restaurant owners. The share of the delivery business in overall restaurant revenues is close to breaching the 10% mark. Given ordering food online is an indispensible part of daily life for many Indians, there are fears of a tipping point. That is fuelling urgency to reset the balance of power between restaurateurs and food aggregators. On Tuesday, the two warring sides agreed to a tentative truce, but the central concerns will remain.
Restaurants—both big and small—say they are increasingly finding themselves being coerced into accepting terms and conditions favourable to aggregators. These include: funding a large part of the discounts, using only the aggregators’ fleet to fulfil delivery, a drastic reduction in meal preparation time, and complete non-transparency over how in-app recommendations work and what restaurants can do to get recommended more often.
Then, there are other concerns with regard to customer data—some restaurant owners that Mint spoke to claimed that some large aggregators refuse to share data on who their customers are. This, they added, is helping the aggregator build a vast database of consumers’ dining habits and even help expand their own business in what can be seen as a conflict of interest by restaurants. “They are shutting us off from our customers… that’s how loyalty is built,” said New Delhi-based restaurateur Thomas Fenn who runs Mahabelly.
Moreover, aggregators have now also entered into other businesses such as opening up of dark kitchens (which only prepare food for delivery) or owned-food brands, apart from exclusively serving cuisines that are favoured among diners in particular areas of a city where demand for such food is high—which is, again, seen as a direct threat to restaurant chains.
Swiggy has launched its own cloud kitchen business that allows third-party restaurants to use its facility to prepare food. The company also has its own private food brand The Bowl Company. A spokesperson for the Bengaluru-based company said it has launched its own private brands to fulfil unmet consumer needs. “Over two years ago, we saw that single-use ordering was a gap in the market and created The Bowl Company. Ultimately, the objective is to give more choice to consumers,” said the spokesperson. Despite repeated requests, Zomato did not reply to a Mint questionnaire. Uber Eats declined to participate in this story.
The agitation against aggregators comes at a time when restaurants are feeling pressure on dine-in sales due to a combination of higher rental prices, increasing competition in the eating-out market, a general slowdown in consumer sentiment, and the removal of the input tax credit under the revised goods and services tax regime that has inflated the cost of running a restaurant.
For decades, India’s restaurant business was largely built on dine-in as well as deliveries in the neighbourhood, but a surge in smartphone penetration and cheap mobile data plans has helped fuel access to food ordering apps. Backed by some of the world’s largest venture funds, Zomato, Swiggy, and Uber Eats have disrupted the market. Over 90% of India’s organized food services market is dine-in, with delivery now at 8% (estimated sales of ₹12,140 crore), according to a 2019 food service report compiled by the NRAI. Food aggregators have, in a sense, emerged at an opportune moment. But over time, as online food orders have started to surge, what was supposed to be a symbiotic relationship between the two booming sectors is turning sour.
Ankur Pahwa, partner and national leader—e-commerce and consumer Internet, explains that even in markets such as the US and China, such issues between food ordering apps and restaurants exist. “The ground reality is that food delivery apps have helped bring in behavioural change in customers along with generating demand,” he said, adding issues such as the ones that have come up need to be brought to an equilibrium as both parties would want to cash in on a trend which refuses to slow down.
Fact is, customers are now used to ordering in and are moving away from dine-in, giving an upper hand to aggregators when it comes to running the market.
Watch Video: The revolt against food delivery apps
Participation in (the) marketplace is conditioned on us participating at a price they (aggregators) tell us,” said Mahabelly’s Fenn, who logged into food aggregator Swiggy five years ago. When he first signed up on the platform, he paid a 6% commission to Swiggy—today this has shot up to 18%. “We are happy to take their services, but then, you have to come to a middle ground which makes sense for the restaurant and the aggregator. Unfortunately, that is not the case today,” he said.
Fenn, who still uses his own fleet of delivery boys to fulfil some online orders, said sometimes a surge in the volume (of orders) does not translate to a similar jump in revenues as these orders have no minimum cap—which goes to say that orders trickling in via these apps could be as low as ₹99 and paying commission on such a small amount is a drain on a restaurant’s margins. “They are able to do it because they have an unlimited pool of cash which they are willing to burn for the sake of customer acquisition,” he said.
Depending on the food aggregator and what services restaurants avail from them, restaurants pay anywhere between 10-30% of the value of each order as commission to aggregators. This depends on whether restaurants use the delivery services provided by aggregators (Swiggy, for instance allows a majority of restaurants to only use its own delivery fleet; Zomato has begun adopting a similar model). According to restauranteurs, while such apps have expanded the reach, it has now begun to hurt footfalls in outlets (or dine-in business) as discounted in-home deliveries are cannibalising out-of-home eating occasions.
“As delivery gets a lot more focused on aggregators, we are seeing behaviour change happen among customers,” Pratik Pota, chief executive of Jubilant FoodWorks Ltd—that runs the master franchisee of Domino’s in India—told investors during a recent earnings call, adding that this has resulted in added pressure on the dine-in business.
Restaurant often participate in discounts to increase customer reach. Initially, the aggregator foots the bill, but eventually the burden of discounting is left entirely on the restaurant, two restaurant owners Mint spoke to said. “They tell us that if we don’t participate (in discounting), then competition will come in and therefore our visibility will get impacted,” said Vikram Mehra who runs a dark kitchen, Fitgrub. “We’ve seen instances where if we don’t participate in discounts, our visibility drops in the listings and that of a competing brand who is willing to discount goes up,” Mehra added.
A Swiggy spokesperson, however, maintained that the company is focused on creating sustainable value for both restaurant partners and consumers, without playing one against the other.
However, those like Sahil Sagar, who runs two bars in the national capital, are hardly convinced. He backs the #Logout movement and is contemplating a pull-out from membership-driven discount apps sooner than later. “Today, every person who walks into your restaurant is asking for discounts because these aggregators have made them so used to discounting.” While such deals and offers work well for new establishments and help them draw initial footfalls, “we don’t need them 24×7″, he said.
Aggregators, however, insist such deals will drive up overall volumes and costs will even out in the long run. Even if that were true, the question is: who will pay for these discounts? Take, for instance, to be part of Zomato Gold—a paid membership that gives users access to offers such as complimentary drinks and food—restaurants have to pay a one-time fee of roughly ₹25,000- ₹45,000. But the complimentary services are, in turn, borne by the restaurants.
In a response to Mint, Swiggy said the company is constantly working with restaurant chains to help them expand their business outside their cities. Over the years, the food aggregator has bought 200,000 square feet of real estate in large cities to accommodate 500 restaurants through its Swiggy Access programme that helps small-time restaurants expand into new cities and neighbourhoods.
Whether that argument of a mutually beneficial partnership convinces the restaurant industry or not, it’s clear that some restaurants have seen the writing on the wall. And their voices are getting shriller.
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