As the #Logout campaign is making waves in the food industry, here is a take of restaurateurs, who believe that units are not in the best of shape and as a result, food aggregators are scavenging from them. The latter, too, are now meeting them half way. By Chahak Mittal
Ordering food online or getting heavy discounts on meals during a dinner at some outlet has changed the definition of how we look at eating out today. And certainly, Zomato and the likes of it have a huge role to play here. However, even though this might have made ordering and deliveries easier and even increased the popularity of the outlets associated with such platforms, it never gave a clear picture of who actually raked in the profits and who stood at the other end.
Well, picture this. A person called X has started his own venture, conceptualising a tiny, cloud kitchen tucked in the corner of the city, which serves the food only through deliveries via various food apps online. He listed his outlet on Zomato and Swiggy. However, a few months later, the advent of a set of new rules by Zomato, which restricted the food preparation time for restaurants to 15 minutes, disappointed X. He and his team prepare the dishes from the scratch and cannot finish working on them in such a short span. Zomato, to keep up the delivery game, also instructed the restaurants that fines would be levied on them if they delay the acceptance of orders or miss the deadlines. This might have benefitted the food delivery service app in increasing its popularity but X certainly believes that such apps cannot dictate what and how he should sell to his customers. Another factor that hurts him and many like him in the industry is the concept of deep-discounting by food aggregators that has made many restaurants realise that they are losing more than they’re gaining. And it has started to hurt the margins.
Launching a logging out campaign against the dine-in schemes, around 1,200 restaurants in major cities have delisted themselves from food aggregator apps like Zomato Gold, Dineout, Magicpin, NearBuy, etc. The campaign is led by the National Restaurants Association of India (NRAI). President Rahul Singh recently said, “It’s decided that all aggregators will rejig their features, which will allow the restaurant-customer ecosystem to detox from the addiction of deep discounts that has crippled the industry.” As per the data, Zomato has said that it would consider redesigning its Gold membership, which allows users to avail one or two dishes or drinks free at the associated restaurants. It will also put on hold its Zomato Infinity offer, which enables the ‘Eat As Much As You Can’ offer. Over the past six days, Zomato has lost one per cent of its restaurant partner base of its membership-based dining-out scheme service, Gold. Zomato founder and chief-executive Deepinder Goyal had tweeted against the campaign, urging restaurant owners to stop it and rather plan out sustainable options together. The tweet also added that the aggregator will make modifications to Zomato Gold, “which will result in a win-win situation for restaurants and consumers.”
The online food delivery and dine-in aggregators, including Zomato, have now agreed to tone down and rationalise their offers and heavy discounts. Ankit Mehrotra, co-founder and CEO, Dineout, tells us that the follow-up decision had been taken after they had an “insightful” meeting with the NRAI and restaurant-owners regarding the campaign. He says that NRAI has acknowledged their “restaurant-first approach,” and points out that over the past eight years, “we have always believed in sustainable discounting. Each of our 18,000 restaurant partners across 17 cities are free to decide their own promotions depending upon the day of the week and the time of the day and we do not believe in enforcing a common discounting strategy.”
He draws comparisons and says that Gourmet Passport acts as a discovery programme for their curated list of 1,700 restaurants, “which restricts the unlimited 1+1 offer to three free dishes every restaurant per year, whereas, other platforms offer 1+1 every day of the year.” He says that however, they are currently in constant discussion with restaurant-owners to create a “win-win” situation for all.
Zorawar Kalra, founder and managing director at Massive Restaurants, says, “In an industry with already razor-thin margins, the deep discounting being offered by some of the aggregators creates huge pressure on the industry.” He points out how the adoption rates were initially high to get on to this aggregate of platforms due to competitive pressures. “The picture that was initially shown was that of an increasing size of the industry. However, what started out as something that would increase footfalls to the restaurants and in general, increase revenues, enhance the guest experience, has turned into massive discounts that render unprofitable sales. In many cases, it ends up costing the restaurant to service these offers. The restaurant lives and breathes due to its patrons and will go to the ends of the earth for them. We believe in a sustainable ecosystem whereby aggregators help increase the size of the industry in a sustainable manner by focussing on quality rather than discounting,” he says and suggests that only then can restaurants and aggregator platforms jointly thrive.
Savar Malhotra, managing partner of The Embassy Restaurant, Connaught Place, believes that it is a great initiative taken by NRAI and they are supporting the campaign because “we feel aggregators are misusing their powers and dictating business terms to us.”
Certainly, aggregators have built their products without taking into count any inputs from the restaurants. “They need to understand that the restaurant is the star. They are using our products to sell discounting addiction to the customer which is dangerous. Addiction of any kind is poor and especially, if you give discounts, it only has a negative effect on the industry in the long run,” says Kalra and goes on to add that a typical margin of the restaurant is 15 to 18 per cent and some of these discounts amount to more than 25 to 30 per cent. Says he, “And sometimes it is even 50 per cent, which means the restaurant is losing money every time they serve a customer, which comes through one of these platforms.”
Pointing towards the GST reforms, where the input tax credit was removed from the restaurant industry, he says, it had even bigger “delusionary and deflationary pressure” on the industry and as a result, restaurants are finding it difficult to stay afloat. “One also needs to understand that the industry is the second largest employee of human capital in the country and contributes to almost two per cent of country’s GDP. A few years ago before these aggregator platforms came on, their growth graph was good. The industry was growing at 21 per cent annually, which means every four years, it was doubling and margins were good,” he says. It was the time when customers used to be happy when they were given a “complementary dessert or a cocktail.”
However, today, the difference has come. Even if the customers liked the place but didn’t get a sop, they would walk out. “And restaurants simply cannot afford this. If the margin is 15 per cent, how can I pay a 25 per cent discount? It would mean I am losing out 10 per cent on every dish that I serve,” adds Kalra.
Talking about how they can redesign their schemes, Malhotra says, “Restaurants don’t have heavy margins to afford the ‘buy one get one free’ concept. Also, we are here to make money and not to work for aggregators. Hence, any scheme that will be introduced should take the cost of products in account.”
Kalra suggests that the restaurants can serve better only if these platforms “do not come in the way” because Indians love eating out and it’s always been a source of entertainment for them. He says, “We spend the highest amount of disposable income in eating out than any other form of entertainment. The restaurant industry is 40 times larger than Bollywood. The removal of discounts might create certain interim problems of some short-lived issues, where people who were addicted to discounts might start eating out less. But this will definitely change because people inherently love going out. Moreover, since the restaurant will be more profitable, it will be able to focus more on high quality rather than dilute quality to serve the discounted customers.”
However, there are two questions which arise here. First, if these platforms are completely put away, many people and delivery partners would be left unemployed. What would happen to them? Second, there are many food outlets which had never associated themselves with these food apps. They have run on their original prices. Why did the registered restaurants then accept them in the first place, knowing that this might land them in losses?
